The Prime Minister of New Zealand recently announced an upgrade to our free trade agreement (FTA) with China, heralding it as “the best free trade agreement China has with any country”. This concludes three years of negotiations of the agreement that was first established in 2008.
The upgraded FTA will improve access and reduce compliance costs for our exporters into China. This includes, for example, faster border release of fresh food products. Tariffs on various paper, wood and dairy products will also be reduced or removed over time.
This marks a significant milestone in the emergence of China as New Zealand’s leading trade partner. It also comes at a time when we are witnessing our traditional trade partners (i.e. the United States and Britain) push back against globalisation; the US trade war with China and Brexit are both symptoms of this change in attitude.
The chart below shows the contribution from major trading partners to our export growth through time. It highlights the significance of China, particularly in the decade post the signing of the FTA.
Major Trading Partners contribution to total NZ export value
The Chinese economy has grown rapidly, with GDP now 11x larger than what it was in 2000. A subset of this growth which has especially benefitted our exporters is private consumption.
Increasing household wealth and growing consumer confidence have fuelled a greater propensity for discretionary spending. Chinese consumers have also become more discerning, with an increased willingness to pay for quality and transparency, and a growing enthusiasm for foreign products.
New Zealand has a clear competitive advantage in the production of primary food products, with a stellar reputation for food safety and quality. Furthermore, our proximity to China means we can deliver products into market quickly, without compromising on freshness. This is particularly relevant for seasonal products, where competition is limited to other Southern Hemisphere producers.
The chart below on the left shows the significant growth of primary exports1 going to China over the past decade. The chart on the right shows the relative values of these categories in 2018.
The China trade relationship has created success stories in manuka honey, infant milk formula and kiwifruit. The internal protein supply issue in China, created by the African Swine Fever, is a perfect situation for New Zealand protein producers and another real-time example of the opportunity our unique position presents.
And the future looks bright. The Economist predicts nearly 35% of the Chinese population (around 480 million consumers), will be upper middle-income or high-income2 by 2030. This compares to approximately 10% at present and should underpin significant growth in demand for New Zealand exports for years to come.
Opportunities to invest in the future will lie in creating markets for new products in China, and ongoing development of existing markets. Our improving trade position ensures we are well placed to succeed with this.
1 Major primary export categories in New Zealand include agriculture (including dairy and meat & wool), forestry, horticulture (including viticulture) and seafood.
2 Having personal disposable income of at least US$10,000 p.a.