China the catalyst for New Zealand’s future?

19 August 2004

News Backgrounder

The Government is seeking views from business on what a Free Trade Agreement with China should address. MICHAEL BARNETT sees some positive opportunities to build a strong trading relationship with China that learns from our history of using advanced technology to add value to our high-quality food and fibre products.

China the catalyst for New Zealand’s future?

For the first 60 years of last century, New Zealand was Britain’s farm. The products were simple – butter, cheese, sheepmeat and more latterly Kiwifruit and apples, but the trade was win-win for both countries.

For Britain, thanks to the 1890s invention of technology to keep food fresh on long sea journeys, higher quality meat and dairy products could be imported from half way around the world to land on London and other English city dinner tables in better condition and cheaper cost than could be produced in the UK counties.

For New Zealand, with a guaranteed market for all the food it could produce, we were able to achieve amongst the highest living standards in the world – a top-three ranking with the United States and Canada in 1953. “We’d never had it so good,” was the catch-cry – “Godzone” our nickname.

But as other countries started producing higher valued products and Britain joined the European Market (now Union) in the 1970s, New Zealand not only lost its virtual open market access to the UK, but failed to respond to the growth of competition from other developed market economies – mainland Europe, Canada, USA, Japan and Australia. New Zealand’s relative living standards had fallen out of the top ten by the 1970s and only in the last two or three years has our ranking seemed to stabilise at around 18th to 20th – but creating a 30% gap in the average weekly take home pay between ourselves and neighbour Australia; a country that has stayed in the top ten for the last 30 years.

How do we get back up with Australia? Could a free trade agreement with a rapidly growing China help, and give New Zealand a second-chance at recreating a sustainable high-quality standard of living in the 21st Century?

My optimism says “yes,” the only way forward for New Zealand is to look at a free trade agreement with China as a hugely positive opportunity for both countries.

For China, a rapidly growing middle class enjoying living standards similar to what we enjoy here in New Zealand, is now estimated to be more than 100 million people.

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They want high value consumer products and opportunities, including food, tourism, education and other luxury products from cars to homes and furniture. However, that 100 million represents less than 10% of China’s 1.3 billion population.

With China now the world’s sixth largest economy, and the fastest growing of larger countries – expanding by more than 9% a year – but not a producer of high quality foods and fibre products to the extent that New Zealand offers and China is increasingly demanding, the opportunities for exporters is arguably reminiscent of the days when New Zealand was Britain’s farm.

That is, if we play our cards right! China is already our fourth largest trading partner, taking some $2.5 billion of goods and services last year – a five-fold increase on 10 years ago, and a leap from the early 1970s when the annual trade was worth little more than $1 million (mainly wool). By 1994, our exports to China had grown to $570 million, and have now diversified to include substantial quantities of dairy products, wood and wood products, seafood, fruit, education and consultancy services.

A free trade agreement would provide an opportunity to greatly accelerate our exports into China, and help satisfy their growing demand for our kind of high value food and fibre products. I say this because while trade in recent years has increased, it has done so despite China continuing to maintain some high tariffs levied on New Zealand exports; eg, 15% on sheepmeat, 12% on cheese, 20% on Kiwifruit, 10-14% on dishwashing machines and 5-23% on fish and seafood.

These are all items that we have the potential to export in significant volumes to China. While NZ in recent years has progressively reduced tariffs, a free trade agreement would encourage China to do likewise.

Of course, even if China reduces its tariffs to assist New Zealand exporters, there will be many other potential challenges to overcome – from language, business culture, customs and other regulatory regimes, marketing and the huge differences in scale between the two countries.

At the end of the day, however, the greater challenge is ours – how we manage the opportunity that China has extended by agreeing to negotiate an FTA, and how we build an expanded inventory of finished, high quality Kiwi branded goods and services. Our jet boats, our superyachts, our canoes, our sailboards, our leisure and sporting clothing lines all enjoy a good reputation by those who know them.

In 10 years’ time, I will judge an FTA with China to have been a success if these Kiwi brands and others yet to be created are as high in their penetration of China’s

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markets and consciousness as our butter, cheese and Sunday roast were uppermost in the minds of British consumers for much of last century.

In China, we have an opportunity to be a niche supplier to the top end of the world’s largest, fastest growing market. We would be stupid not to encourage the Government to work closely with business to lock New Zealand into contributing to, and sharing in, China’s unprecedented economic drive to achieve a high and rising standard of living for its 1.3 billion-plus citizens.

The Gateway to China event, being held in Auckland on September 1, has been designed to equip New Zealand businesses to break into China’s markets and to inform local companies how they can expect to be impacted by the imminent free trade agreement.

Despite the perception that China is a huge exporter with little potential for imports, on current figures it is predicted, in this year alone, China will import $US600 billion of goods. China’s import figures for March and April of this year were up more than 40% on the previous year, but in the year to March New Zealand’s merchandise exports to China fell by 4.3%. New Zealand is missing out.

Gateway to China and the FTA present an opportunity for businesses to nail down some strategies to get a piece of that $US600 billion.

The Rt Hon Mike Moore, Former Director-General, WTO and Former Prime Minister of NZ, one of 30 local and international speakers who will share their experience and advice for building fruitful trade relations with China, has divided business into two types – those who are thinking about China, and those who are not. Moore predicts the winners are in the first group. For a complete list of the event’s speakers see www.gatewaytochina.co.nz.

China is the world’s sixth largest economy; it represents a potential 1.3 billion consumers. Business needs to know what to expect from an FTA with China, and what this will mean to their companies in terms of competition and opportunities. Gateway to China is the forum to build partnerships that will enable profitable trade with China and to find out how other companies have already succeeded.

- Michael Barnett is chief executive of the Auckland Chamber of Commerce and Industry, and principal sponsor of Gateway to China Trade Summit on 1 September 2004.

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