Amid a trade war and rising tension with the US, China is grappling with signs of a sharp slowdown in economic growth – one that could cause serious problems for New Zealand exporters in coming months.
The historic scale of the stand-off between China and the US became apparent last week as a war of words at the Apec meeting sparked talk of a cold war.
It has highlighted the fact that New Zealand faces a complex diplomatic challenge as it tries to balance its position between the two superpowers.
But as our largest and most valuable export destination, China's economic cycle already casts a shadow over our own.
New Zealand may face more immediate economic issues in our relationship with China if economic conditions deteriorate further – and they are expected to.
Infrastructure and construction growth have slowed, Chinese property prices are soft, share prices have plunged into a bear market and there have been unexpectedly bad numbers for car and retail sales.
And all that before the US tariffs on Chinese exports have even started to bite.
Chinese exports to the US actually surged in September and last month, as traders tried to get in ahead of the tariffs.
The real economic impact of the trade war will only become clear in the next few months.
China's economic outlook has for a long time divided analysts into bulls and bears - optimists and pessimists - but it is telling that even relative optimists now see the country facing a slowdown into next year.
"Growth has peaked in China," says HSBC co-head of economics for Asia, Fred Neumann. "We've been sliding for several months now but the weakness is really domestic, it's not external, so the trade side has actually held up so far reasonably well."
In other words, there may be more bad news to come. And, perhaps most worryingly for New Zealand businesses, there are signs that Chinese consumer demand is slowing – something that would have a more direct impact on our exports of premium food products.
"We may not have hit bottom yet, cyclically," says Neumann. "That might be the first quarter of next year."
But Neumann is confident about China's ability to adjust economic settings and inject stimulus. "We would argue that Beijing has a lot more cards to play in terms of supporting [the economy] and they will gradually roll that out in terms of supporting growth."
It's all part of what he describes as a "tricky balancing act".
"Investors always swing from exuberance to despair," he says.
"But if you take a more sober look at it, policy makers are actually doing the right thing to curb credit growth, but there is obviously a price to be paid and that's slower economic growth. And that's what we're seeing now."
It's no secret that China has a debt problem. Since the end of the global economic crisis, much of the country's enormous infrastructure expansion has been funded by a credit boom.
Combined public and private debt has topped US$34 trillion – approaching 300 per cent of annual GDP.
Again, whether that is apocalyptic or still manageable tends to divide analysts.
But, with global interest rates moving up and credit conditions tightening, Beijing has recognised that it needs to start dealing with its debt binge.
In the past year it made moves to curb local governments' appetite for debt, and that has slowed construction growth.
"So yes, the economy has decelerated but some of that is a result of deliberate tightening measures," Neumann says.
But now, faced with the prospect of missing this year's GDP growth target of 6.5 per cent, Beijing is loosening conditions again.
There has also been a relief package for households (worth roughly 0.2 per cent of GDP in total value), with deductions for health spending, education and changes to the marginal tax rate – raising the thresholds where people start paying taxes.
"That's something they may expand," Neumann says. "But we think the biggest portion of the stimulus package will be aimed at the corporate sector – corporate tax relief."
When the stimulus comes, it will stabilise growth and consumer sentiment will improve, Neumann argues.
But economists such as Wigram Capital's Rodney Jones – a Hong Kong-based Kiwi with 30 years' experience living and working in Asia – believes the slowdown is part of something bigger.
Jones, who until recently was based in Beijing, questions the Communist Party's capacity to stimulate its way out of the malaise.
He sees the latest downturn as part of an ongoing flattening in economic growth that New Zealand business needs to be ready for.
"The argument people make is that there are these perennial bears on China and that they've been proved wrong," he says. "In reality, growth has slowed a lot in the past five or six years."
And the way that growth has been maintained has been through borrowing, he says.
"Everywhere in Asia you have these 30-40-year periods of fast growth whether its Thailand, Malaysia, Korea, Japan … and then at some point the fast growth ends. And it ends very discreetly."
"I would argue it ended for China in 2011 and they've sustained it since 2011 with the credit boom … now they've realised they can't keep the credit boom going anymore, the banks are strained.
"China's golden age was the 2000s and they've built up a lot of buffers during that time and those buffers are now largely exhausted.
"So the question is: where do we go from here?"
Optimists have long argued that China's debt doesn't matter too much because the Government and businesses can grow their way out of it.
But time may be running out.
Jones' view might be bearish, but it isn't radical.
The OECD also forecasts that Chinese GDP growth will steadily slow down – from the 6.5 per cent it is struggling to hit this year.
Its long term projections see that growth dropping below 4 per cent by the middle of next decade, at which point China will be into territory that can be matched by advanced economies.
By 2050 the OECD projects growth below 2 per cent – a level at which it would become vulnerable to cyclical recessions.
Jones – with other bearish analysts – is sceptical about the official numbers anyway.
"Underlying growth is weaker than they report," Jones says. "We think the economy is really growing somewhere between 3 and 4 per cent." He sees inflation as closer to 3.5 per cent than the official 2.5 per cent.
"In 2019 we're likely to slow quite a bit and that is an issue for New Zealand."
In the short term, weakness is concentrated in two sectors, says HSBC's Neumann.
"One is infrastructure spending. The Government has clamped down on local government debt issuance and that has had the intended result, which was to slow down infrastructure spending quite rapidly.
"The other source of weakness is with the consumer [spending], which has pulled back a little bit at the margins. That's manifested itself in a big decline in car sales, for example, which have declined for four months running."
It's this second area that should worry New Zealand.
Our economy has boomed in the past 15 years on a high-octane mix of Chinese consumer growth – dairy, wine, kiwifruit, honey and tourism.
"October numbers suggest retail sales pulled back quite a bit," Neumann says
The slide in the real estate market also needs to be watched very carefully.
"If the economy continues to decelerate, it obviously is going to weigh on regional growth as well. So far it's not really apparent in the numbers."
The pull-back in consumer spending might be a "headwind for regional economies".
"I guess New Zealand and Australia are also exposed to the extent that they are into the consumer side in China," he says. "I think New Zealand moreso than Australia."
European exporters are already showing signs of concern, where they are selling some of the more discretionary products, he says.
Right now, though, big New Zealand exporters of premium foods – like Zespri – still see plenty of the growth on the immediate horizon.
While he acknowledges the slowing in top-line growth, Zespri's Beijing-based head of corporate affairs, Ivan Kinsella, says the company is still struggling to keep up with demand as it expands into new territory in China's fast growing second-tier cities.
It's a reminder that China is huge market for a small player like New Zealand, with a lot of complex trends playing out below the surface.
"There's no doubt there is some softening in parts of the Chinese economy," says Kinsella. "The rate of growth is slowing but it still comes off a very high base relative to other markets – so mid-6 per cent to 6 per cent."
That's still a very a high rate, he says. And the retail side – which can be viewed as a proxy for consumption - is even stronger.
The latest figure for retail growth was 8.6 per cent, and while it has softened in the past few months, it is still up on this time last year.
"In the first nine months of this year, Customs figures showed that fruit imports were up 37 per cent in value and 25 per cent in volume terms over the same period last year," Kinsella says.
He notes that Zespri fruit is now well embedded at the premium end of the market with gold kiwifruit selling for between two and three dollars apiece.
"We're seeing those prices sustained," says Kinsella. "And the sales volumes are increasing as we expand beyond the large coastal cities into the provincial capitals - the tier two cities.
"By 2020 there will be something like 200 cities in China with at least 1 million people. So the rising incomes that go with that provide a great support for our exports here."
Looking out three to five years, HSBC's Neumann shares Kinsella's confidence.
"One of the things about China is there is enormous swings of sentiment from bullish to bearish," he says.
"We had quite severe challenges in 2008-09; 2015 was a tough year. And every time they gently nudge growth back and manage to stabilise it. And I don't think what we see currently is more severe than the challenges of the last 10 years.
"It's not our forecast, but even if you were to slide to 5.5 per cent growth in the next two years, it's not the end of the world. China would still represent a lot of incremental demand for the rest of the world."
Meanwhile, imports will continue to rise as a share of GDP as China seeks to balance its trade surplus and lift consumption.
"One goal they are pursuing is to strengthen the role of private consumption in GDP," Neumann says. "That goes hand in hand with reducing import barriers and lifting consumer spending power and so there's a lot more in terms of business opportunities or outside companies to penetrate the Chinese consumer market.
"So the point I'm making is that even if headline growth slows, it doesn't necessarily mean that China will become a drag on the rest of the world.
"The sentiment is now bearish and pulling back, but really, if I take a three- to five-year look, I think China's households are going to be an engine for regional trade."
But Wigram's Jones thinks New Zealand business needs to brace for a world where China is no longer driving growth.
Relying on Beijing to come to the rescue with stimulus is not a sound basis for growth, he argues. "We [NZ] used to have the same model," he says. "It's not that different to the '60s and '70s when [Rob] Muldoon was Finance Minister.
"We would have mini-budgets and we would always have stimulus and in the end that stopped working. We'd run through the buffers we built up and that's kind of China's story today."
We should be working hard to diversify our trading partners in Asia, for both our financial and political security, he argues.
The idea, forged at the time of the Free Trade Agreement (FTA) in the 2000s, that New Zealand has special status with China can't be sustained, he says.
Despite the high hopes of New Zealand diplomats, Jones doesn't believe we are going to get an upgrade to the FTA.
"We're deluding ourselves. We're a Western democracy and Xi [Jinping] has made it clear that democracy is a threat. And that his model, the China model, has no place for democracy or human rights. So we have a real problem."
We need to be more confident about our own political and cultural worldview, Jones says.
"We can agree on where we agree, but we disagree on many fundamental things. We worry too much … they need to buy our goods."
Meanwhile, India, Indonesia and Vietnam are taking off, he says.
These countries are about to go through the transition we've seen the Asian tigers and China go through.
Jones believes China is now following Japan's path to a slow-growth economy, and he doesn't see that changing under the current political regime.
"Under Xi Jinping, China is not going to grow as a share of Asia any more," he says. "The Chinese Communist Party is holding China back."