China has overtaken Australia as New Zealand's biggest export market for the first time, buying more meat, dairy products and pine logs, while shipments across the Tasman have fallen.
New Zealand's trade surplus was $718 million last month for an annual deficit of $520 million, according to Statistics New Zealand. The monthly surplus was almost twice the $373 million forecast in a Reuters survey and the annual gap is smaller than the forecast deficit of $970 million.
In the first quarter, exports to China jumped 32 per cent to $2.3 billion and imports rose 2.8 per cent to $1.8 billion, outpacing trade with nearest neighbour Australia, which took $2.2 billion of New Zealand's exports, down 7.3 per cent, and sent $1.5 billion of its produce across the Tasman, down 5.3 per cent.
The rise of China to New Zealand's biggest trading partner underlines the importance of high-level delegations to Beijing, such as business and cultural mission led by Prime Minister John Key this month.
Exports to China have more than tripled since the signing of a free-trade agreement in 2008, while it is the largest source of foreign students and one of the fastest-growing sources of tourists.
The New Zealand dollar ticked up to 85.07 US cents after the trade data was released, from 84.96 cents immediately before.
Total exports in March from the same month last year rose 5.1 per cent to $4.4 billion, led by an 18 per cent rise in meat and edible offal.
Exports of logs, wood and wood articles rose 28 per cent to $336 million, led by pine logs. Shipments of milk powder, butter and cheese were little changed, rising 0.1 per cent, while petroleum products other than crude oil fell 89 per cent.
Imports fell 7.9 per cent to $3.7 billion. Petroleum product imports fell 14 per cent, mainly reflected a decline in crude oil, mechanical machinery declined 10 per cent and vehicles rose 4.1 per cent.
ASB Bank economist Christina Leung said she expected China would remain a key support for New Zealand's export growth, given its increasing protein needs as the country's middle class expands.
"However, offsetting this in the near term will be the effects of the drought, which we expect will weigh on dairy exports over the coming months."
"Overall, we expect moderate production growth over 2013, as drought weighs on pastoral export volumes. We continue to expect the Reserve Bank to keep the OCR on hold until March 2014, balancing off the drought and high exchange rate against rising inflation pressures from the housing market and Canterbury rebuild."
Westpac Bank economist Nathan Penny said the March trade balance increased more than expected on the back of temporarily weak imports.
"This improvement may continue for another month or two before the drought begins to weigh on commodity export volumes and as the Canterbury rebuild increasingly adds to demand for imports. Trade deficits will persist from that point."
Exports rose 0.8 per cent in seasonally adjusted terms, as forestry, crude oil and aluminium recorded large increases, said Penny. He thinks that of this bunch, he only expected increasing forestry exports to endure.
"Forestry exports are trucking along nicely, buoyed by robust Chinese demand and competing exporters such as Canada focusing on a recovering US housing market."
Imports fell 0.7 per cent in seasonally adjusted terms, which Penny put down largely to volatility rather than any underlying weakness. Imports of petroleum and products were up 44 per cent while 5 of the 6 other main categories recorded falls.
"We expect normal service to resume in the coming months as imports increase in line with the accelerating Canterbury rebuild and increasing consumer confidence."