Competition might heat up in China

Kiwi  businesses exporting to China may need to adjust their prices after Australia reached a free trade agreement with Asia's economic powerhouse, a former trade director says.

A new free trade agreement between Australia and China is planned to take effect next year, seven years after New Zealand agreed its FTA with China.

Australia's Government says its agreement "counters the advantage Chile and New Zealand currently enjoy through their FTAs with China reached in 2006 and 2008".

New Zealand's agreement eliminates tariffs on 96 per cent of current exports to China. Australia has secured the removal of tariffs on such goods as dairy, beef, sheep, wine, horticulture products and seafood.

It also benefits Australian companies in a range of industries including IT, manufacturing, education, finance and transport. Tariffs will be lifted over the next four to 11 years.

Former New Zealand Trade and Enterprise (NZTE) China regional director Rod MacKenzie said New Zealand companies might need to respond to the increased competition that the Australian agreement would bring by adjusting their pricing in China.

"It's certainly a price-driven market in many respects," MacKenzie said.

MacKenzie, who is now director of export company New Zealand Focus, said while pricing may have to come down businesses should not let profit margins get too thin. It would be "very destructive" if Australian and New Zealand businesses ended up slogging it out over price in China, he said.

New Zealand Focus was established by NZTE in 2006 to showcase New Zealand food and beverages to consumers in Hong Kong, but is now a private business.

New Zealand Focus co-director Marcus Glucina said Australian products in China would be more price competitive following the FTA.

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"But they still have to build brand equity and product awareness to compete with New Zealand products that have been in the market and building their brands for a number of years."

MacKenzie said there was no reason why New Zealand and Australia could not collaborate to create a stronger China market.

"The market in China is so big that Australia and New Zealand couldn't exhaust it. There's always going to be room for the two of us," he said.

PwC partner and China sector spokesman Colum Rice said while Australia's FTA was a factor to consider, it would not have a major impact on the competitiveness of New Zealand businesses.

"There's many other factors that will influence success other than Australian competitors," Rice said.

It was far more important for businesses to invest in China by spending time there, building relationships with customers and understanding what the market drivers were, he said.

"You need to stop thinking about yourself as an exporter from New Zealand and start thinking about yourself as a trader in China."

Having greater Australian competition in China could benefit New Zealand by helping grow the market for high quality Australasian goods through increased awareness and exposure, he said.

Rice also echoed the words of Chinese President Xi Jinping during his recent visit to New Zealand that there was more than enough demand for New Zealand products in China.

Former NZTE trade commissioner in Shanghai, Mike Arand, said New Zealand businesses needed to be well prepared to enter the Chinese market.

They should have people on the ground building partnerships with buyers and suppliers and build a strategy that takes into account future tends of the Chinese market and economy.

It was also important to persevere if something goes wrong, he said.

"I don't think I've seen one company yet that's been successful in China without having some sort of hiccup or hurdle or barrier to overcome," Arand said.

 - The Dominion Post

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