Tim Gibson: Breaking down the barriers

Holes in some of the myths about business attitudes towards China have been exposed by a survey of exporter confidence.

Our businesses are much more positive towards the country many portray as the bull in our shop than you may have been led to believe. But at the same time we can't ignore the fact that China does raise tough issues for a number of our domestic and export-focused businesses and these need to be dealt with.

The DHL Export Barometer, which surveyed 300 long-standing exporters during September, showed that support for a free trade agreement (FTA) with China is right up there with the US. Asked how an FTA with China would affect their businesses, 52 per cent of respondents were positive compared with 57 per cent for the US.

And among manufacturers - who already face real challenges from China - there was strong support for the agreement with 72 per cent saying it would have a positive impact on their business.

When asked how they felt various markets would perform over the next year, 58 per cent said they expected export orders from China to increase - first-equal with Australia.

The positive attitudes towards China shown in the September barometer are backed by a more detailed examination of business attitudes regarding China held during March and April of this year.

Of the companies currently exporting to China surveyed in this earlier barometer, only 15 per cent would advise other companies against entering the Chinese market.

One in three said they faced no barriers when entering the China market. The biggest obstacles were strength of competition (19 per cent), different business practices (17 per cent), the regulatory environment (12 per cent), language (10 per cent), and setup costs (3 per cent).

There was an interesting split in attitudes regarding the China FTA among companies who were exporting to China and those who weren't. Eighty-two per cent of those already in China believed the FTA would have a positive impact against 53 per cent of those who weren't.

To some extent this is not surprising, but it may also indicate a fear of the unknown. New Zealand Trade and Enterprise (NZTE) found a similar situation in attitudes towards exporting to the Gulf states where the "physical and psychological distance" meant companies looking from the outside saw greater barriers than those who were actually there.

The myths about trading with China have some basis in reality.

Our fourth-largest export market (worth $1.52 billion in the year to the end of September) is a perplexing mix of opportunities and challenges.

There are large gains to be had for the New Zealand economy. A joint study by New Zealand and China estimates that from 2007 to 2027 our exports to China will be between 20 and 39 per cent higher if an FTA is in place than they would be otherwise.

However, for our exporters it's a tough market to break into and be successful in. China has its own particular challenges around language, culture and business practices.

And at home the might of the Chinese economy, which is large enough to shake up the superpowers, is already changing the way we do business. To survive, New Zealand businesses have had to move up the value chain away from low-value goods and services, adopt new business models such as clusters, increase productivity and form international business partnerships.

The DHL Export Barometer, which was developed in consultation with NZTE also reveals that our businesses are polarised over China like no other country. For example, 18 per cent of respondents say the FTA will have a negative impact on their business compared with just 5 and 7 per cent for the US and Japan respectively.

China, in line with other Asian markets, is not seen as particularly lucrative. Forty-eight per cent of respondents named Australia as their most profitable market compared with just 18 per cent for China.

Some of this can be explained by geography and history. Australia is a close neighbour and a mature market whereas China is half a world away and a relatively young market in which our exporters are often still incurring set-up costs.

The belief that the China FTA will not be good for business is much stronger among manufacturers than other sectors. Twenty-eight per cent of manufacturers feel the FTA will have a negative impact compared with 5 per cent in tourism and 16 per cent in agriculture, food and beverages.

Though these concerns must be addressed, the barometer shows that most New Zealand businesses are looking towards China with a positive frame of mind.

* Tim Gibson is chief executive, New Zealand Trade and Enterprise.