A reset of the Chinese economy currently underway is expected to permanently change a key trading partner, but one of New Zealand’s biggest meat companies said it will remain a valuable market.
Exporters are experiencing softer prices out of China, and Alliance Group sales manager Shane Kingston said the market is very different to what it was three or four years ago, but he is confident China will remain one of NZ’s most important and financially significant red meat markets.
The World Bank reports that for the first time in 30 years China’s economic growth could be surpassed by that of other Asian countries.
A Ministry for Foreign Affairs and Trade (MFAT) analysis said despite some improvement during the second quarter of this year, economic headwinds remain, with forecast annual economic growth of 2.8% up to September.
In 2021 China accounted for 32% of NZ’s total exports, and Stats NZ data shows the importance of the market was even more pronounced for dairy, accounting for 44% of NZ’s exports, 90% of logs and 41% of meat.
Kingston said multiple factors are affecting the Chinese market.
The government’s zero covid policy has kept about 200 million people in lockdown at any one time for much of the past year, reducing their earning ability, and curbing travel and demand for restaurant or food service.
Since April the Chinese renminbi has depreciated 14% against the US dollar, and economic growth has also eased.
Meanwhile stocks of domestically produced sheepmeat, beef and pork are growing.
Kingston said there is no single fix but Alliance is working with customers to get product in front of consumers and is looking at innovation.
“Definitely in the medium term, the trend is for China to be more self-sufficient in protein,” he said.
A Silver Fern Farms (SFF) market report states that China and the United States are oversupplied with South American beef, and mutton, for which China is a key market, is oversupplied with Australian exports.
Sales over the Chinese New Year in late January will be a crucial market indicator, but with mutton consumption traditionally increasing in cooler months and if those cheaper prices are being passed on, SFF hopes it could lead to greater consumption and demand.
Venison sales into China are tracking well with prices and demand stabilising and the outlook settled.
SFF has revised its indicative pricing for the coming months: prime beef $6.50-$6.10/kg, bull beef $6.20-$5.80, cow $4.70-$4.40, lamb $7.20-$6.80, mutton $5.60-$4.50 and venison $8.90-$9.10.
The MFAT analysis on China warns of a risk to economic growth from weak domestic consumption, outside of vehicle purchases, decelerating export growth and the prolonged impact of a depressed property market.
Added to this was an unprecedented heatwave and drought over large parts of southern China in July and August, while Covid lockdowns in the economic hubs of Chengdu and Shenzhen in early September disrupted supply chains, industrial production and services, and domestic consumption.
The Chinese government has come to the rescue of a deepening property recession on which sales fell 50% in the year to August.
It is offering credit support for debt-laden housing developers and assistance for deferred-payment loans for homebuyers.
“Economic commentators highlight the continued financial distress of real estate developers as a significant risk to medium-term economic growth,” the report warned.
China-based NZ businessman and investment consultant David Mahon wrote that the core direction of the Chinese government was unchanged by the recent National Congress of the Chinese Communist Party.
“Contrary to the views expressed by leading Western observers, most of those appointed to key positions in the politburo and the ministries are even more market-forces orientated than their predecessors,” Mahon wrote.
“They are also more open-minded than their predecessors, having come of age in times of unprecedented growth and national prestige rather than revolution and want.”
The current easing in China’s economic growth is temporary and the potential of the market remains, said the NZ China Council.
Chief executive Alistair Crozier said China is the last major country still grappling with covid.
He said the days of year-on-year double-digit economic activity are unlikely to return, but the growth between what it is now and what it was is still exceptional.
“All the projections we see point to further expansion of the middle class in the medium and long term.”
