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2.1 The Chinese and New Zealand economies
2.2 Trends in two-way goods trade
2.3 Trends in two-way services trade
2.5 Trends in economic cooperation
China and New Zealand are open and dynamic economies that depend on international trade for stimulating economic growth. Strong global connections and improved access to markets are fundamental to the economic strategies of both countries. With this in mind, China and New Zealand pursue active trade policy agendas and are active in regional trade and economic liberalisation and facilitation initiatives.
China and New Zealand have enjoyed considerable economic success over the past decade, with only modest disruption from domestic, regional and global economic shocks, such as the 1997 Asian economic crisis, the SARS epidemic, and drought. China's real GDP grew at anaverage rate of 8.1 percent over the past five years fuelled by high levels of investment accompanying economic reforms. New Zealand's five-year average economic growth rate of 3.4 percent is one of the strongest amongst developed economies.
The China-New Zealand trade relationship has grown significantly over the past decade, largely reflecting comparative economic strengths, economic complementarities and a strengthening investment relationship.
Since its reform and openness policy was put into practice in 1978, China's economic development has been remarkable. GDP increased at 9.7 percent annually in the period 1980-90, and 10.7 percent in the following decade. The Chinese economy kept expanding rapidly in the first three years of the new millennium, with GDP growth at 7.5 percent in 2001, 8 percent in 2002 and 9.1 percent in 2003.
According to a preliminary estimate by the National Bureau of Statistics, China's GDP in 2003 totalled about US$1,405 billion, an increase of 9.1 percent over 2002 in comparable prices. Retail sales of consumer goods totalled US$555 billion. China's overseas trade has also increased rapidly. Total imports and exports amounted to US$851.2 billion in 2003, an increase of 37.1 percent over the previous year. This was the fourth highest import/export total in the world. Under the macro-economic regulation of the central Government, the aggregate price level rose only a little and the number of employed people increased. The international balance of payments improved, and foreign exchange reserves rose significantly. The exchange rate of RMB was kept basically stable. Current projections suggest that China's economy is likely to achieve sustained and rapid development in the long term.
New Zealand has been one of the most successful economies in the Organisation for Economic Cooperation and Development (OECD) in recent years. Annual growth since the early 1990s has been higher than the OECD average. Real Gross Domestic Product (GDP) growth of 4.0 percent was recorded over 2002, one of the best performances in the OECD. Growth averaged 3.3 percent over the past four years (1999 - 2002). New Zealand has the fourth lowest unemployment rate of all OECD countries, and has run budget surpluses consistently for over 10 years. New Zealand also is one of the most open economies in the world.
New Zealand has sizeable manufacturing and service sectors complementing a highly efficient agricultural sector. The economy is strongly trade-oriented, with exports of goods and services accounting for around 33 percent of total output. The agricultural, horticultural, forestry, mining, energy and fishing industries play an important role in New Zealand's economy, particularly in the export sector and in employment. Overall, the primary sector contributes over 50 percent of New Zealand's total export earnings.
Looking to the future, the New Zealand Government has formulated a set of growth-oriented policies designed to deliver the long-term sustainable growth necessary to improve the living standards of all New Zealanders. The Growth and Innovation Framework (GIF) identifies innovation and knowledge as key drivers of growth and has set a goal of returning New Zealand's per capita GDP to the top half of the OECD.
The two economies are of markedly different size, and at different stages of economic and social development. China is one of the largest economies in the world, and one of the fastest growing. Following years of relatively low economic growth, New Zealand is currently one of the fastest growing developed countries in the world. In 2003 New Zealand's GDP was 4.8 percent of China's while China's per capita GDP was only about 5.4 percent of New Zealand's (see Table 2.1).
China produces a wide range of goods of potential interest to New Zealand producers and consumers. In contrast, New Zealand's smaller economic size necessarily means that New Zealand's global exports are concentrated in fewer sectors than China's. However, in both cases improved access to the partner country's products and services have the potential to benefit domestic consumers and producers.
Table 2.1: Profile of Chinese and New Zealand Economies
Surface land area (million km2) - New Zealand .268 / China 9.56
Population (million, 2003) - New Zealand 4.009 / China 1287
GDP (US$ billion, current prices, 2003) - New Zealand 67.6 / China 1,412.8
Real GDP Growth (1998-2003 average annual, percent) - New Zealand 3.4 / China 7.9
Per capita GDP (US$/person, 2003, current price) - New Zealand 20,200 / China 1,097.7
Export goods (US$ billion, 2003) - New Zealand 18.1 / China 438.3
Import goods (US$ billion, 2003) - New Zealand 18.4 / China 393.6
Export goods (percent GDP, 2003) - New Zealand 21.5 / China 31
Import goods (percent GDP, 2003) - New Zealand 21.9 / China 27.9
Export services (US$ billion, 2003) - New Zealand 6.9 / China 46.7
Import services (US$ billion, 2003) - New Zealand 6.0 / China 55.3
Export services (percent GDP, 2003) - New Zealand 8.2 / China 3.3
Import services (percent GDP, 2003) - New Zealand 7.2 / China 3.9
Current account balance (US$ billion, 2003) - New Zealand 3.5 / China 45.9
Capital and Financial account balance (US$ billion, 2003) - New Zealand 0.5 / China 52.7
Foreign exchange reserve (US$ billion, 2003) - New Zealand 23.0 / China 403.2
Inflation (2003) - New Zealand 1.6 percent / China 1.2 percent
Sources: Ministry of Foreign Affairs and Trade of New Zealand, World Bank, EIU and IMF, China State Administration of Foreign Exchange.
While these economic differences will shape each country's approach in negotiating an FTA, the presence of marked differences in levels of development would be expected to increase the scope for trade creation and positive benefits to each economy. In this sense, the general characteristics of the Chinese and New Zealand economies suggest that for both economies, there are likely to be complementary gains from closer economic integration.
Largely reflecting economic complementarities, the China-New Zealand commercial relationship has grown substantially over the last decade. From 1991 to 2002, the average annual increasing rate of bilateral merchandise trade was 12 percent. In 2003, Chinese statistics show the two-way trade between China and New Zealand reached US$1.83 billion, an increase of 30.7 percent over 2002, among which China's imports from New Zealand totalled US$1.02 billion, an increase of 27 percent over the previous year, and exports US$0.80 billion, an increase of 34.2 percent. According to New Zealand statistics, the two way trade in 2003 reached US$2,648 million, with New Zealand's exports to China comprising US$856 million and New Zealand's imports from China US$1,791 million. China is now New Zealand's fourth largest trading partner.
These statistics do not take account of New Zealand exports to China through Hong Kong. It is thought that about one-third of exports to Hong Kong are in fact destined for the mainland market, while the use of packaging plants in Singapore and other Southeast Asian countries means that some New Zealand products enter China as the goods of third countries.
Table 2.2: China - New Zealand Annual Value of Merchandise Trade US $ Million, 1998-2003 (Chinese Statistics)
| 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | |
| China's imports (New Zealand's exports) | 409.9 | 481.3 | 638.3 | 736.8 | 803.2 | 1,023.6 |
| China's exports (New Zealand's imports) |
274.9 | 342.9 | 416 | 434.9 | 596.2 | 802.6 |
| Total | 684.9 | 824.2 | 1,054.3 | 1,171.7 | 1,399.4 | 1,826.2 |
Source: China Customs Statistics Yearbook 1999, 2000, 2001, 2002, 2003, compiled by Customs General Administration of China.
Table 2.3: China-New Zealand Annual Value of Merchandise Trade US $ Million, 1998-2003 (New Zealand Statistics)
| 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | |
| New Zealand's exports (Chinese imports) | 414.4 | 406.45 | 583.5 | 846.3 | 894.2 | 856.3 |
| New Zealand imports (Chinese exports) | 746.6 | 900.5 | 1,210.5 | 1,388.5 | 1,629.5 | 1,791.7 |
| Total | 1,161 | 1,306.9 | 1,794 | 2,282.8 | 2,523.7 | 2,648 |
Source: Statistics New Zealand compiled by the New Zealand Ministry of Foreign Affairs and Trade.
The high rate of economic growth achieved in China over the past two decades, as well as the complementary nature of the two economies, has generated significant opportunities for New Zealand exporters. China is now New Zealand's fourth largest merchandise export market. China's imports from New Zealand reached US$1.02 billion in 2003, according to Chinese statistics, and have increased at a trend growth rate of over 20 percent a year since 1998.
China's imports from New Zealand have traditionally been dominated by wool, but there has been rapid diversification in recent years with forest products (logs, sawn timber, pulp, newsprint), dairy products (especially milk powders but also casein, butter, whey), seafood (lobsters, mussels, hoki), horticultural products (apples, kiwifruit), agricultural products (live goats and cattle, sheepmeat, semen/embryos, casings), energy products (methanol, some LNG), hides, skins and leathers and high technology products (especially telecommunications products).
Table 2.4: China's Top Ten Merchandise Imports from New Zealand US$000, 2000-2003 (Chinese Statistics)
| Tariff No. | Items | 2000 | 2001 | 2002 | 2003 |
| 0402 | Milk and cream | 77,474 | 77,493 | 101,587 | 153,017 |
| 4403 | Wood in the rough | 28,193 | 383,229 | 100,493 | 125,212 |
| 5101 | Wool | 76,930 | 26,712 | 88,289 | 90,700 |
| 4407 | Wood sawn or chipped | 30,010 | 31,129 | 41,565 | 51,272 |
| 2905 | Methanol | 63,919 | 35,240 | 57,688 | 42,891 |
| 1502 | Animal fat | 27,460 | 15,955 | 17,728 | 31,552 |
| 4102 | Sheep skins, raw | 18,346 | 24,739 | 19,922 | 31,084 |
| 0204 | Sheep meat | 12,355 | 15,817 | 20,124 | 30,841 |
| 4411 | Fibreboard of wood | 19,900 | 20,687 | 28,945 | 27,654 |
| 4804 | Paper and paperboard | 15,457 | 28,787 | 27,693 | 26,529 |
Note: The items of merchandise are ranked according
to the trade value of 2003.
Sources: China Customs Statistics Yearbook
2000, 2001, 2002, 2003, compiled by Customs General Administration of
China.
New Zealand's imports from China have grown rapidly in recent years and China is now New Zealand's fourth largest source of imports. Main imports include electrical machinery and equipment, textiles, clothing and footwear, toys, and a wide range of light consumer goods. The most significant growth has been in imports of computer equipment and mobile phones, while China continues to be an important source of imported clothing and footwear.
Table 2.5: New Zealand's Top Ten Merchandise Imports from China US$000 CIF, 2000-2003 (New Zealand Statistics)
| Tariff No. | Items | 2000 | 2001 | 2002 | 2003 |
| 8471 | Computers | 26,109 | 37,144 | 65,730 | 111,412 |
| 6204 | Ladies apparel | 30,430 | 34,073 | 47,292 | 62,689 |
| 9503 | Toys | 31,636 | 27,128 | 35,474 | 45,904 |
| 6110 | Knitted apparel | 26,039 | 34,831 | 36,717 | 44,631 |
| 6403 | Footwear | 24,139 | 24,061 | 34,404 | 43,545 |
| 6019 | T-shirts | 21,022 | 25,710 | 31,939 | 39,848 |
| 8525 | Mobile phones | 5,121 | 14,792 | 38,204 | |
| 8516 | Electric heaters and dryers | 17,435 | 19,533 | 29,263 | 37,688 |
| 4202 | Trunks and cases | 21,077 | 21,451 | 26,495 | 33,769 |
| 6203 | Men's apparel | 20,784 | 23,976 | 27,848 | 31,681 |
Note: The items of merchandise are ranked according
to the trade value of 2003.
Sources: NZ External Trade Statistics,
December 2003.
The bilateral services trade between China and New Zealand has expanded quickly in recent years. Tourism and education are among the fastest expanding sectors of the two-way services trade at present. In 2003 New Zealand's income from sales to China in these two sectors was roughly the same value as New Zealand merchandise (goods) sales to China.
In 1997 China accorded New Zealand "Approved Destination Status" (ADS) for Chinese tourist groups, which has contributed to a significant growth of short-term visitors. The number of Chinese visitors to New Zealand increased by 183.9 percent in the past five years and reached 66,000 in the year ended December 2003. An agreement to expand the number of Chinese agents authorised to operate under the ADS scheme was reached in May 2004.
There is a steady growing market of New Zealand tourists to China. According to the China National Tourism Administration, the number of New Zealand tourists to China increased by 33.5 percent between 1999 and 2002. Total numbers in those years were 31,400 in 1999, 37,000 in 2000, 44,400 in 2001, and 50,200 in 2002.
Education is one of the fast-growing New Zealand service export sectors. Since 1998, there has been rapid growth in the number of Chinese students travelling to New Zealand for secondary, tertiary or English language study. In the year ended 30 June 2003, more than 50,000 Chinese students studied in New Zealand, double the numbers of 2001. New Zealand has become the fifth largest destination country for Chinese students studying abroad. Chinese students account for the largest proportion of foreign students studying in New Zealand. However, there has been a significant reduction in the number of Chinese students travelling to New Zealand to study since the middle of 2003.
While the two-way trade in services is currently dominated by tourism and education services, interest in trade in other services is growing. Areas of interest include professional and business services, architecture and design services, environmental services and construction and engineering services.
Investment is a key area of the economic relationship. China and New Zealand concluded a bilateral Investment Promotion and Protection Agreement in 1988. Chinese investment in New Zealand has been expanding quickly during the past few years, most of it in joint ventures in the forestry sector. Sinotrans, which has invested in the Wenita Forest development, is probably the largest single Chinese investment. According to New Zealand statistics, total Chinese investment as at 31 December 2003 was US$915 million. There is also significant investment in manufacturing and commercial construction in New Zealand. Sectors such as property, meat processing, electronics, fish farming, tanning, light manufacture, and hotels and restaurants have all attracted the interest of smaller Chinese investors.
Up to the end of December 2003, the stock of New Zealand contractual investment in China, invested on 819 projects, amounted to US$812 million, with actual investment of US$405 million according to Chinese statistics. The main target areas of New Zealand investment include agriculture and forestry, metallurgy, food processing, biotechnology and information technology. Fonterra, Richina Pacific, and Carter Holt Harvey have major holdings in China. Investment in China is viewed by those companies as important to secure a long-term market for New Zealand products and also to assist in the penetration of the large consumer market developing in China. A number of new investment initiatives have commenced since the prospect of a China-New Zealand FTA was announced.
The liberalisation that occurred as part of China's entry to the WTO appears to have had a significant impact on the number of foreign investments in China. Investors point to the trend towards further liberalisation and improvements in areas such as business law, intellectual property protection, and the levels of economic growth in China as reasons for further optimism about business prospects in China. Future Chinese policy developments that support and build on progress to date will further build investor confidence, improving the attractiveness of China as an investment destination.
China and New Zealand are currently engaged in economic cooperation in a number of areas including customs, education, sanitary and phytosanitary issues, forestry, agriculture, sustainable development, occupational health and safety, employment relations, training of tourism agents and technical regulation, including working toward a possible mutual recognition arrangement for electrical equipment. Cooperative efforts in these areas are outlined in the relevant sections of this study.
China and New Zealand are also Official Development Assistance (ODA) partners. Projects under the NZODA programme include promoting rural integrated land use in Yunnan and Gansu, poverty alleviation in Tibet, Sichuan, Guizhou, Gansu, Yunnan and Xinjiang provinces/autonomous regions, assistance in trade and economic policy advice, including WTO compliance, eco-tourism development and Agenda 21 implementation. New Zealand provides up to 10 post-graduate study awards to Chinese students annually.
The establishment of the Asia Development Assistance Facility (ADAF) in 1993 allowed the New Zealand private sector to be active in developing commercially sustainable cooperation with China while also providing an effective mechanism to deliver ODA. 38 projects were approved between 1998 and April 2003.
In 2003 China and New Zealand signed a Science and Technology Agreement to enhance cooperation between each other's research and innovation communities, especially in the priority areas listed in the Agreement: animal husbandry, environmental and ecological protection and restoration, forestry and the preservation of natural resources, information technology, biotechnology, geophysics, Antarctic and health research. The Agreement will promote sustainable development by improving scientific understanding through exchanges of scientific and technological knowledge. Bilateral economic cooperation is now underpinned by the Trade and Economic Cooperation Framework, which is discussed further under Chapter 1.3.
Sustainable development is essential for economic prosperity. The aims are to develop sound sustainable policies that support trade. To this end, bilateral cooperation on sustainable development activities has also extended to the promotion of labour and environmental objectives. New Zealand has hosted many delegations of Chinese labour and environment officials, providing opportunities to exchange information on domestic regimes. Officials from both countries are planning to increase collaboration on climate change through a joint modelling exercise on the effects of greenhouse gas emissions under the auspices of the United Nations Framework Convention on Climate Change, and further collaboration is anticipated in this area. China and New Zealand have also cooperated on a UNDP sponsored initiative, the China Green Lights Project, aimed at improving the efficiency and quality of lighting installations throughout China. The New Zealand Ministry for the Environment hosted a delegation from the environment section of the China National Institute of Standardisation (CNIS), which has been contracted to write the standards for this project. CNIS visited New Zealand to investigate the development and application of energy efficiency standards and how they fit into regulatory frameworks.
China and New Zealand are both members of the WTO. The close association between China and New Zealand in the WTO was characterised by New Zealand becoming the first WTO member to finalise its bilateral accession negotiation with China. This close relationship has continued in the WTO, with China and New Zealand working closely on many aspects of the Doha Development Agenda (DDA). The negotiation of an FTA between China and New Zealand would take place against the backdrop of agreement to an agenda for significant further liberalisation of world trade in the Doha Round.
As well as the WTO, China and New Zealand work together on trade and economic issues in a range of other multilateral organisations including the World Intellectual Property Organisation (WIPO), the International Labour Organisation (ILO), the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), the United Nations Development Programme (UNDP), the UN Conference on Trade and Development (UNCTAD) and the UN Food and Agriculture Organisation (FAO). China and New Zealand have accepted a range of relevant international legal standards, including standards for protection of the environment and biodiversity. Both participated in the World Summit on Sustainable Development in Johannesburg, which adopted the Johannesburg Plan of Implementation (JPol). The JPol built on the agreements entered into at the 1992 Earth Summit, including Agenda 21, and the commitments made to mutually supportive environment and trade policies to achieve sustainable development. China and New Zealand both acknowledge the importance of the ILO's Declaration on the Fundamental Principles and Rights at Work and the basic rights and principles underlying it. Consistent with the approach taken in the ILO, each country is free to promote the fundamental principles according to its own law and practices.
At the regional level, China and New Zealand are also both members of APEC and have enjoyed close cooperation in APEC for a number of years. APEC has made significant progress in facilitating and liberalising trade in the region, including through promoting mutual recognition and harmonisation of standards and procedures. APEC economies, including China and New Zealand, have also developed individual action plans that detail the paths by which they will reach the Bogor Goals (free and open trade and investment in the Asia-Pacific region by 2010 for developed economies and 2020 for developing economies).
There has also been continuing interest globally and in the Asia-Pacific region in expanded regional or bilateral FTA initiatives. China has completed Closer Economic Partnership Arrangements with Hong Kong and Macau, and is to complete negotiations on an FTA with ASEAN. Aside from this study with New Zealand, China is studying FTAs with Australia and Chile. New Zealand has a longstanding Closer Economic Relationship (CER) with Australia and a more recent Closer Economic Partnership (CEP) with Singapore. It is engaged in negotiations with Thailand and a tripartite CEP with Chile and Singapore. A negotiation with Hong Kong on a CEP is also underway. New Zealand is also exploring the possibility of an FTA with ASEAN as part of the AFTA-CER process.
An FTA between China and New Zealand would not only be fully consistent with this wider process, it would offer the opportunity for China and New Zealand to establish a high quality model which could be of assistance to this wider regional and the WTO and APEC processes.
