China passes US as NZ's No 2 market

China overtook the United States as New Zealand's second-largest export market last month on higher demand for milk powder, wood and wool.

Shipments to China surged 37 per cent to $3.76 billion in the year ended February 28, Statistics New Zealand said. Sales to the US fell 22 per cent to $3.6 billion. Australia is the nation's biggest market, buying $9.27 billion of goods in the year.

Demand from China, the world's fastest-growing major economy, is buoying overseas sales that make up 30 per cent of New Zealand's gross domestic product.

Reserve Bank Governor Alan Bollard this month said the growth of China and Australia as export markets was insulating New Zealand from weakness in other regions such as the US, underpinning the nation's recovery from recession.

"Just imagine how bad it would look like if China fell off the rails," said Stephen Toplis, head of research at Bank of New Zealand in Wellington.

"Don't forget Australia is itself heavily dependent on China. So if China went down the gurgler it would not only take direct exports down, it would take the indirect exports as well."

China's economy expanded 10.7 per cent in the fourth quarter, the fastest pace since 2007. Premier Wen Jiabao's Government implemented a 4 trillion yuan ($586 billion) two-year fiscal stimulus and unleashed a record 9.59 trillion yuan credit boom last year to help shield the economy from the world's worst postwar recession.

China buys about a fifth of Australia's exports, led by iron ore and coal, helping New Zealand's neighbour to skirt a recession last year.

Bollard on March 11 forecast New Zealand's economy would grow about 4 per cent this year. GDP rose 0.4 per cent in the fourth quarter from a year earlier, said Statistics NZ.

Sales of logs, milk powder and wool to China rose last month, the Government agency said.

About a fifth of all exports to China are milk powder and the country is the largest customer of Auckland-based Fonterra, the world's largest dairy exporter.

Toplis said the growth in shipments to China had been spectacular and, although unlikely, the possibility of it overtaking Australia could not be ruled out.

"Australia is likely to remain our number one trading partner but in 1991 China bought less than 1 per cent of New Zealand's exports, and today is takes about 9.5 per cent," he said.

"You wouldn't expect the increase to be as fast but you would expect it to rise."

- BLOOMBERG