Editorial: New Zealanders need to work hard in China's market
An almost dizzying series of announcements during Prime Minister John Key's official visit to China have broadened the horizons for New Zealanders doing business there. Chief among them is a deal to set a target on two-way trade of $30 billion by 2020, extending a previous agreement which targeted $15b by 2015. China usurped Australia as New Zealand's leading trade partner last year. Because of the relative size of the two countries trading with China will always be mainly in New Zealand's favour.
Historically, New Zealand's prosperity has been mainly determined by our ability to export protein to large foreign markets. It used to be sheepmeat and dairy produce to Britain, feeding a market based on a shared imperial history. That worked until the United Kingdom opted for economic union with its European neighbours. Now, our economy is underpinned to a significant degree by selling our dairy products in China, where economic growth and an expanding middle class is helping to increase demand. New Zealand dairy exports to China increased last year by 75 per cent, reaching almost $5b. We have thus long since moved from being a British dominion using refrigerated ships to defeat the tyranny of distance to the Mother Country, to a Pacific nation looking and learning to do business in the huge Asian economies a lot closer to home.
Along with the trade agreement announced this week came another deal, to allow direct currency exchange between the New Zealand dollar and Chinese renminbi (or yuan). This will save costs by removing the need to trade through a third currency such as the US dollar. New Zealand will increase its diplomatic presence in Beijing, and will build a new $40 million embassy there. Fonterra and a Chinese partner, meanwhile, will develop a China-New Zealand Dairy Exchange Centre, also in Beijing. There will be talks on double tax arrangements; co-operation in dairy herd improvement, agricultural management and veterinary training. Following Fonterra's botulism scare which rattled Chinese consumers last year, there will be more co-operation in food safety. Key, who has now met President Xi Jinping three times in 12 months, took the opportunity to explain the botulism scare on this latest trip to Beijing. Xi will visit New Zealand later this year.
New Zealand's relationship with China, therefore, is as strong as it has ever been and it is tempting to look forward to the economic boost that the deepening relationship will bring to the New Zealand economy. However, it would be naive to think that New Zealand has an easy ride ahead. As a New Zealand Trade and Enterprise brochure for exporters has succinctly warned: "China is one of the toughest markets in the world. The opportunities are huge but the rest of the world knows this as well." The key lessons to be learned from those already exporting to this huge market are that it takes time, a lot of hard work, and commitment.
New Zealanders will succeed by giving their Chinese customers the best-quality products supplied under the most stringent food safety regimes, and by making sure that they don't over-reach their capacity to supply. In other words, they need to be the among the best in the world and look to develop their trade with China steadily, over time.
The potential market is huge - it has been estimated that 45 million people in China can afford imported foodstuffs. That estimate was drawn up by the US Foreign Agricultural Service. After meeting Key, Xi yesterday announced China was pursuing closer ties with India and headed off to sign more trade deals in Europe. These things should tell us that there is plenty of competition on this block.