Crowds return to Shanghai's Hongqiao station as China reboots post-Covid. Photo / Alistair Crozier
OPINION
“No-one talks about Covid anymore.” That was the constant refrain from Chinese businesspeople I spoke with on a quick three-city visit to China.
They just wanted to talk business. “What is happening in the world?” and for those with investments in New Zealand: “Which Chris will win the election?”
And, “What is Jacinda doing?”
The virus quickly surged in China once President Xi Jinping made his abrupt December U-turn to abandon or soften most of its punishing Covid restrictions.
But when I visited China recently — the first time since a three-day stopover in Shanghai in July 2019 — those I spoke with had moved on.
What they were focused on was economic growth. Lockdowns had seriously impacted the economy and youth unemployment was a concern.
Major Chinese investors — much like the New Zealand CEOs of export-facing businesses — were focused on, in their cases, fuelling up their corporate jets and once again visiting in-person customers in far-off destinations.
That’s where the similarity ends.
The Economist Intelligence Unit (EIU) highlighted the changing growth story in a briefing I attended in Shanghai.
They emphasised the Chinese Government’s focus on rebalancing investment and consumption. How China wanted to maintain its advantages as a global manufacturing hub, and, how China is also diversifying import sources for energy, food and technology for security concerns.
Sounds familiar?
The developing impact of the commercial cold war between the United States and China also concerned those running New Zealand companies who are now faced with navigating changes to global supply chains — a concern that will be exacerbated by the G7′s renewed messaging to Beijing over the weekend.
The G7 leaders have called for “de-risking” — diversifying trade sources, protecting trade and technology and a tougher approach to diplomacy.
Given China’s status as a major trading partner for the G7 countries this also carries risk.
The EIU’s view is that China’s trade clout is still rising, they predict that 17.5 per cent of the world’s goods exports will originate from China by 2026 (up from 14.5 per cent).
In a world where economic stagnation prevails, China has not lost its spurs as an economic engine of global growth looking to a rebound to 5.5-5.7 per cent of GDP after the 2022 slump.
China’s pivot is good news for most economies, the EUI underlined.
But the recovery is unbalanced: The economy first had to climb out of the hole created by Zero Covid.
It could not rely on the property sector to super-charge growth.
Unlocking growth from within and investing in green technologies was a priority. The EIU said the pursuit of innovation was at the core, in order to address declining productivity growth.
But China is also placing a tighter focus on strategic and national security-related goals and a desire to increase tech self-reliance. SOEs and state-run laboratories will take the lead on innovation.
There are concerns that if China moves to a purely services-driven growth model, productivity and employment will deteriorate This emphasises the importance of retaining key industrial chains onshore to increase supply-chain security.
Building a “digital China” is a priority and the Government has set a target for the digital economy’s share of GDP.
What does it mean for New Zealand?
The good news is that New Zealand’s own key export sectors are continuing to thrive and sport growth.
New Zealand Trade and Enterprise (NZTE) is driving New Zealand’s Reconnection and Trade Recovery Strategy with this market, helping New Zealand businesses to rebuild relationships after the lengthy interruptions caused by Covid.
Accelerating this country’s trade-led economic recovery by raising the profile of our export offerings in China and increasing awareness of our high-value products and services is a key thrust.
This was evident in briefings by NZTE’s Regional Director - Greater China, Andrew White, and his team in Shanghai. NZTE has strategies underway to support New Zealand’s trade-led economic recovery by raising the profile of our export offerings in China and increasing the awareness of our high-value products and services.
China continues to present a significant opportunity on the back of its consumption-led recovery.
And it continues to present a significant opportunity for our key sectors; New Zealand exports to China have grown by 18 per cent in the past two years with prospects for further growth in many of our key sectors. Dairy, beef and fruit returns are all up on the back of the consumption-led recovery.
But walking about Shanghai with China Skinny managing consultant Andy Crawford and his colleague Tracy Dai demonstrated there is no place for complacency for New Zealand companies when it comes to developing and placing product in a fast-moving Chinese consumer market.
The Covid lockdowns have accelerated change. Not just shifting more trade on to e-commerce platforms, which are themselves being disrupted by new competitors, but also through the rise of new products with more localised marketing messages.
This is illustrated by the decline of Carrefour and rise of Sam’s Club in physical retail, and the rise of JD.com on online platforms.
Digital marketing is on the up.
In the US, Montana has become the first American State to ban TikTok. But it remains hugely popular in China.
Geopolitics — particularly, the US v China — is a talking point for New Zealand companies. They do not want to have to choose.
And why should they?
What’s overlooked in all the geo-politicking is that two-way trade between the United States and China in fact set a new record in 2022 — US$690 billion — as part of a surge in US trade with partners around the world. New Zealand’s own export sales to Asia sport higher margins than to the US, although technology linkages with the US are booming.
Raymond Yeung, Chief Economist, Greater China at ANZ Bank, point to structural hindrances: Demographics, property deleveraging, supply chain realignment and policy uncertainty as among factors restraining growth.
A visit to BYD in Shenzhen to look at the development of their new energy vehicles was instructive. New energy vehicles are increasingly competitive against conventional vehicles in the Chinese market; by early 2023 they had taken about 30 per cent of market share (sales).
BYD is already selling electric vehicles into the New Zealand market and has plans to increase its footprint.
When it comes to the resurgence of tourism with China, that is a slower climb. Overseas tour bookings by Chinese were up 157 per cent from the beginning of April, according to Ctrip.
Most of the airlines that had serviced the China-NZ routes pre-Covid are now back. But the numbers remain far off pre-Covid levels with long-haul airfares soaring and not enough flights available.
Another issue is the backlog of getting new passports and visas issued in China.
But these are transitory issues.
· Fran O’Sullivan joined a China Council delegation that recently visited Beijing, Shanghai and Shenzhen. These are her views.
The initiative gets farmers off the farm and into the water.