New Zealand leads the way in trade with China

Much has been made of ChAFTA across the ditch, the much heralded free trade agreement between Australia and China, but New Zealand was the first country in the world to enter into a similar agreement with The Middle Kingdom, way back in 2008, and has been enjoying the benefits ever since.

China is now New Zealand’s single largest trading partner (having beaten Australia into second place back in 2013) and given that 1 in every 6 people on earth lives in China, the country is likely to remain a key trading nation for many years to come. 

Air New Zealand and Air China recently indicated their desire to create a closer working relationship and their new alliance should boost inbound visitor number from China, even though China is New Zealand’s second largest visitor market already.  But with GDP still growing at more than 7% per annum and a burgeoning middle class, making New Zealand even more desirable to Chinese visitors can’t be a bad thing. 

For the first time in December of 2015, the value of goods and services exported to China topped $1billion with dairy, wood, wool and meat topping the list of export products, but this result misses the underlying trend of a falling export value mid-year as dairy exports and milk powder specifically fell away quite dramatically.

And this demonstrates the conundrum for New Zealand in having such a significant trading partner – how much is too much in terms of our exposure to China’s economy?  Or is there a too much at all?

There is much debate amongst lauded economists as to firstly the validity of the GDP growth numbers that China releases and more importantly, the likely impact on global and therefore New Zealand’s economy, of a slowing Chinese economy.  Forecasts vary widely from the gloom of George Soros prediction of a second global financial crisis to a simple slow down for the rest of 2016.

Either way, whichever economic prediction comes to fruition, there can be little additional downside in New Zealand’s economic connectivity to China, but plenty to gain in balance of trade.