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Evaluating export growth.

datePosted on 09:55, February 3rd, 2014 by Pablo

Much has been made of the fact that since the entrance into effect of the bilateral Free Trade Agreement (FTA) with China in 2008, New Zealand exports to China totaled NZ$33.7 billion in the six years since then compared to NZ$9.9 billion in the period 2002-08. In 2007/08 before the FTA went into effect exports to China totaled NZ$2.5 billion, and in 2012/12 they were worth NZ$7.7 billion. That is more than 200 percent growth in six years, or more than 45 percent per year (Hat Tip: Kiwiblog)

Needless to say, pro-trade cheer leaders think that this is a great thing. And perhaps it is. But before we get too excited and proclaim the absolute benefits of this bilateral, a few questions need answering.

First, what is the volume and worth of imports from China during the same period? In other words, what is the state of the bilateral trade balance?

Second, has the FTA led to export commodity diversification or concentration?

Third, has the increase in bilateral exports led to an increase in employment in the export sectors affected?

Fourth, has there been a trickle down effect evident in the expansion of auxiliary industries and tax revenues derived from them and the export sectors involved?

Then there are subsidiary questions:

Has overall NZ GDP per capita and income distribution increased as a result?

Have occupational health and safety standards improved in the export sectors associated with the FTA?

These questions are important because they illuminate more precisely who has and has not benefitted from the FTA.

I invite readers to do a little research on these questions, using the government’s own sources as well as academic studies. The findings may come as a surprise, as oftentimes macro-statistics mask the meso- and micro-impacts underneath the “big picture.”

Not all is what it seems.

 

categoryPosted in Economics, Economy, trade | printPrint

15 Responses to “Evaluating export growth.”

  1. James on February 3rd, 2014 at 14:56

    I can’t answer all of the questions, but I can tell you what I do know:

    NZ’s exports to China increased since the signing of the FTA. But they were also increasing before the FTA. And other countries’ exports to China were and have increased since NZ’s FTA, too (e.g. Australia, Canada).

    What’s important is that the rate of growth in exports from NZ changed after the FTA (but then so did Australia’s…)

    Sticking to NZ: exports of dairy and forestry products were the only sectors to experience noticeable changes in the rate of growth (other industries kept growing but it’s not obvious that changed much after the FTA).

    Note that some interesting things happened in those sectors in 2008, independent of the FTA. First, China had its melamine scandal in baby milk formula. Afterwards Chinese wholesalers actively sought foreign suppliers of milk powder. NZ dairy exporters picked up ~80% of that demand. Second, Russia – previously China’s main supplier of raw logs – placed heavy taxes on raw log exports in order to protect its domestic processing industry. Russian log exports to China declined, and the NZ forestry industry benefited nicely.

    I don’t know how much weight to attribute to these factors in explaining the tick-up in dairy and forestry exports, but they’re enough to weaken the importance of the FTA as an explanator of the change in NZ’s total exports. (Note, too, a lot of the change in tariffs with China were penned to be phased out slowly. The very obvious change in the rate of export growth from the end of 2008 is too soon to be attributable to the FTA unless you want to cite “confidence” or “expectations” effects, which are probably unlikely).

    On imports: imports continued to increase, but at a slower rate than exports, such that NZ’s trade balance with China is now in surplus for the first in forever.

    On commodity diversification: the export sector has not diversified. However, if the FTA isn’t actually the main driver of the change in exports to China (as I suspect and explained above), then it also can’t explain this reduction in diversification. It is worth noting that the rise of China as an export destination has actually diversified NZ’s export destinations (although if growth in exports to China continues, this will lead to reductions destination diversification soon).

    On income effects: the historically high (and persistent) nominal and real exchange rate that NZ has experienced since 2008 (probably not significantly attributable to the FTA, but certainly attributable to the high global demand for commodities since 2008) has spilled over into keeping internationally traded consumption goods much cheaper than they would have been (compare tradable vs. non-tradable inflation rates over that period, for example). Since the poor consume more of their income than the rich, they’ve actually benefited a lot more from this than rich have.

    Questions I have: can you explain your final paragraph a little more: “The findings may come as a surprise, as oftentimes macro-statistics mask the meso- and micro-impacts underneath the “big picture.””

    You’ve only listed one “micro” issue/question (safety standards), and no “meso” issues.

  2. Pablo on February 3rd, 2014 at 15:16

    Thanks James. That is an informative response. I could not list all the questions that cold be asked, hence the absence of specific meso-focused ones. My point in that sentence is that the statistics being trumpeted hide a host of other data that show that the benefits of the FTA are skewed in favor of a relative few rather than the many.

    I appreciate your response in part because I did not want to bring up the issue of externalities such as the rate of Chinese growth as a simple driver of demand regardless of the FTA. Your mention of Russian export taxes on logs illustrates very well the impact of such externalities, as did your point about the overall increase in global demand for commodities both before and after the FTA took effect.

    My understanding is that exports have concentrated since the FTA (thereby increasing NZ dependence anthem), and that although NZ ran its first trade surplus in 22 years in late 2013, its trade with China still remains in deficit. Also, the price of raw materials and simple value added exports like milk powders and cut logs do not fully balance even simple value added consumer non-durables originating in China, so both the volume and profits of these imports exceeds those of NZ exports.

    I have a fair idea as to the answers to the other questions but feel it is worthwhile for readers to find out for themselves what lies beneath the overall figures.

  3. James on February 3rd, 2014 at 20:31

    Any thoughts on “meso”-economic changes here could be interesting, though, as it’s not something that I’ve very often come across. I’ve only ever seen the term used in an Austrian economic context e.g. what form does market-based behaviour take?

    On this claim: “FTA are skewed in favor of a relative few rather than the many”. I don’t agree. The whole point of trade (international or domestic) is to get stuff you want that you either can’t produce yourself or can’t produce cheaply (investigate the term “comparative advantage” for a full discussion of this point).

    On that count, FTA’s are incredibly beneficial for “the many”: they lower consumer goods prices by eliminating/reducing traded goods tariffs. Literally millions of Chinese parents now benefit from cheaper milk prices for their children, and the average NZer benefits from cheaper clothing (Especially the poor who shop at importers of cheap clothing, like the Warehouse, for example. It’s the elite who buy Italian/French/whatever designer clothing that hurt in this instance: women’s and men’s apparel still attracts 5-10% duties when imported from the rest of the world [http://www.customs.govt.nz/features/charges/feetypes/Pages/default.aspx?s=7]).

    On trade deficits/surpluses: I can’t recall whether this first occurred earlier, but at least for the quarter ended December 2013 we had a merchandise trade surplus with China:

    “China – $3.6 billion worth of exports. China – $2.3 billion worth of imports” (http://www.stats.govt.nz/browse_for_stats/industry_sectors/imports_and_exports/OverseasMerchandiseTrade_HOTPDec13/Commentary.aspx)

    (Note: exports and imports of services are hard to measure, hence the quality of data in NZ is not high. This makes it much harder to draw conclusions from services trade than merchandise trade data. In any case, I couldn’t find easy-to-access data on NZ’s services trade balance with China).

    I also don’t agree with this: “Also, the price of raw materials and simple value added exports like milk powders and cut logs do not fully balance even simple value added consumer non-durables originating in China, so both the volume and profits of these imports exceeds those of NZ exports.”

    My understanding is that China’s exports, despite typically being manufactured goods, are typically low value-added. Basically, there are complicated supply chains permeating Asia that result in a lot of goods crossing and re-crossing borders with small additions of value at each border crossing. The profitability of Chinese exports (qua exports) relies heavily on volume of product. (It’s the American/Western companies that import goods from China wholesale and sell at a markup in America/the West that make the real profits [think Apple..]). If you’ve seen something that contradicts this, though, I’d gladly read it.

    Can I ask what you mean by “externalities” in the comment: “I did not want to bring up the issue of externalities such as the rate of Chinese growth as a simple driver of demand regardless of the FTA”?

    (Economists have a very specific definition of the term externality and I’m just not sure I understand your use of it in that comment’s context).

  4. Pablo on February 3rd, 2014 at 21:13

    James:

    More good grist for the mill. The hard fact is that the FTAs being signed recently, including the China bilateral, are more investor guarantee agreements rather than tariff and other entry cost reduction agreements. These in turn are based on notions of competitive as well as comparative advantage (the latter went out of favor as the dominant approach a long time ago) in which adding value in a globalized system of production, consumption and exchange is seen as the best guarantor of sustained growth. That means that over-reliance on commodity exports is seen as detrimental over the long run, which makes NZ’s future position questionable.

    It also raises the question of Chinese investment in the commodities it imports from NZ, and the impact that has on local wages, industry regulations, occupational and environmental standards (since the point of investor guarantees is to make it easier for them to operate on their own or at least more favorable terms than otherwise would obtain).

    The very recent trade surplus with China is good news if it holds, especially given the increased bilateral volume of trade. We shall see, as one quarter does not necessarily make for a long-term trend. But even were that to happen, are there or will there be employment and other benefits accruing from such?

    Externalities here simply means those extrinsic factors (i.e. other than the FTA) that may have impinged on the growth of NZ-China trade.

    One that I failed to mention (but which you did in your first comment) was the NZ currency exchange rate. The NZ dollar is clearly a hedge currency tied to international commodity demand. If NZ exporters are able to successfully lobby Treasury to release more NZD into the market in order to lower its price, or if the price for NZD falls on fears of diminished commodity demand, then the costs of imports will rise. That will have a significant impact on domestic consumption of Chinese imports, which in turn will have an impact on the bilateral trade balance. That may be good for exporters but will not be beneficial for NZ consumers.

    “Meso” in this context means sectoral, industry or occupational level dynamics, as opposed to individual firm (micro) or overall (macro) trends.

    There also is the question of elasticity versus inelasticity in the trade balance. The ability to consume cheap consumer non-durable imports from China remains a question of elasticity. That is, the ability to consume depends on household incomes, and those incomes are largely derived from waged employment. If waged employment remains unaffected by export volumes because most waged labor lies outside the export sector (which remains as the engine of growth), then the ability of lower income laborers to consume Chinese imports at sustained rates is open to question. That in turn can prompt a reduction in imports as local demand levels off.

    Since commodity exports are relatively inelastic (at least relative to value-added imports), this means that, beyond having to produce more exports in order to balance the costs of level or even diminishing imports, there is a potential saturation point beyond which continued growth in the concentrated range of export commodities cannot happen. That is particularly the case for commodities like dairy derivatives and forestry, where competition from other sources (say Brazil with regard to dairy and Sub-Saharan Africa with regards to wood products) puts downward pressure on prices.

    There is another source of trouble on the horizon: Given the looming contraction in the Chinese economy, which includes a debt bubble amongst its heretofore rising middle classes, that could spell trouble for NZ down the road because demand for NZ exports could well level off in ten years time.

    Thus the issue remains as to whether growth in the export sector has sustainable and significant trickle down effects outside of that sector. If it does then the merits of the FTA are clear. If it does not, and I suspect it might not, then the increased growth in trade with China is not as wonderful as claimed.

  5. James on February 4th, 2014 at 01:23

    I wrote a really long post (and I’ll post it next ’cause I don’t want to throw out all that writing :-P), but I think I can more succinctly sum up my unease with your argument here:

    Your assessment of the FTA is far too dependent on what has happened to or what will happen to exports in NZ, when what really matters is the benefits to consumers, both in NZ and China.

    We don’t set up firms and work hard so that we can sell stuff: it’s not a good thing that a whole heap more of NZ resources and labour are being shipped off to China. Rather, we produce, and export, and work because we want to consume stuff when we’re done. What *is* a good thing is that hundreds of millions of Chinese and a handful-of-millions of NZers are now able to get more stuff for the same or less amount of work/producing/exporting that had to do previously.

  6. James on February 4th, 2014 at 01:25

    Not true about the Chinese deal. Most of the content concerns trade rules (including removal of tariffs, dealing with health and environmental issues). The investment chapter mostly deals with non-discrimination in rules of investment e.g. NZ can’t make legislation that treats Chinese investors differently from NZ investors.* Thus Chinese investors don’t get to undermine industry/occupational/environmental standards any more than do NZ investors. I guess there’s a story to be told that the more capital available to enter and exit NZ freely, the more open is the political process to investor pandering. However, the relevant margin in that story isn’t origin of location funds, but the size of the total (sanctioned) investment pool.

    Your comments on trade surpluses/deficits and the effect of NZD movements on trade and consumption patterns tickle my interest bones – it’s the field I work in and I’m challenged by the fact that I don’t think I’ll ever have a clear answer to those questions :-) Indeed, I think I’d need a full length article just to respond properly. I’ll try to be concise with what I think I know:
    1.Neither trade deficits or surpluses are inherently good or bad: sometimes NZers will need or want to consume more than they earn, sometimes they’ll need to consume less. As long as you don’t take a strong view on when, what, how much, and from where NZers consume then there’s no need to cheer or boo at trade balance movements. 2. NZ’s trade balances are relatively small and tend to fluctuate around zero; among potentially worrying current account items it’s the investment income balance that’s large and persistently negative (i.e. we’re sending more investment income overseas than we’re earning from overseas investments). 3. We send a lot of investment income overseas because we attract a lot of foreign investment. This is likely because we’re a (relatively) quickly growing population with large housing, infrastructure, and development needs that we haven’t been willing to fund with our own savings. 4. Like with the trade balance, this isn’t an inherently bad thing if you don’t mind when, what, how much, and from where NZers fund their investment needs. 5. We know how exchange rates affect the trade balance, but since the trade balance is relatively small that doesn’t matter too much. On the other hand, we don’t really know how the exchange rate affects (foreign) investment. If you think 3 and 4 *are* problemtatic, then this lack of knowledge might be a problem. 6. As you hinted, there’s no especially good case for exchange rate intervention by policy makers. 7. A lot of people are “damn, damn opposed” to 6 (e.g. manufacturers, the Labour and Green parties).

    Your sections on “elasticities” of the trade balance are interesting as far as unsubstantiated speculation goes, but they are far too many “if” statements in there to settle the debate. Problems: “The ability to consume cheap consumer non-durable imports” – we import both non-durables (e.g. food, clothing) and durables (e.g. TVs, computers) from China.
    “from China” – we don’t have to continue consuming stuff from China forever for a FTA to have been worth it.
    “the ability to consume depends on household incomes” – no it doesn’t, as the large run up in household debt pre-GFC showed (I mean, consumption can depend on incomes, but it’s not necessarily constrained by them).
    “If waged employment remains unaffected by export volumes because most waged labor lies outside the export sector” – possible, but not necessarily true. Over 30% of construction sector workers, for example, are self-employed.
    “That in turn can prompt a reduction in imports as local demand levels off” – again, even if we consume less from China, if an FTA means that what little we then consume costs us less than it would have otherwise, that’s a good thing.
    “commodity exports are relatively inelastic” – commodity exports are only inelastic to NZ income, they’re highly elastic to foreign income (which matters a lot given we’re talking about quickly growing developing country-demand).
    “beyond having to produce more exports in order to balance the costs of level or even diminishing imports” – This doesn’t make sense. Movements in exports do not have to match imports (hence the existence of trade surpluses and deficits).
    “there is a potential saturation point beyond which continued growth in the concentrated range of export commodities cannot happen” – both speculative and unlikely given increasing demand from those quickly growing developing countries (China, India, Brazil, etc..).
    And then there’s this: “Thus the issue remains as to whether growth in the export sector has sustainable and significant trickle down effects outside of that sector. If it does then the merits of the FTA are clear.” No. Again, the merits of the FTA don’t rest on the benefits to the export sector. Even if NZ exports had been completely left out of the FTA, it would have been worthwhile for the fact that Chinese goods are now cheaper and more accessible than they were before (note: that was the justification for unilaterally abolishing most of our import tariffs in the 80s and 90s).

    *(However, I agree with you on the TPP: the US certainly seems set on turning it into an investor guarantee agreement. I was heartened, though, by that leak showing that virtually every country objected to the US suggestions).

  7. Pablo on February 4th, 2014 at 06:31

    Ok, thanks James. I’ll leave things like that. My concern in asking the questions and engaging in speculation as to their answers is to determine the specific and discrete benefits of that particular FTA on most Kiwis, as opposed to the export (mostly dairy and logging) industries. Cheers.

  8. James on February 4th, 2014 at 12:09

    No worries, good chats :-)

  9. Chris Waugh on February 4th, 2014 at 14:28

    Excellent comments, James, but I have to take issue with this statement of yours:

    “Literally millions of Chinese parents now benefit from cheaper milk prices for their children,”

    Simply not true. Imported dairy commands a premium, especially infant formula. Here in Beijing a 250g block of Mainland cheese goes for around 50 yuan (~NZ$10). I can get similarly sized blocks of cheese imported from Europe both for less and for considerably more. The extremely rare Chinese-made cheese (real cheese, not that processed stuff) is a lot cheaper. A 1 litre carton of Meadow Fresh UHT milk we can get for 12 – 13 yuan, which isn’t too expensive. Here’s Karicare on Tmall: http://tinyurl.com/pmyn7vv. All in Chinese, but you can see the prices. What’s cut the prices of imported infant formula recently is that several of the big foreign importers, including Fonterra, got done for price fixing. But even so, imported formula commands a far higher price than locally-produced formula. The reason: A lack of trust in the Chinese dairy companies since the melamine scandal in 2008 – although that isn’t the only reason. There have been and still are many food safety scandals, melamine was just the really big, game-changing one.

    It isn’t just dairy, either. Zespri kiwifruit is far more expensive than Chinese kiwifruit (and it’s a bit coals-to-Newcastle considering kiwifruit originated in China), and NZ wine is certainly not cheap. And what I don’t understand about NZ wine imports in China, at least here in Beijing, is that NZ wine tends to be about twice as expensive as Australian wine despite NZ wine having faced a super-high tarriff of zero since January 1, 2012. The only exception to that I know of is Gung Ho Pizza (also run by a NZer here in Beijing) which somehow manages to price its wine at 150 yuan/bottle (~NZ$30) – still more expensive than the average Aussie wine, and Gung Ho being a pizza delivery business it’s not the kind of place you go to for your regular shopping.

    I also don’t see anything in the way of marketing of NZ wine. All the dairy companies that either source their milk powder or import their infant formula from NZ definitely play up the “clean, green, 100% pure NZ” angle in their advertising, and their advertising is all over TV. Zespri tends to get large, specialist stands in supermarket fruit and veg departments with clear signage marking Zespri out as a premium product. But I see nothing to promote NZ wine.

    Of course, that is all based on what I see here in Beijing. The situation could well be different in other parts of the country – though I very much doubt the prices would be any lower.

    The really obvious externalities, at least to me, are:
    1: Food safety. The lack of trust in Chinese companies means importers can charge quite a high premium. The infant formula market is the classic example.
    2: Environment. As mentioned, the dairy industry really plays that up in its marketing, but also Air NZ and others in tourism emphasise “clean, green, 100% pure” in their marketing, and they are very active in both old and new media. Air NZ and Whalewatch Kaikoura have very active Weibo accounts, for example. Chinese celebrities who visit NZ (Yao Chen getting married in Queenstown being the classic example) also tend to wax lyrical on Weibo about how clean, green and beautiful NZ is, and the famous film director Feng Xiaogang had two paragraphs in his recent autobiography singing NZ’s praises (again, clean, green, beautiful).
    3: Culture and language, particularly the ability of NZ’s businesses to adapt to China. NZ’s business community tends to undervalue linguistic skill and cultural knowledge, and I hear a lot of complaints about NZers being great farmers but crap at business, too much about how NZers show up here, sign a contract, then disappear thinking they’ve done a deal when their Chinese partners think all that’s happend is that a relationship has started, but the other half doesn’t seem aware of the need to grow that relationship. I have watched as NZ tertiary institutes have run their ventures here into the ground and ignored my advice in large part because of their ignorance of the cultural aspect of doing business and the resulting long, depressing series of cultural faux pas. Fonterra’s response to the DCD and botulism scares last year seemed to me to be completely bone-headed and largely because of ignorance of the social and cultural side of things. The Chinese media was going mad over these issues, while I was reading in the NZ Herald Fonterra saying, “No, it’s alright, it’s all fixed” when it was clear to anybody who could read Chinese that that was very far from the truth and nobody had been satisfied by Fonterra’s handling of the crises.

    NZ is already seeing the food safety issue erode its reputation, and not just because of Fonterra. A lot of smaller producers of infant formula have been caught by AQSIQ importing substandard formula, with the products of Sutton Group failing inspection several times. China is already looking for alternative sources of milk and European producers have been cashing in on NZ’s woes. So far “clean, green, 100% pure” is holding out, but for how long? NZ has quite a large Chinese-language media which is very active online in fora like Weibo which reports a lot on what is going on in NZ. What happens when reports start circulating around China of the poor health of our lowland waterways? Or what if a Chinese celeb visits NZ then complains on Weibo about not being able to go for a swim because of an algal bloom?

  10. James on February 4th, 2014 at 15:40

    Thanks Chris.

    Just quickly: NZ products may well command a price premium, but prior to the tariff reductions Chinese consumers would face the premium PLUS the tariff cost. The price of NZ products could well have risen (e.g. due to a rising premium on foreign goods following melamine-type scandals), but the dropping of tariffs is still a benefit to consumers.

    All of your comments on the premium that NZ products seem to command are interesting and very useful, though. Here’s a question to bring things back to the OP’s central point: how much of an effect do you think the FTA had on your three drivers of demand for NZ goods (food safety, environment, culture)?

    My thoughts are: although there was some stuff on food safety in the agreement, things didn’t change all that much on NZ’s end (perhaps Chinese perceptions of NZ’s food safety changed?); if the FTA had the effect of increasing NZ dairy exports to China (debatable/probably only a marginal factor anyway), and this increased the environmental impact of farming in NZ, there might be the longer lasting damages to exports you mention; as the FTA was the first China had made with a Western country, this may have raised NZ’s profile in China (you might have some perspective on that).

    [Also, bit of an econ-OCD thing, but I’d really like to mention this now before it bothers me again: “externality” has a very specific meaning in economics, which is ‘a benefit or cost falling on a party external to an agreement between other parties’ (not just ‘external/extrinsic factor’). For example, my purchasing of cigarettes is a contract between me and the cigarette manufacturer, but that agreement doesn’t take into account the cost of second-hand smoke on passersby; or my manufacturing and selling honey to you doesn’t take into account the pollination benefits that the gardeners near my beehives receive.]

  11. Chris Waugh on February 4th, 2014 at 18:36

    Sorry, James, I didn’t mean to touch off any econ-OCD.

    As for your questions: I’m not an economist, I’m only commenting based on my experience of living and trying to raise a child in China. I have read before of the massive increase in China-NZ trade, but from my ordinary man-on-the-street point of view it’s really hard to see what difference the FTA has made. Part of what I see, I’m sure, is due to my location in Beijing – New Zealand’s business community seems to be concentrated in Shanghai. Fonterra’s an exception – they seem to prefer the north, despite the horrific pollution and desperate water shortage, but I guess basing yourself in Beijing gives you easier access to national-level power and the farms you’re setting up in Hebei. Anyway, when I first came to China in ’99 virtually all the imported dairy was either Anchor butter or Mainland cheese. But that was in Changsha. There’s much more variety in Beijing, and that variety has only been increasing. Still, NZ dominates the imported dairy sector. Heck, the couple of times I’ve had an invite to a banquet in the Great Hall of the People (nothing special, I assure you, and I was certainly not anywhere near close to the VIP area, those were just generic invites for plebs to fill out the crowd at a comparatively minor occasion) I’ve noticed the butter served up is Anchor (and don’t tell Mr Xi, but my wife slipped a few packets into her handbag). Anyway, it’s really hard to see how the FTA has had any impact on NZ dairy. Similarly Zespri – how much of the increased availability of Zespri kiwifruit has been due to the FTA, and how much to how Zespri has played the game? Hard to know. I’m not a huge fruit eater, but when I’m in supermarkets I do look out for NZ produce. I don’t recall seeing Zespri at all in my first few years in China, but I don’t recall when it was they showed up. My other example was wine. I didn’t find any in Changsha or Taiyuan when I lived there (’99 – ’01), and it’s always been hard to find in Beijing. I’m told there’s a lot more NZ wine in Shenzhen, and I would assume also in Shanghai, but it’s rare here. Getting less rare, sure, but only slowly, and like I said, with no marketing that I’ve ever seen. If you ask random Chinese people about wine, they’ll tell you red wine, Bordeaux. If you ask them about NZ, they’ll tell you “beautiful, sheep, milk”. When I first moved to Beijing in July 2001 I found a couple of bottles of NZ wine in the Friendship Supermarket for a bit over 200 yuan (~NZ$40) each. There is more NZ wine in more supermarkets now, but the price doesn’t seem to have changed, as I said, Aus wine is generally about half the price. Also, it tends to be a few bottles of NZ wine in a sea of Aus, Chilean, Californian, South African, French, Spanish, Italian… wine. And plenty of Chinese wines, some of which are getting quite drinkable (you may want to google Grape Wall of China if you’re interested, though I’m not sure if that blog is still running). The French wines tend to range in price from about 50 or 60 yuan (only slightly more expensive than a higher end Great Wall, Dynasty or Changyu (the 3 bigger Chinese brands)) to ridiculously expensive, but that’s because they’re importing a full quality range, they know they have the market awareness, and they know they have the reputation. But the point is if I pop up to Carrefour or Jenny Lou’s I’ll be able to find wines from every major wine-producing region in a full range of price and quality, and in amidst all these wines, a few from NZ all at around 200 yuan/bottle. As for the prices seeming unchanged since 2001, you could say, oh look, FTA, zero tarriffs. I mean, surely inflation should have pushed the price of a bottle of NZ wine out to 400 yuan after all these years? Yeah, except I’d say the same thing about the prices of all wines. The thing that annoys me about inflation in China is that it’s the prices of necessities like food, power, water, fuel and accomodation that are going up, while the prices of luxuries like cars and booze (heh, good mix, eh?) are staying the same or going down.

    And I’m really doubtful that the FTA had any impact on NZ’s dairy or raw log exports to China, I’m pretty sure the real drivers were lack of trust in Chinese dairy companies and China’s massive problems with deforestation and all the downstream effects that has – erosion, flooding, desertification. Sure, lowered tarriffs allow Fonterra et al to sell milk powder at a premium price without either being undercut by the Europeans or taking a hit on their profit margins, but considering NZ has about 70% of the imported dairy market here, how big of an effect has the FTA really had? Perhaps no FTA would’ve had China shopping around for alternative suppliers earlier or allowed China to respond much more strongly to Fonterra’s food safety scares or substandard imports from smaller companies like Sutton Group, but then again there aren’t many dairy producers out there that can rival Fonterra in the sheer scale of production.

    It is possible to get other NZ products here, of course. A few years back we managed to get a quilt stuffed with NZ wool – I’m not sure which kind, because the label was in Chinese and said only that it was top quality wool, not what kind. That was before the FTA and, classic, it was the last such quilt in the store and was sitting right next to a pile of similar quilts stuffed with Australian wool. Since then I’ve seen plenty more of these Australian quilts, but no more from NZ. Similarly, I’ve often seen Australian sheepskins on sale in IKEA, but never NZ sheepskins (although, I haven’t been to IKEA for a while…). I did find manuka honey in one supermarket back in 2001. Since then, it’s been available if you know where to look. Now, of course, there’s plenty online and it commands a premium – but I doubt that’s the FTA, far more likely Chinese people in NZ hearing about its purported health benefits and deciding to make a bit of money. The Taobao and Tmall stores selling manuka honey certainly play up the health angle.

    As NZ’s profile in China, certainly in 2008 there was coverage of the FTA in the Chinese press. Still, there doesn’t seem to have been any change in public awareness. Chinese people who hear “Xīnxīlán” (the usual Mainland Chinese name for NZ) generally say something vague like, “Oh, it’s a beautiful country”, which is what Canadians and many others hear about their countries, and seems to be code for, “I’ve heard of that place, and I should say something polite, but I know nothing more about it than its name”. If they do know anything about NZ, it’s generally limited to some or all of clean, beautiful, few people, lots of sheep, lots of cows, wool, milk. I have a habit of buying a Chinese newspaper (emphasising Chinese newspaper, because I certainly don’t mean China Daily, I mean an actual Chinese newspaper in Chinese aimed at Chinese people) to read over lunch, and it’s extremely rare that I see anything about NZ in it. I would say that well over 90% of what I see about NZ in Chinese media comes through my Baidu News email alert, with almost all the rest through the official Weibo accounts of NZ companies, tertiary institutes, and Chinese-language media like Sky Kiwi. So, yeah, I really don’t think the FTA has raised NZ’s profile in China.

    I don’t know how much an impact the FTA may have had on the culture side of things. For starters, I don’t get out often enough, but also, as I said, the business community seems to be centred in Shanghai. Fran O’Sullivan and Christopher Adams at the NZ Herald do a fairly good job covering NZ-China trade, but otherwise NZ media’s coverage of China is woeful. I find out more about what NZ politicians are getting up to in China from the official Chinese media, for example. And what little I have read about NZ-China trade suggests there’s still a lot of the old “fly in, sign a few hands, shake a few contracts, fly out leaving the Chinese bewildered and wondering just how much effort the Kiwis are going to put into building on the relationship” going on. I may well be wrong, and I hope so, but that’s what I’m seeing. Or to put it another way: In all my years in China, I have heard two people boast (yes, boast) about how many years they’ve lived in China and they’ve never learned Chinese. Both where Pakeha. Despite the reputation Americans have, I’ve met plenty who speak excellent Mandarin, one or two with better Standard Mandarin than most Chinese, and those who don’t or whose Mandarin is still at a very basic level tend to be apologetic about it. How much could that traditional NZ attitude to languages other than English have changed since the signing of the FTA? I mean, it wasn’t that long ago that the NZ Herald still felt the need to translate very common Maori words like iwi and hapu, and te reo’s been an official language since the late ’80s. And I still see NZ journalists getting confused over which is the surname and which the given names of Chinese people – referring to the Chinese president as Mr Jinping instead of Mr Xi, for example (although bad example because he’s too prominent for that kind of blunder, but you get the point).

  12. […] looks at  Evaluating export growth on Kiwipolitico and asks some serious questions regarding our FTA with China. One of those […]

  13. paul scott on February 8th, 2014 at 09:40

    I am aware that Pablo loves my comments. Its the thinking and research I do.
    We export to China and we get a lot of money.
    Its not meso or micro, its money.

  14. Pablo on February 8th, 2014 at 11:02

    It is not that simple Paul. The issue is about economic costs and benefits in this bilateral FTA, and not all can be measured in monetary terms. But even on that score it is not simply about money made, but how it is distributed that matters in terms of an objective assessment. That is where the “we” in your comment comes into focus–who, exactly, are the “we” you speak about?

    As for your comments: I try to be polite most of the time, but please do not infer any degree of affection from that.

  15. Edward Main on February 12th, 2014 at 19:54

    I am not convinced there has been any REAL benefits.

    I see two different styles of economy.
    China – production based
    NZ – consumer based

    China’s ability to produce means cheaper products for NZ consumers achieved in part by a high and I would say over valued NZ dollar.

    On the down side, I see a loss manufacturing jobs and loss of skill due to out sourcing to third counties,
    as a consequence in part by a high and I would say
    over valued NZ dollar.

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