Thursday, April 25, 2024

MEATY MATTERS: China exposure inevitable

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The degree of exposure to reliance on China as New Zealand’s largest trading partner can be viewed as perfectly acceptable or a big risk. Over the past 20 years, the FTA signed by the Clark government and recently upgraded has been the catalyst for a massive change in where we send our exports, especially agricultural commodities.
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In 2000 Australia, the US and Japan were by far our biggest customers, with China only sixth behind the UK and South Korea as well, but by 2020 China had surged into first place, buying twice as much by value as Australia in second place. The other countries on the list were the same as before.

Therefore, China has been the main reason for the large rise in the amount of business we do with the world. The question is whether we should be worried about it. 

At face value, exports to China make up about 25% of total exports, which is in strong contrast to the days of much greater dependence on the UK before it joined the Common Market in 1973. Other countries have greater exposure to China as a buyer, such as Australia and Chile at more than a third of their exports, so on this basis New Zealand does not seem to have anything to worry about.

What is certain is our government is trying to perform a high wire balancing act between upsetting China when criticising it for human rights breaches like its treatment of Uyghur Muslims and Hong Kong protesters or getting offside with our ‘five eyes’ partners who think we have gone soft on China. Australia has discovered how China reacts to criticism, with bans on some import categories and imposition of tariffs on others despite the FTA. The recent decision to join the five eyes partners in calling out China’s state involvement in cyber security attacks indicates the tension inherent in New Zealand’s approach.

Some industries – sheepmeat and beef, seafood, wood products, as well as covid-affected tourism and education – are particularly susceptible to China turning off the tap. The meat industry has shown itself to be very agile when faced with being shut out of markets – for example, by Indonesia – but there is no doubt China’s current and future importance to export returns and farmers’ incomes should not be underestimated.

Politicians vacillate between encouraging exporters to trade with China and suggesting weakly they should avoid having too many eggs in one basket. That is the key issue, because the Government’s job is to facilitate trade through negotiating or maintaining access, while the exporters, usually but not exclusively privately-owned companies, develop strategic, long-term customer relationships.

In some cases ownership of agricultural companies is shared between NZ and Chinese partners. For example, Silver Fern Farms and Synlait, while Westland Dairy and others are fully Chinese-owned.

The totalitarian objectives of President Xi’s China will inevitably clash with the interests of shareholders in NZ companies when they butt up against a diplomatic fallout from actions or statements by the NZ government, which China objects to. The Chinese reaction will depend on the degree of offence caused, but it is clear Xi’s view of the world will inevitably clash with our wish to avoid irretrievable damage to our relationships with our traditional allies. The democratic system in this country and our allies is in fundamental conflict with China’s “socialism with Chinese characteristics” or capitalism in a police dictatorship.

Some commentators have suggested China’s drive for world dominance (control of the South China Sea, the Belt and Road Initiative, strangling independent thought in Hong Kong and threatened reintegration of Taiwan) is encouraged by its perception of the weakness of the west. It believes it will overtake the US as the world’s largest economy within 10-15 years, but this is far from certain.

Its population is declining by three million a year and rising because of the irreversible trend to urbanisation and single-child families, which it has tried to reverse too late. Its productivity growth rate, previously running at 3% annually, will come down to under 1% as the economy slows to the more normal rate of a developed economy. 

Under Xi’s suspicious, narrow-minded dictatorship, China is dismantling the approach initiated by Deng Xiaoping to liberalise the economy and engage with the US, with the Communist Party of China no longer believing engagement is useful.

The Telegraph’s Ambrose Evans Pritchard notes the incoherence of the Xi model will blunt the Chinese threat over time because “its contradictions and controls will sap the dynamism from the economy” by backtracking on reforming the dysfunctional state-owned companies, which are needed for party patronage and posting commissars inside private companies.

This all poses a challenge for NZ’s government and its businesses, especially those substantially dependent on China, whether in the form of partnerships, investment or a large proportion of revenue.

The Government is on a hiding to nothing: it can throw its weight behind our involvement with China, speak out on matters where China crosses certain red lines, or continue to conduct its high wire balancing act, hoping against all realistic hope it does not offend either side. 

The one thing in NZ’s favour is our ability to produce high-quality food, which China needs and cannot produce itself in sufficient quantities or import from other ‘friendly’ countries.

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