Trading with China: a success story: Tim Groser reflects on the evolution of New Zealand's trade relationship with China.

• Author: Groser, Tim
• Position: Report

The New Zealand-China trade relationship is going from strength to strength. The ambitious goal set in 2010 of doubling our two-way trade by 2015 has already been achieved--one year ahead of schedule. But the bar has now been further lifted. A new equally ambitious goal is to lift two-way trade to $30 billion by 2020. This remarkable growth is the result of the hard work of a lot of people over many years and by successive governments. While some see the growing dependence on China as problematical, it is a situation faced by a majority of other countries. The benefits of our linkage outweigh the potential disadvantages

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We have just passed--one year ahead of schedule--a milestone that frankly I thought was quite a stretch when Prime Minister Key and Premier Wen decided on it in Beijing in 2010: to double our two-way trade by 2015. Well, copy that: we put a positive tick beside that goal at the end of June. Apparently, our leaders will not allow us to take a breather--the prime minister and the new president of China, President Xi, have now decided to lift the bar again. The goal now is to lift two-way trade to $30 billion by 2020.

By the way, our extraordinary success with China, which has both a political and a commercial side to it, is being noticed and admired--maybe even envied--around the world. In Mexico City in June, and on my way to representing New Zealand at the heads of state meeting of this new trade grouping called the Pacific Alliance, I was holding a seminar on global trends in trade with my host, Mexican Minister of the Economy, and a former professor of economics, Dr Ildefonso Guajardo. This subject came up from the floor in the questions and answers. When I gave the questioner the basic data on our exports, the Mexican minister said New Zealand's exports were greater than Mexico's total exports to China. Mexico is the fourteenth largest economy in the world and has 118 million people.

Take a bow, New Zealand Inc. It has taken a lot of people and a lot of hard work over a number of years over successive governments to get us to this excellent position. We are now seeing the benefits in terms of increased export income (and thus lowering foreign borrowing than would have been the case), more jobs and higher economic growth. If we stick to what we know works in terms of foreign policy, trade policy and the domestic economic policies that underwrite this huge success, the future is even brighter.

This very success is, however, giving rise to a number of people asking a question--namely, are we in danger of creating too much trade dependency on China?

Fair question

Personally, I think it would be harsh to brush this aside by saying some people can only ever look at a glass as half-empty. It is a fair question that deserves a fair answer. It is especially so in the light of the defining event of our trading economy in the last 50 years: the body-blow we suffered when the United Kingdom, which then absorbed 50 per cent of our total exports, entered the then European Economic Community, triggering a whole series of difficult adjustments by New Zealand. As a country, we know the hard way about trade dependency and the risks it involves.

However, as I go through my analysis of the issue, just bear in mind one central fact. The world is utterly different today than it was in the 1970s. The front and centre of the problem faced 40 years ago by New Zealand trade negotiators like me, and particularly the people I learned my craft from, was we had too much product for export and too few market opportunities open to us. The world just shut us out.

Today's trade policy 'problem'--if indeed 'problem' is the right word for it--is the opposite: we have more opportunities than we could ever exploit. In terms of our agri-business exports, we can only feed around 40-50 million people. The new trade agenda in front of us--and the Trans-Pacific Partnership is the biggest game in town here--is about risk diversification and giving our companies more choice still.

Expanding choices

It is not just, to use American basketball parlance, 'defence' (that is, risk diversification) but 'offence' as well--we want to strengthen the hand of our export sales managers when they look at alternative markets for the world-class suite of goods and services their company and New Zealand has to offer. If you do not have choice, you do not have a negotiating position--you have a set of requests. I remember one veteran Australian trade negotiator telling me as a young New Zealand negotiator in Canberra that 'New Zealand negotiates through a veil of tears'. It was meant to intimidate me, so I just said 'You're right. But aren't we good at it'.

Well, we are also good--very good--at the new game where, thanks to our successes married to economic development in the emerging economies, we are in an entirely different and utterly more favourable position. In addition to the two 'jewels in the New Zealand trade policy crown' of CER and the China free trade agreement, we have a free trade agreement with Hong Kong, a comparable agreement with Taiwan (another world first), a comprehensive free trade agreement with the whole of ASEAN (AANZFTA) that was finally ratified by Indonesia, the largest ASEAN economy, in 2011, a free trade agreement with Chile, P4 (or Pacific Four--the foundation stone of the TPP) and several individual free trade agreements with South-east Asian countries. And we are...