Forthright English sets us straight on China

The dairy doldrums are a dampener on the New Zealand economy. Photo / Mark Mitchell

Finance Minister punctures dairy denials but needs eye on recent boom and bust.

It was Bill English who finally punctured the myth that the lengthy price slump that has carved billions of dollars off New Zealand dairy returns is simply a short-run thing.

Not so, said the Finance Minister on his return from China this week.

English's take can be boiled down to this: China is sitting on a mountainous glut of excess dairy product in warehouses across the country; stockpiles have built elsewhere around the world and while prices will inevitably recover it is a matter of when and how fast.

In other words, he wasn't going to bet his shirt on a super-early bounce-back on the dairy price front.

He had excellent briefings from businessmen while in China and had taken his own soundings on the Chinese economy.

Although the outlook is positive in the medium-term, the dairy doldrums are a dampener on the New Zealand economy.

This is a sharp contrast to the slow striptease of denial which has seen key dairy industry figures hopefully spin that line that anytime soon the price slump will bottom out and the recovery begin.

English is known for calling the spade the proverbial.

This is a great counterpoint to the Prime Minister's propensity to use his verbal dexterity to shift the political debate away from the Government's vulnerable spots.

It's interesting to contemplate whether John Key would have been quite so blunt about the prospects for our major export goods sector on a return from the citadels of Chinese power.

Key has had to beat a path back to China when big issues have erupted with the sector - particularly the DCD and false botulism scares.

But he has had plenty of rewarding visits as well - particularly the celebration of major milestones in the bilateral relationship.

English's China experience is less granular. He was there recently for the launch of the Asian Infrastructure Investment Bank.

English is also less captive to the political form which sometimes persuades our politicians to sugar coat the unpalatable.

But China is not on Key's very busy dance card this year. He has been almost every year since his appointment as Prime Minister.

This time it was his deputy's turn.

The English visit will have opened the Treasury's eyes to the reality that is China. The key department has talked about the Asian growth story in glowing terms.

Most of this has been justified but it has been the Reserve Bank which was first to open up on the potential impact on the NZ economy through the dairy slump. Not the Treasury.

This is important as New Zealand needs sharp economic intelligence in key markets, particularly with the country's exposure to China's economic fortunes.

The dairy saga will play out.

But from a New Zealand perspective, English will also be keen to find out whether the current Chinese offshore buying appetite for NZ's residential property market prevails.

China's decision to suspend shares on its stock markets may well have eroded some investor confidence in that market.

The key question now is whether that results in more Chinese deciding to get money offshore (as they will be able to do under new rules) and push up global asset prices.

It's hard to divine what the psychological effect of the recent boom and relative bust will be on Chinese investor sentiment.

But the issue should also be on the Finance Minister's horizon.