In February, China overtook the European Union to become New Zealand's second-largest export market after Australia. It was already the second largest source of imports.

The $5.2 billion worth of goods New Zealand exported to China in the year to February 2011 was $3.2 billion, or 150 per cent higher than annual exports just three years earlier, before the free trade agreement.

China now takes 11.7 per cent of New Zealand's exports, similar to its share of global trade and up from 5.3 per cent three years ago.

Imports from China have grown more slowly over the past three years - 21 per cent to $6.9 billion.

But that reflects the fact that while China's economy has expanded by 29 per cent over the past three years, New Zealand's has shrunk by nearly 2 per cent. It would have shrunk more without China, both directly as an export market and indirectly via its impact on Australia and the rest of the region.

China contributed a third of the growth in the world economy in 2010. Will it continue to be the powerhouse of world growth? The OECD thinks so. In a recent paper for the China Development Forum it said that this year and next year emerging markets, led by China, were likely to grow fast, with robust domestic demand, and would account for a large part of global growth.

The advanced economies, by contrast, remain burdened by high levels of debt and unemployment.

China, like any trading nation, is exposed to shocks in the global economy, but its vulnerability to external risks will reduce as more of its growth is driven by domestic consumption, rather than investment and net exports.

Like New Zealand it needs to rebalance its economy, but in the opposite direction. Instead of growth top heavy in investment spending, the Chinese authorities now emphasise the need to boost consumption in their home market. That is positive for exporters to China in general.

In New Zealand's case the well-established trend for rising incomes to mean rising demand for the foods of affluence provides a platform for continued growth in the China trade. The question will be how far down the value chain the benefits are captured.

The International Monetary Fund forecasts the Chinese economy to grow 9.6 per cent this year, sightly slower than the 10.3 per cent recorded last year.

China managed to grow 9 per cent in 2009, even after international recession knocked an estimated 4 percentage points off its growth rate. That testifies both to the scale of the Chinese authorities' stimulatory response to the global financial crisis and to the inherent momentum the economy has.

Importantly, the IMF expects consumption to grow faster than the overall economy this year for the second year in a row.

Consumption has been growing at a brisk 8 per cent a year over the past decade but the economy has been growing faster still.

Consumer spending in China is low as a share of GDP, reflecting the fact that household incomes have grown more slowly than the economy and precautionary saving by households is high and rising.

To achieve a sustained rebalancing of growth towards private consumption a range of policies will be needed, the IMF says.

Top of its list - though certainly not the Chinese Government's - is a stronger renminbi.

It would raise the purchasing power of households and reorient investment towards sectors that serve the domestic market. It would not do the rest of the world any harm either.

But the Government is conscious of narrow profit margins among many exporting manufacturers and has evidently decided to proceed gingerly with any appreciation for fear of widespread factory closures, unemployment and possible unrest.

The IMF acknowledges that a 5 per rise in the real exchange rate would cut employment growth by 0.75 percentage points. In China that is a lot of people. A stronger social safety net would help the rebalancing by encouraging households to spend more, and save less, of their incomes.

Urbanisation boosts consumption too. China's cities have less than half the population but account for more than three-quarters of consumption.

Migration from the countryside to the cities has been proceeding at at rate of 18 million people a year, fuelling the productivity improvement that has underpinned China's growth.

But it raises questions about the longer-term future of Chinese agriculture, especially when combined with policies to curb population growth. The green revolution was all about raising yields per hectare, while treating inputs of labour and water as unconstrained. But they are not.

"Youth are leaving the land with the result that older people cannot maintain farms," the OECD says.

"A second wave of reform is needed which could provide similar results to reforms introduced 30 years ago."

The average farming household currently has land use rights (ownership remains with the collective) for 0.6ha of farm land and 600sq m of residential land.

The OECD recommends reforms to land tenure which would give them fully-transferable rights of use to their land for a period of 70 years, so that it could become mortgageable.

Access to credit is key to the aggregation and mechanisation needed to offset rural depopulation.

Brian Fallow is the Herald's Economics Editor