There are still headwinds, but the fundamentals that have made China New Zealand’s key export market remain, a new government report concludes.
Consumer confidence in China has plummeted due to soaring local government and housing debt and high youth unemployment, which saw exports of NZ dairy, meat and timber fall by up to 20% last year.
The report by NZ’s Ministry of Foreign Affairs and Trade says that a year after China dropped all its pandemic restrictions, our largest trading partner is enduring an economic transition.
Two-way trade in the year to last September was worth $38.67 billion and the report states it still offers NZ exporters a large growing middle class with an appetite for high quality, trusted goods and services, demand for food and beverage and significant economies of scale.
Economic pessimism among Chinese consumers and strong domestic production saw NZ dairy exports fall 4% in the 11 months to the end of November, though still worth $6.1bn.
It was worse for red meat exporters. Exports to China over the same period fell almost 20% to $3bn.
“This reflects both a decline in prices for beef and a decline in export volume and prices for sheep meat,” the report concludes.
“The drop in prices in China is driven by tepid consumption, a high inventory of red meat in market and intensifying competition, particularly from Central and South American suppliers.”
Forest and wood exports fell 11% to $3bn due to the downturn in China’s property sector while the value of kiwifruit increase 4%. Apples fell 17%.
The report says the Chinese economy grew 5.2% last year, exceeding the government’s 5% target and bouncing back from a lacklustre 3% growth in 2022.
It was still well below the 6% annual growth achieved between 2015 and 2019.
Behind last year’s stronger economic performance, the report notes mixed indicators.
“Retail sales and measures of industrial activity surpassed expectations in October but missed market expectations in November and December.
“The property sector sank further with low uptake in household borrowing and month-on-month drops in new house sales.”
Retailers discounting prices to encourage consumer spending are having mixed results.
Singles Day, China’s largest e-commerce sales festival, held last November, saw a modest 2% increase in year-on-year sales – less that the 2.9% growth achieved a year earlier.
China’s National Bureau of Statistics data says youth unemployment, considered another barrier to consumer confidence, fell from 21.3% in June to 14.9% in December.
Deflation is considered another obstacle.
China’s official Consumer Price Index for November dropped by 0.5% year on year but recovered in December with a 0.1% increase. It fell 0.3% for the year.
“The risk of moving into a deflationary environment has been attributed to sluggish manufacturing growth, a paydown of debts rather than new investment, fierce competition in the automobile sector, especially among e-vehicle manufacturers, and falling food prices.”
Pork prices fell 31.8% year on year.
The report says that the Chinese government has introduced stimulatory economic policies such as issuing NZ$228bn in sovereign bonds and allowing local governments to issue refinancing bonds with proceeds paying down debt.
The central bank has left interest rates unchanged for a fifth month and signalled to banks to start lending to property developers and private businesses.
Forecast economic growth for this year is 4%, with economists stressing the need to stabilise the property market and encourage consumer spending.
“Market sentiment is moderated by the persistent downside risks weighing on China’s economy: deflationary pressure; the property market; local government debt; youth unemployment; households’ reluctance to spend; and China’s falling and aging population,” the report says.
China’s population fell by 2.08 million (0.15%) last year – the second consecutive decline due to a falling birth rate and higher death rate.
