Key trade partner’s economic troubles

A109 Light Utility Helicopter flight with mayor Gisborne City from the air in November 2023.

Opinion

The economy of New Zealand’s biggest trading partner has been showing problems for some time and slipped into deflation for the first time in more than two years in July — consumer prices fell 0.3 percent year-on-year — as slowing domestic spending puts pressure on the post-Covid recovery for the world’s second biggest economy.

China’s exports also fell 14.5 percent in July from a year ago, the steepest fall since the early days of its pandemic response in February 2020.

New Zealand has a $2.5 billion trade surplus with China — of total two-way trade of $40.3bn last year — thanks mainly to our top exports of dairy, meat and wood products. China takes nearly 30 percent of our total exports.

China has implemented a number of policy measures to try to shore up its economy after its anticipated post-Covid recovery failed to spark.

The government relaxed borrowing rules, lowered mortgage rates for first-home buyers and gave tax relief to small businesses, but is feeling the effects of interest rate rises by the US Federal Reserve and central banks in Europe and Asia.

Financial commentators say the authorities will have to consider large-scale stimulus or tax cuts to revive the economy.

US President Joe Biden has called the situation “a ticking time bomb”.

A delegation of exporters led by the head of the Auckland Business Chamber Simon Bridges is in China now looking for new customers.

Bridges, looking much more comfortable in his new role than he did when leading the National Party, believes the situation is not all doom and gloom. But he did acknowledge the faltering Chinese economy was already having an impact on New Zealand’s primary industries and also on tourism.

However, he is optimistic — saying China is still a very big market and there are opportunities to grow, pointing out that dairy prices have rebounded after reaching a seven-year low.

One bright spot on the economic horizon is India, which is aiming to lift its economy to compete with China.

India’s economy rose by 7.2 percent in the 2022-23 financial year and that growth has continued.

The country is hosting the summit of the G20 group of nations (which together account for 75 percent of international trade) this month, the first country in South Asia to do so.

Interestingly, China is not attending.

Prime Minister Chris Hipkins announced last week that if he was re-elected, he would lead a trade delegation to India.

But China remains the elephant in the room by a large margin for New Zealand’s trade, and at the moment it provides a dark cloud for this country.