YA Zoom Into China: Trade Diversification

For a small country such as New Zealand at the corner of the globe, it is natural and expected that our economy is largely dependent on exports of goods and services. International trade is crucial to the New Zealand economy: according to the Ministry of Foreign Affairs and Trade (MFAT), international trade (imports and exports) currently makes up around 60% of New Zealand’s total economic activity. At the moment, China is our largest trading partner (30% of total exports), with Australia following in the second place at 13% of total exports.

Recently, there have been many discussions raising the challenge of diversifying NZ’s trade away from an over-reliance on China, including at the 2021 China Business Summit. Our own Foreign Affairs Minister, Nanaia Mahuta, has urged exporters to consider this matter.

In light of all this, YA decided to hold a session about NZ-China trade diversification as part of our Zoom into China online event series. This allowed a chance for young professionals to learn more about the topic from the seminar’s two experts, John Cochrane (Facteon) and Professor Siah Hwee Ang (SEA CAPE).

John started off by giving the audience some context of the evolving perception of “success” in China. Some twenty years ago, owning anything of foreign origin was considered a sign of success. What used to be a prominent mindset in the past has now changed dramatically. Today, this is reflected by the rise of domestic Chinese brands and the local pride that comes with it. However, John provided some points as to why this is not a reason for concern or worry.

Whilst it may be easy to be overwhelmed by profit-fuelled clickbait media blaring alarms over “decoupling from China”, John urged NZ small medium enterprises (SMEs) to see the opportunities in this space. He provided a contrast between New Zealand and other countries with regard to consumers’ perception of and experience with foreign brands. Since New Zealand is small, we rely on imports far more than other nations. This leads to New Zealanders growing up largely around foreign-branded products. Meanwhile, in other larger countries less reliant on imports, populations are naturally more familiar with local brands, and see foreign brands as merely an “extra” or “bonus” on top. How does this relate to China?

This is tied tightly to where consumers' priorities lie: brand value or country of origin. The Chinese consumer economy is maturing. It’s certainly changing, but it’s not a threat to New Zealand, since it’s anticipated that mature economies develop a number of treasured domestic brands, as is the case in USA, Japan, and Korea - all countries whose markets aren’t seen as impenetrable. The main lesson here for New Zealand businesses is to ask ourselves:

“How much do we build Chinese consumer preferences into our strategic decision making; in other words: ‘localise’ New Zealand brands, versus merely pushing New Zealand products into China.”

The majority of people will be drawn to products that have brand value and that are actually relevant to them, rather than attaching importance to a product’s actual country of origin. New Zealand has to move away from unbranded commodities (primary produce such as dairy, meat, etc) and into higher-value products with brand equity.

Siah echoed his agreement with John’s points on this topic. Siah presented us with China’s economic history and growth, noting its ascension to the position of top Foreign Direct Investment (FDI) nation in 2020 amidst the global COVID-19 pandemic. Siah noted that it was no surprise a small country like New Zealand had a trade surplus with a large country like China. This was demonstrated by statistics in which it was shown that China’s share in New Zealand’s goods exports over the last two years has hovered around 28%. This is in contrast to New Zealand’s share in China’s imports within the same time period: only 0.5%!

China is moving in the direction of “Made in China 2025”, in which they are pushing for quality products and services, collaborative innovation along the Belt and Road Initiative (BRI), and a lot of upskilling to meet the demands of modern manufacturing. Essentially, Siah emphasised that China is on its way to be - if not already - everywhere in the supply chain. Siah noted that when we talk about trade diversification from China, it is not a zero-sum game but rather about ringfencing the risks.

It’s clear that New Zealand businesses will have to tread strategically, keeping up with the “new” China and leaving behind the mindset of “old” ways of trading with China. It was great to hear countless valuable insights from John and Siah, whose remarks concluded with the message that trade diversification from China involves a lot of nuances, and it’s all about being smart when picking areas in which New Zealand can maximise our opportunities and areas where we minimise our risks. In closing this review, may I remind everyone that this virtual event was fully recorded, meaning that if you’d like to watch the whole session, including the Q&A segment, please sign up now for YA membership here.

Event review written by Isabella Njohana, June 2021.