web analytics
The Standard
Advertising

Phil Goff: Contemporary China Research Centre

Written By: - Date published: 6:25 pm, July 2nd, 2014 - 9 comments
Categories: China, Economy, Environment, exports, farming, farming, food, International, labour, phil goff, Politics, trade - Tags: , ,

phil goffReposted from Labour’s website.

Speech by Hon Phil Goff MP, Labour Trade Spokesperson, Victoria University, 2 July 2014

The Central Committee of China’s Communist Party’s decisions at a Plenary meeting would, two decades ago, have been of limited interest to New Zealand.

The situation today is very different.

China’s importance in the global economy and the size of its trade with New Zealand means that reforms to its economy are now very relevant to us.

China two years ago became our largest trading partner and the largest export market for our goods.

Just last week, two-way trade between our countries passed the $20 billion per annum benchmark.  By 2020, it could easily exceed $30 billion on present growth projections.

Growth in demand for high quality, safe and protein rich food by China’s growing middle class has been phenomenal.

Last year, the sale of NZ dairy products soared from $2 billion to $4 billion in one year.

Trade in New Zealand logs peaked at $1.7 billion though that is reducing sharply as the infrastructure boom in China is wound back.

Sheep meat exports moved from 1 per cent of NZ’s lamb exports in 2009 to 35 per cent last year valued at $670 million.  Beef exports jumped 271 per cent to $190 million.  An astounding $240 million worth of live crayfish, almost all of our exports, went to China last year.

Growth of trade in services has been similarly spectacular.  China has remained our largest source of international students at 24,000.   Tourism leapt to 250,000 a year making China our second biggest source of tourists.

That growth has been incredibly valuable to us.  When Europe and the US markets during the GFC were shrinking, growth in demand from China stopped New Zealand from facing the same depth in economic crisis as other western economies.

The increasing level of dependence by New Zealand on a narrow range of primary sector commodities and one market has at the same time caused some concern.  Having too many eggs in one basket creates risks.

China takes nearly 23 per cent of our total exports, up from 6 per cent in 2010.  That is still a long way from the level of dependence we had on the United Kingdom in the 1950s and 1960s.

However, within 10 years our exports to China could be around 30 per cent of our exports, a similar level to what we had with the UK at the time it entered the EEC in 1974.

Indirectly we are even more dependent on China because of its high level of trade with other important trading partners like Australia.  China is the largest trading partner for some 124 other countries.  If the Chinese economy were to collapse, the direct and indirect effects on New Zealand’s trade and economy would be dire.

The catalyst for the growth in trade was the high quality, comprehensive Free Trade Agreement I signed in the Great Hall of the People with Chen Deming in 2008.

The timing was perfect.

It coincided with the cumulative impact of decades of consistently high growth in the Chinese economy.  That produced an urban middle income group of over 300 million who had disposable income and a hunger for high protein and high quality food.

That demand is likely to be sustained into the future.  While demand for hard commodities like iron ore and coal is diminishing as the boom in infrastructure promoted by the Chinese Government to counter the effects of the GFC is wound back, demand for soft commodities like dairy is continuing to increase.

China is not able to meet this demand internally, with the current state of its agriculture and constraints on water and agricultural land.

When prices are high, however, other competitors are drawn into the market.  It is unlikely that dairy prices will be sustained at their current level.  As recent events have shown, nor can we be complacent about our reputation for high quality safe food.

Real damage was done to our reputation by the DCD and botulism scares.  It could have been even worse.  The New Zealand Government through its restructuring, cost-cutting and understaffing of MFAT and MPI must bear some responsibility for that.  Likewise Fonterra whose communication strategy and quality safeguards fell well short of the mark.

Aside from these issues, what are the risks of an economic crisis or downturn in the Chinese economy that might damage New Zealand given our growing dependence on it?  And will the reforms foreshadowed at the Third Plenum mitigate these risks?

Pessimists point to the slowing rate of growth in the Chinese economy.  They point out that China is no longer increasing its share of the US and European import markets.

They highlight growing debt levels, an appreciating currency where the RMB is 35 per cent up against the US dollar compared to 2005, and that China’s low cost advantage has been blunted by rising wages which have tripled in the past decade.  Internal inefficiencies, bureaucracy and corruption undermine China’s performance.

However, these things should be seen in context.  After 30 years of double digit growth, it is entirely predictable that the rate of growth will slow.  It is also worth pointing out that while growth in 2009 was 9.2 per cent, it produced increased value of 2.7 trillion RMB.  In 2013 growth was lower at 7.7 per cent but because it came from a much higher base, added value was in fact five trillion RMB.

China’s debt has gone up but as a percentage of GDP it is still lower than Germany’s, the least indebted of the G7 countries.

The NZ Treasury last year concluded that there are cyclical risks to China’s economic performance in the medium term but the risks were manageable.

The Reserve Bank in May of this year warned of the build-up of fragilities in the financial sector.  The so-called shadow banking sector runs higher risks than the more regulated and supervised banking sector.

Local government financing vehicles face significant funding and liquidity risks.  There is a risk of a sharp decline in property prices which could reduce household wealth and trigger more widespread asset losses in the financial sector.

The Reserve Bank warned that a contraction in Chinese demand could have a major impact on New Zealand’s exports.

However it reported that reforms in the Third Plenum aimed at liberalising interest rates, reforming local government finances and improving transparency and regulation in the shadow banking sector addressed these risks.

The central government in China holds extensive assets and foreign reserves.  External debts are minimal and central government debt low.  The Chinese Government, it said, therefore has the capacity to intervene to stabilise financial markets and manage the risks.

The Third Plenum and the leadership of Xi Jinping mark a clear commitment by the new Administration in China to address the need for economic, social and environmental reform in China.

Comparing it with the land mark reforms of Deng Xiaoping at the Third Plenum of 1978 may be an exaggeration.

The 1978 reforms marked the abandonment of Mao’s disastrous economic policies and political management and a platform to launch China’s opening up and reform.

The 2013 reforms build on preceding changes and mark an intensification of efforts to address outstanding problems.

The most significant change will be to allow the market to play a more decisive role in the allocation of resources, and to price those resources accordingly.  The power of SOEs will be curbed and new areas opened up for private sector investment and competition.  Unnecessary red tape and regulation will be cut.  Financial markets will be liberalised and improved and the tax system further reformed.

Social reforms are also significant.  Most families will be allowed to have a second child if they choose.  The hukou or household registration system will be reformed to give rural migrants equal access to public services.  Re-education via labour systems will be abolished.

The crackdown on corruption has already seen over 31,000 officials convicted in 2013 and has reached up to the highest levels of the Party.  Importantly the crackdown has been sustained and appears likely to continue to apply pressure to change an entrenched culture.

There is a renewed commitment to addressing the air, water and soil pollution caused by decades of subordinating the environment to rapid economic development.

The reforms, however, don’t embrace political liberalisation.  Media censorship has tightened and the pervasive and dominant role of the Party entrenched.

It remains to be seen whether the intent of reforms can be realised without the accountability that the rule of law, an independent judiciary and free media and upholding of human rights provides in a democratic society.

To conclude, it is too early to judge conclusively what impact the Third Plenum reforms will have on China’s economy and society and on us and the region.  The need for reform is undoubted, the commitment to reform and leadership of it apparently strong and the general direction of the reform positive.

The ability to implement it and whether the extent of necessary reform goes far enough are both less certain.

New Zealand will benefit economically from the successful implementation of reform because of the high level of interaction between our economy and China’s.  So too will the region.

New Zealand should seize the opportunities China offers us as a trading partner and make changes to ensure we are best able to realise the full potential it offers.

At the same time we would be wise to make strenuous efforts to diversify our export markets and the narrow export base our country relies on.

That is a common sense safeguard against the risks that dependency on any one market or narrow range of products involves.

With reform and continuing economic success, China’s influence over us, the region and the world will grow commensurately.  Political and military power grows with economic power.

Our engagement with China and the balancing of our relationships with China and the other super power in our region, the United States, will more and more become front and centre of New Zealand’s foreign and trade policy.

9 comments on “Phil Goff: Contemporary China Research Centre”

  1. ianmac 1

    And of course much bigger countries can up their milk production and out bid NZ. Not sure if this Government will bail out the farmers should there be a significant fall in income.
    And value added of other products like timber might help broaden our base.

  2. AmaKiwi 2

    Thank you, Phil, for a very comprehensive and timely analysis.

  3. Colonial Viper 3

    Basically, the above covers why the US decided to move an extra carrier group into the Pacific, and why it is supporting the remilitarisation of Japan above and beyond its self-defence mandate (and directly against the will of ordinary Japanese citizens).

    NZ needs a sovereign, independent foreign policy or we will be caught up in the BS of inevitable superpower wrangling in the Pacific over the next 10 years.

  4. greywarbler 4

    I put this in Open Mike earlier but I think it should be noted here too.

    RadioNZ 8:12 am Sunday 6 July: Insight: NZ’s tiptoe relationship with the US and China

    The Prime Minister, John Key’recent trip to New York was focused on lobbying permanent ambassadors at the United Nations to support New Zealand’s bid for a non-permanent seat on the Security Council in 2015/1.New Zealand has been selling itself as a sensible and moderate nation that prides itself on taking an independent view.

    But the main reason for John Key’s visit to the United States was to spend time with the President , Barack Obama, reinforcing Wellington’s warming relationship with Washington.
    America’s so-called “rebalance” towards the Asia-Pacific region, a policy thought to be prompted by the rising presence of China in the region. But could that also put NZ in a difficult position as it tries to balance its important relationships with both the US and China?

    Radio New Zealand Political reporter, Chris Bramwell, travelled with Mr Key to the US and explores how difficult that balancing act might be.

  5. geoff 5

    Here’s the tldr….China is important

    The most interesting part for me was the language that Goff used in this paragraph:

    The most significant change will be to allow the market to play a more decisive role in the allocation of resources, and to price those resources accordingly. The power of SOEs will be curbed and new areas opened up for private sector investment and competition. Unnecessary red tape and regulation will be cut. Financial markets will be liberalised and improved and the tax system further reformed.

    Yes that’s what China really needs, liberalised financial markets.
    I don’t suppose Phil looked too closely at why the GFC occurred…

  6. Stuart Munro 6

    In Goff’s universe it seems these deals are a triumph. Oddly enough, NZ seems a much poorer and more desperate place, triumphs notwithstanding. Some analysis of costs and benefits of trade deals is overdue – the more so with the TPP looming. I’m not quite sure that Goff is sufficiently detached to do that analysis either.

  7. greywarbler 7

    This morning Kathryn Ryan RadioNZ 9.20ish Thurs 3/7.

    Professor David Shambaugh is an internationally acclaimed commentator on contemporary China. He is a Professor of Political Science and International Affairs, and the Director of the China Policy Program at the Elliott School of International Affairs, George Washington University.

    Professor Shambaugh was the keynote speaker at a conference hosted by Victoria University of Wellington’s New Zealand Contemporary China Research Centre on Wednesday 2 July, which contemplated the radical policy reforms that were proposed by the Communist Party of China’s Central Committee at the 2013 Third Plenum.

    His talk is titled: “New policies – has China done enough to secure its future? China at the crossroads.”

  8. DH 8

    I’ve read this a couple of times & still end with the same question. What’s his point?

    • Olwyn 8.1

      I took it as an attempt to soften people’s attitudes toward the TPP, but I may well be reading too much into it. The obvious things I find worrying about it are those expressed by geoff and Stuart Munro: his continued enthusiasm for “financial liberalisation” and his delight in “triumphs” that tend to involve the clobbering of the very section of the population he is supposed to represent.

Leave a Comment

Show Tags

Current day month ye@r *

Important links

Recent Comments

Recent Posts

  • Israel celebrates killing of children
    As the Israeli bombardment and occupation of Gaza intensifies with Unicef estimating that 230 Palestinian children have been killed to date, the international response to numerous Israeli war crimes appears to be floundering. Although an investigation will be conducted, without...
    The Jackal | 30-07
  • A video has emerged showing far-right Israeli protesters celebrating the death of children in Gaza in Tel Aviv this weekend.The protesters, who were picketing a much larger anti-war demonstration in Tel Aviv’s Rabin Square on Saturday night, can be seen...
    The Jackal | 30-07
  • Novopay triumph for government
    Today the National government announced the future plans for the troubled education payroll system Novopay. The system has had a rough ride since it was implemented almost two years ago. At parliament today the Cabinet Minister for Fixing Up Really Bad...
    My Thinks | 30-07
  • Stuart’s 100 #3: Plane Tree Avenues
    Stuart Houghton’s 100 ideas for Auckland continues 3: Plane Tree Avenues Franklin Road, with its historic plane trees, is one of the most loved streets in Auckland. What if plane tree avenues defined all the major city fringe streets? This...
    Transport Blog | 30-07
  • Too Much some recent articles on Inequality
    click here for these...
    Closing the Gap | 30-07
  • From truffle to light crude; oil doesn’t come cheap
    The Governments oil salesman Simon Bridges just can’t catch a break these days. Whether it’s having to admit that he’d never even heard of NZ’s largest forest park (Victoria FP) which he’d just opened up to drillers or getting stick...
    Greenpeace NZ blog | 30-07
  • Submit on the Draft Parking Discussion Document
    Auckland Transport have had their Draft Parking Discussion Document (2mb file) out for consultation over the last couple of months, but this closes at midnight on Thursday. This covers the full range of parking issues around the city, including on-street, off-street and park...
    Transport Blog | 30-07
  • Reaching out to voters
    This is going to be the biggest grassroots campaign we’ve ever run. A couple of weeks ago I shared some of the stats from our voter outreach programme with the media. It’s campaign activity that’s often hidden from view, but...
    Labour campaign | 30-07
  • Scrapped
    Wellington City Council has scrapped its "alternative giving" campaign. Good. As the article notes, the campaign was an expensive failure, with $40,000 spent to raise just $3,500 for the homeless. But despite that, its architects are still trying to pretend...
    No Right Turn | 30-07
  • Following in illustrious footsteps
    Gaylene Nepia is campaign manager for both the national Māori campaign and for her brother Adrian Rurawhe - Labour’s candidate for the Te Tai Hauāuru electorate. Mr Rurawhe and Mrs Nepia are great grandchildren of Tahupotiki Wiremu Ratana, founder of the...
    Labour campaign | 30-07
  • Seeing life through a Maori lens
    Meka Whaitiri, MP for Ikaroa-Rawhiti, is contesting the seat for the first time at a general election. She entered Parliament through a by-election in June last year, following the death of her predecessor Parekura Horomia....
    Labour campaign | 30-07
  • Bribery
    So, it turns out that the government blew $240,000 on hosting eleven oil company executives for a four-day junket during the 2011 rugby world cup. In Parliament today Energy Minister Simon Bridges admitted that $22,000 of that spending was on...
    No Right Turn | 30-07
  • All other things being equal… except they aren’t
    US Supreme Court Chief Justice John Roberts likes to say that “the way to stop discrimination on the basis of race is to stop discriminating on the basis of race", a sentiment ACT leader Jamie Whyte would applaud going by...
    Pundit | 30-07
  • Celebrating a great talent pool
    I've been an MP since the 1996 election, first for Te Tai Hauauru and then for Tainui, which became Hauraki-Waikato after boundary changes. I'm seeing a real energy around Labour among Māori. The talent pool that Labour is fielding in both...
    Labour campaign | 30-07
  • Labour on wages
    Great to see positive, progressive policy from Labour on wages today. The core points are: Increase the minimum wage by $2 an hour in our first year, to $15 an hour in our first hundred days in government, and increased...
    Polity | 30-07
  • Inequality: Balancing the Extremes from Credit Suisse Research Institute
    click here for this youtube clip...
    Closing the Gap | 30-07
  • Labours policies a step change for working people
    “After six long years of working life getting tougher in New Zealand workers have been given a real choice today with the announcement of Labours Industrial Relations policy package.” CTU President Helen Kelly said...
    CTU | 30-07
  • Inequality and Its Consequences Stiglitz and Feldstein
    click here for this youtube discusioon...
    Closing the Gap | 30-07
  • Australia’s corruption cover-up
    Wikileaks strikes again:A sweeping gagging order issued in Australia to block reporting of any bribery allegations involving several international political leaders in the region has been exposed by WikiLeaks. The prohibition emerged from a criminal case in the Australian courts...
    No Right Turn | 30-07
  • A bottom-up plan for inequality
    Labour released its "work and wages" policy today. The headlines? Abolishing the 90-day law and increasing the minimum wage by $2 to $16.25 an hour by April 2015. Those are fairly obvious ways of delivering to their core constituency, but...
    No Right Turn | 30-07
  • World News Brief, Wednesday July 30
    Top of the AgendaU.S., EU to Toughen Sanctions on Russia...
    Pundit | 30-07
  • Where are Labour’s billboards?
    On Sunday, I drove from Gisborne to Katikati, through Opotiki, Te Puke and Tauranga. Yesterday afternoon/evening, I made the return journey. One thing I noticed is that National Party billboards popped up regularly, mixtures of individual candidates’ billboards (simply stating...
    Occasionally erudite | 30-07
  • “Improving”
    End-of-Year process positive for Novopay, Steven Joyce, 17 January 2014:Minister Responsible for Novopay Steven Joyce says a 100 per cent completion rate for schools involved in the End-of-Year process and an accompanying low error rate are tributes to the hard...
    No Right Turn | 30-07
  • Farmers don’t set out to pollute our rivers
    It can be easy to vilify farmers. But no farmer sets out to create pollution, and the evidence suggests that many farmers are either already acting responsibly or that they are lifting their game. In particular, dairy farmers are acting....
    Gareth’s World | 30-07
  • Guide to economic evaluation part 3: What is agglomeration?
    Debates over major transport investments often get caught up in arguments over benefit-cost ratios, or BCRs. In recent years, projects such as the Transmission Gully and Puhoi to Warkworth motorways and the City Rail Link have been criticised for their...
    Transport Blog | 30-07
  • Where to now for Colin and the Conservatives?
    It’s (almost*) official – there’s no deal for Colin Craig in East Coast Bays. Murray McCully will not be knifed, thrown under a bus or given concrete shoes to go swimming in. Given that Mr Craig had already accepted he...
    Occasionally erudite | 29-07
  • Real men say sorry
    There are a couple of universal truths that all men should be aware of. Firstly, it takes a bigger man to walk away. Of course men can be accused of being weak if they don't confront their problems with violence,...
    The Jackal | 29-07
  • Why my children took part in a playful protest against LEGO’s partner...