Dancing with the dragon: Stephen Jacobi considers the opportunities and risks in the New Zealand-China.

• Author: Jacobi, Stephen

China's re-emergence as a global economic and political power is increasingly being felt around the world. As our relationship continues to grow and deepen, it is perhaps inevitable that there will be some heightened public debate about the extent of that relationship and its impact here in New Zealand. Dancing with a dragon must, after all, be considered a risky business, even for us kiwi hobbits, and even at the best of times.

In this article I will share some thoughts in three areas:

* the relationship as we see it today

* the nature of the public debate about the relationship

* how we can continue to build the relationship in the future, while being mindful of both opportunities and risk.

By any measure, these are amongst the best of times for the New Zealand-China relationship. Considering that 45 or more years ago, in 1972, when New Zealand diplomats entered China to establish relations with the Peoples Republic, they did so on foot from Hong Kong, yet today 36 flights a week link China and New Zealand, then clearly something has changed. On the economic front, there was a significant advance after the signing of the free trade agreement which took effect in 2008--in a relatively short time since then China has become our largest trading partner, challenging Australia for that position.

We are by now used to stories about how well dairy does in China. New Zealand currently supplies over 80 per cent of butter imports into China and over 50 per cent of cheese imports. Half of the pizzas eaten in China use New Zealand mozzarella cheese --that is a lot of pizza and a lot of cheese. And there is a lamb story too: China has nudged out Britain as our major market for sheepmeat--that is a lot of hot pot not in Lancashire but in Harbin!

China is not only the largest single market for a range of goods that this region exports, including sheepmeat, wool, forest and wood products as well as dairy, but also extremely important as a market for our services exports. Education and tourism are the biggest services exports, with 34,000 Chinese students studying here and 400,000 Chinese tourists visiting each year--both sectors of importance to Nelson. New Zealand also increasingly exports to China services products from the 'knowledge economy', such as design, information technology, film and TV, and food safety assurance.

China is a growing investor in New Zealand. China's stock of investment lags behind other partners like Australia, the United States, Europe and Japan, but the growth is significant and China's investment is not confined, as some might think, to farms and food but extends to all sectors of the economy, including manufacturing and the creative industries.

Extraordinary growth

This extraordinary growth in trade and investment cannot be attributed entirely to the free trade agreement--China's rapidly expanding economy, on which we relied heavily during the global financial crisis, also had a lot to do with it. The New Zealand-China free trade agreement was initially projected to increase our exports by between $225 and $350 million each year, but that target has been revised upwards to $30 billion in two-way trade by 2020. We are already at over $20 billion and whether or not that upper target can be reached, it is clear that on the numbers alone the economic relationship has expanded in leaps and bounds.

New Zealand was not the first country to have a free trade agreement with China--our old competitor Chile beat us to it--but we were certainly the first developed country to do so. That gave us some kudos with our Chinese friends, who regularly point to a number of 'firsts' in the relationship, of which the free trade agreement is one. As a result, New Zealand has benefited, more than might be expected for a country of our size, from the close attention of Chinas political leadership, many of whom at early stages of their careers have visited New Zealand. President Xi Jinping made an earlier visit to New Zealand before he became president.

Some have spoken of a 'special relationship' between New Zealand and China--it is certainly true that there is a level of friendship and confidence in the relationship that both sides have been keen to foster. That New Zealand, although firmly a member of the Western group of nations, is not in a position to threaten China clearly helps. Seen from Beijing New Zealand appears as a constructive and predictable partner whose perspectives on a range of issues...