Thursday, April 25, 2024

China trade fears unmatched by good alternatives: report

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Fears that New Zealand is overly reliant on trading with China ignore that there are few more attractive markets for many of the country’s major exports, says a report by economic consultancy Sense Partners for the New Zealand China Council.
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“Asserting that NZ is ‘too’ economically reliant on China implies it is possible to define somehow the ‘correct’ size of the trading relationship,” said the report for the council, a body with representatives from some of NZ’s largest exporters, which promotes trade and investment ties between the two countries.

“There is no obvious right or wrong answer to the question of how much NZ should export to or import from China, or any other market for that matter, either at the aggregate level of product level – just as there is no right or wrong answer to how much risk we should bear,” it said.

It is ultimately up to the thousands of private companies trading with China to determine what level of risk they are willing to bear, relative to the rewards clearly available in that market.

“Countries don’t trade with each other. Businesses and individuals trade with each other, and these businesses are best placed to determine risk and reward,” the report said.

“It seems unlikely that Kiwi firms exporting products such as rock lobster or using Chinese intermediate inputs are not aware of the risks of focusing solely on one market.”

The report also pointed out that NZ’s reliance on China is far lower than NZ’s reliance on Britain for the century before the advent of the European common market in the mid-1970s.

Growing concerns about political tensions between NZ’s liberal democratic values and the increasingly authoritarian Chinese regime under President Xi Jinping have seen local politicians talk increasingly about the need to diversify export markets, in part to reduce reliance on China, which has a demonstrable record of punishing its critics through trade and other restrictions, such as redirecting flows of outbound Chinese tourists and international students to other, less critical countries.

NZ angered China with last week’s decision to revoke its extradition treaty with Hong Kong, reflecting a belief that Hong Kong no longer has an independent judicial system following the imposition of new national security laws imposed from Beijing.

However, the Sense Partners analysis points out that firms could choose to trade with more countries but that there would be costs, risks, and access issues associated with such diversification that may not outweigh the demonstrable political risks that come with trading with China.

The NZ government’s policy of pursuing as many high quality free trade agreements as possible was consistent with enabling exporters to trade as profitably as possible wherever opportunities exist.

“Those espousing a reduction in reliance on China rarely outline who we should sell to instead, what the impacts might be on our export receipts, whether there are comparable risks, and how big those risks are,” the report said.

“Trading less with China may just see concentration risk replaced with other market-specific risks.”

The reality is that all markets come with risks, including geopolitical, and that exporters will “prosper in China’s good times and suffer in bad times.”

If all markets delivered the same returns, then exporters will naturally trade in more of them, but access to major alternative markets such as the European Union, the United States and India are all subject to substantial trade barriers, which successive NZ governments had been attempting to reduce.

-BusinessDesk

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