China trade target has risk: expert

Two-way trade betwen China and NZ swelled to $18.2 billion last year, a 25 per cent increase on 2012, driven largely by surging Chinese demand for NZ dairy products. Photo / Richard Robinson

Boosting New Zealand's two-way trade with China to $30 billion by 2020 is achievable but there are risks with New Zealand becoming over-dependent on the Chinese market, says a top economist.

The new target, set between Prime Minister John Key and China's President Xi Jinping in Beijing on Wednesday night, upgrades the previous objective of $20 billion by 2015.

That goal was on track to be exceeded after two-way trade swelled to $18.2 billion last year, a 25 per cent increase on 2012, driven largely by surging Chinese demand for NZ dairy products.

ANZ chief economist Cameron Bagrie said there were "opportunities across the board" for increasing non-dairy exports to China. "It's not just about sending milk powder up there.

"Look at the growth we're seeing in areas like education and tourism - China is now our second-largest inbound tourism market [behind Australia]."

The Chinese tourism market is worth $670 million annually and is expected to double in value over the next five years, according the Tourism Industry Association of New Zealand.

Dairy products accounted for roughly half of the $10 billion worth of goods this country dispatched to China in 2013.

Bagrie said he was concerned about New Zealand having "too many eggs in the China basket" and this country needed a more diversified export base.

"If we don't have that diversification and things go pear-shaped in China it will knock us for six," he said. "[China's] economic model is coming under a bit of pressure - there's been an awful lot of leverage built up within that economy within the last few years."

If we don't have that diversification and things go pear-shaped in China it will knock us for six.

ANZ Bank economist Cameron Bagrie

A Chinese "wobble scenario" would also have an indirect impact on New Zealand as a result of the negative economic effect it would have on Australia, our second-biggest trading partner, which is heavily reliant on mineral exports to China.

NZ Manufacturers and Exporters Association chief executive John Walley said increased imports of electrical goods, computers and vehicles - Chinese car brand Great Wall has been making inroads into New Zealand - would drive growth in China's exports to this country.

"The challenge for New Zealand will be growing its value-added exports to China," he said. "The big issue right now is we sell them raw materials [such as milk powder and logs] and they sell us value-added products."

Walley said dairy expansion was already causing environmental problems and some of the growth in exports required to hit the $30 billion target should come from alternative products such as machinery, software and high-value manufactured goods such as boats.

New Zealand China Council executive director Pat English said a downturn in some of New Zealand's export markets like the United States and Europe had created additional dairy supply over the past few years.

"If our other traditional markets lift up again in the next six years that's certainly going to put pressure on the supply into China, and price," he said.

Auckland Chamber of Commerce chief executive Michael Barnett said a strategy needed to be put in place to achieve the $30 billion target.

There needed to be a discussion about whether all export sectors would have to expand activity to meet the goal, and if it will require more Chinese investment in New Zealand, Barnett said.

He said New Zealand should also focus on boosting its exports to other Asian countries such as India, which New Zealand is currently negotiating a free trade agreement with.

[Those markets] should also be exploited to the same degree as we have with the China agreement or [we will ] face the prospect of dependency on one market which will make increasing demands on how we do business with them," he said.