New Zealand's trade with China benefits at Australia's expense

Australia-China Ties Remain Hostile – But New Zealand Upgrades Trade Deal With China That Could Bring Record $50 Billion


While Australia, the United States’ “deputy sheriff” in the Asia-Pacific region, has chosen to remain hostile with China, it’s a different story with its neighbour, New Zealand. The Kiwi has just officially upgraded its 2008 free-trade agreement (FTA) with China that will give exports greater access to the Chinese market. New Zealand was the first developed country to sign a free trade agreement with China in 2008.



The deal had been in discussion for years – till last year. In January 2021, China and New Zealand signed a deal to upgrade their existing free trade pact, allowing Kiwi’s commodities increased access to the world’s second-largest economy. The deal was actually concluded in November 2019, but was pending China’s official signing. It was then given a boost after Beijing’s ties with Australia deteriorated.



Hence, it was no coincidence that the China-New Zealand new pact was reached after Australian Prime Minister Scott Morrison’s campaigned in April, 2020 – urging top allies France, Germany and New Zealand to pressure China to give the foreign countries the “weapons inspector-like” powers to investigate the origins of the Coronavirus pandemic.



China had mocked Australia for parroting then-U.S. President Donald Trump in its call for an inquiry to determine the origins of Covid-19, despite Morrison’s own admission that he had no evidence to suggest the disease originated in a laboratory in the Chinese city of Wuhan. Trump was the only leader who said he was convinced the virus may have originated in the Chinese virology lab.



To punish Canberra, Beijing has imposed heavy tariffs on imports of Australian products, a tactic which China has learned from Donald Trump. Starting with an 80.5% tariff on all Australian barley grain after banning its beef suppliers, the Chinese government has slapped more tariffs on Australian wheat, barley, sugar, red wine, timber, wool, lobster and copper ores.



One man’s loss is another man’s gain. New Zealand saw the opportunity and seized it. When Prime Minister Jacinda Ardern signed the agreement to “modernize” the existing free trade agreement with the Chinese government last year, China has become New Zealand’s largest trading partner, with annual two-way trade of over NZ$32 billion (US$21.58 billion).



Now that Kiwi has ratified the upgrade deal, Minister for Trade and Export Growth Damien O’Connor said – “Goods and services exports between China and New Zealand reached $20.1 billion in the year ending June 2021. Our trade agenda has very good momentum, with our primary industry exports forecast to hit a record $50 billion this year alone.”



Essentially, the upgrade, which will go into force on April 7, means that 99% of New Zealand’s nearly NZ$3 billion ($2.16 billion) wood and paper trade to China will be granted tariff-free access for the next 10 years. Since the beginning of this year, China has already scrapped duties on most of New Zealand’s dairy products. Kiwi’s meat products are also increasingly popular in China.



New Zealand and China have a long relationship going back to the 1840s. The first Chinese immigrant to New Zealand is believed to have been Appo Hocton, who arrived in Nelson in 1842. The first large scale arrival of Chinese in New Zealand occurred in the 1860s, initially for gold-mining. A formal diplomatic relations between both countries was established in December 1972.



There were over 40,000 Chinese student enrolments in New Zealand in 2017, making China the largest source of foreign students in the country. China is the second, and most rapidly-growing, source of tourists to New Zealand (behind Australia), with around 450,000 visitors in 2018. Tourism has increased so rapidly that New Zealand and China designated 2019 as the “Year of Tourism” between the two countries.




Before the Covid-19 pandemic, Chinese tourists splashed US$1.7 billion in New Zealand each year, not to mention Chinese students, who make up about 47% of international students at Kiwi universities, contributed US$5 billion. A quarter of New Zealand’s dairy exports, more than 60% of forestry products and 50% of meat go to China every year.



To encourage Chinese investment, New Zealand has agreed to lower barriers to Chinese companies to do so. Even though both Australia and New Zealand are members of the “Five Eyes”, a group of five English speaking countries (U.S., Canada, New Zealand, Australia, Great Britain), both nations has different strategic priorities and national interests.



Australia and New Zealand compete fiercely for the Chinese market in many sectors, including agricultural products, forestry products, livestock and seafood. Even though New Zealand has taken notice of its trade dependence on China, especially after Beijing punished Australia with a range of tariffs, the Kiwi exporters cannot ignore the world’s second largest economy.



After all, it’s not easy to diversify, let alone finding a replacement for China, which accounts for nearly 30% of New Zealand exports. Under pressure from allies, New Zealand government has criticized human rights abuses in Xinjiang as well as crackdown on pro-democracy activists in Hong Kong. At one time, PM Jacinda said her country’s differences with China were becoming “harder to reconcile”.



However, New Zealand’s statements against China have tended to be softer when compared to other members of the Five Eyes. At least, unlike the U.S., U.K., European Union and Canada, it has never threatened to sanction China. In fact, New Zealand has been careful not to use the word “genocide” in Parliament when it debated a motion over Muslim Uighurs in China’s Xinjiang province.



Trade Minister Damien O’Connor openly said that using the language of genocide would hurt New Zealand’s trade relationship with China. In 2020, the value of exports to China alone surpassed that value of New Zealand’s next four largest trading partners – Australia, U.S., UK and Japan – combined. Thus, unlike the Aussies, the Kiwis have maintained an independent approach on foreign policies.



Even when it banned Huawei in 2018, New Zealand government carefully said it was based on technical grounds and did not rule out Huawei’s future participation. And when Biden administration announced its diplomatic boycott on China’s Winter Games, Jacinda Ardern’s government has distanced itself from Western allies once again.



More importantly, when AUKUS, the latest trilateral military alliance between Australia, the United Kingdom and the United States was declared, New Zealand did not want to get involved. PM Jacinda announced that the nuclear-powered Australian submarines to be built would not be allowed to dock in its waters. New Zealand wanted to stay neutral, as much as it can.