NZ all talk, no action on diversifying exports beyond China

Yangshan Deepwater Port, Shanghai. Photo / Getty Images

There has been more talk than action in recent years when it comes to New Zealand exporters diversifying away from China.

Exporters as a whole have continued to focus on furthering their reach into China, despite the risks associated with putting a number of eggs in the basket of an authoritarian superpower.

The portion of New Zealand goods exported to China (by value) sat at 30 per cent in the year to April, according to Statistics New Zealand.

This was on par with 2021, and up from 28 per cent in 2020, 25 per cent in 2019, 23 per cent in 2018 and 3 per cent in 2000.

Goods exported to China were worth $20 billion in the year to April.

New Zealand is heavily reliant on China for its three largest categories of exports. Around 40 per cent of the country's dairy, beef and sheep meat exports go to China. Meanwhile, 55 per cent of New Zealand's forestry exports go to China.

These portions have been on an upward trajectory, particularly following 2008, when New Zealand and China signed a free trade agreement (FTA).

The data suggests exporters see the benefits of getting good prices for selling their products to a large market, in relatively close proximity to New Zealand, as outweighing the risks.

The questions are, how does the latest escalation in geopolitical tensions change exporters' calculations of risk?

How secure are they feeling in their relationships with their Chinese clients when New Zealand is strengthening ties with the United States over fears China's heightened presence in the Pacific is posing a security threat?

The trade specialists the Herald spoke to noted the situation differs across companies and products with differing necessity to China.

"I don't think there is one meat or dairy exporter that isn't a bit worried," government relations consultant Charles Finny said.

However Finny – a lead negotiator for New Zealand ahead of it signing an FTA with China – said the two nations continue to enjoy a symbiotic relationship.

China needs what New Zealand produces, so is interested in maintaining a trade relationship distinct of its more strained relationship with Australia.

This is even more so the case now that Russia's invasion of Ukraine (a major producer of grain) is putting pressure on the security of food supply.

Finny pointed out that when Chinese-Australian relations got frosty, China boycotted Australian wine exports – a commodity hardly of necessity to its economy.

Similarly, when South Korea welcomed more military support from the United States pre-pandemic, China boycotted South Korean tourism.

Finny said he'd be worried about over-exposure to China if New Zealand exports to China hit the 50 per cent mark.

Nonetheless, he said individual companies should be mindful of diversification. This is not only salient from a geopolitical perspective, but also to protect themselves against the risk of a black swan event, like a pandemic, affecting China.

Indeed, the effects of China's heavy-handed Covid-19 restrictions, which have contributed to clogging up its ports and slowing its economic growth, are reverberating across the globe.

New Zealand Forest Owners Association chief executive David Rhodes likewise had an appreciation for diversification, recognising a black swan event could create a mess.

However, he said it was hard to ignore China – a "big hungry player" on New Zealand's doorstep.

He said something serious would need to happen for China to turn down New Zealand logs.

Rhodes said global wood supply was already constrained, even before Russia's invasion of Ukraine, with restrictions increasingly being put on the harvesting of forests.

He said this was occurring as the demand for fibres was rising.

Rhodes recognised New Zealand exporters could focus more on the European market. But the "tyranny of distance" makes China relatively more attractive.

He also saw China's growing middle class, which has increasingly high expectations around living standards, supporting demand for New Zealand products.

Dairy Companies Association of New Zealand executive director Kimberly Crewther noted the Chinese-New Zealand FTA has supported trade with China, while New Zealand exporters are still charged tariffs in a number of other markets.

She characterised the New Zealand-United Kingdom FTA, signed earlier this year, as "significant", noting it will see all tariffs on New Zealand dairy exports removed in five years' time.

New Zealand is also still negotiating an FTA with the European Union.

Crewther said the Government is helping broaden opportunities for exporters, but, "we would always like there to be more and quicker".

She also pointed out China isn't just a buyer of New Zealand dairy products, but is also an investor in a number of New Zealand dairy companies.

Crewther echoed comments around New Zealand being a leading supplier of the types of products China wants.

She also noted trade can be disrupted for a number of reasons beyond geopolitics, and hoped geopolitical discussions could continue to happen alongside free trade.

The key, in Crewther's eyes, is maintaining a strong global trading system.

Commenting on the value of New Zealand's FTA with China, ANZ agricultural economist Susan Kilsby said it also gave New Zealand exporters access to the right people in China.

She noted the lure of China's size, geography and the prices it's willing to pay.

Kilsby said China's focus on ramping up domestic food supply was limited by the amount of arable land it has available.

If China decided to boycott New Zealand's dairy exports, it could turn to Europe or the United States. However, Kilsby noted China might struggle to find a replacement for New Zealand whole milk powder.

As for beef, she said New Zealand was a relatively small player alongside other countries that export to China.

When it comes to logs, China can turn to Eastern Europe, Russia and Uruguay. However, she said Russia is focused on processing timber, rather than exporting logs. Canada is also a log exporter, but it charges more than New Zealand.

Kilsby concluded trade relationships vary across companies. She noted the likes of Fonterra and Zespri employ a number of locals in China.

Coming back to Finny, he cautioned China has become more "muscular", "nationalist" and "perhaps more expansionist" under Xi Jinping's leadership.

He said exporters shouldn't assume they're going to make lots of money in China.

The country has multiple markets – what works in Shanghai might not work in Beijing. It remains a difficult place to do business.