Union boss Ross Wilson warns that the Government must urgently increase investment in skills and economic development if it is to have a chance of competing with China's growing manufacturing strength.
Mr Wilson, presiden of the Council of Trade Unions (CTU), has just returned from China as part of aCTU delegation.
"The world has been changed by the emergence of China as a major manufacturing nation, and New Zealand must find a way to compete," Mr Wilson said.
He said the only solution is for New Zealand to invest more in developing a skilled workforce and paying higher wages.
"While we remain a low wage economy, we've got no chance of boosting our productivity or innovation -- and they are the only things that will save us as China's manufacturing becomes more and more efficient."
New Zealand was at a crunch point, he said.
China's GDP grew 9.4 per cent in 2004, while New Zealand's seasonally adjusted figure for 2004 was 4.8 per cent.
Mr Wilson said the only way a small country like New Zealand could compete was at the high end of the market.
"We've got to boost our design and innovation to produce high value products for niche markets."
While shifting production off-shore to China might be seen as a solution for some businesses, it was no solution for the 300,000 New Zealand manufacturing workers or the economy, he said.
