Much more than dairy

Exports to China have become an important engine for the New Zealand economy as Kiwi firms compete to meet the demands of China’s growing middle class for a number of goods and services.

WiC talked to Jarron Boulter, Head of Wholesale Banking at HSBC New Zealand, for more on the background to the relationship, the impact of the pandemic over the last two years, and the areas where trade is strongest.

How have trade ties developed between the two countries?

New Zealand and China signed a free trade deal in 2008 that has been a success story for both countries, serving as a catalyst for closer collaboration across various industries. The free trade agreement was the first of its type to be signed between China and a developed nation and the terms of the deal were upgraded again earlier this year.

China is now New Zealand’s biggest trading partner, with two-way trade reaching almost NZ$39 billion ($25.16 billion) in the 12 months to March this year. New Zealand’s exports to China in the same period were NZ$21.6 billion. So the basic summary is that exports to China have more than quadrupled since the trade deal was signed and we also run a surplus in trade terms.

Dairy exports must be a major part of that?

Yes, they are a significant contributor, especially in the categories of milk powder and butter.

The New Zealand dairy industry is unique, especially in how all the cows are pasture-fed. That supports a ‘clean and green’ image that benefits the whole industry and which has helped to attract about a dozen Chinese firms into the sector as investors.

Typically they are investing ‘outside the farm gate’, so not directly in the dairy farming itself but more in turning the milk into final products that can be exported.

All of this investment is building a supply chain for sales back into China. We don’t see much of the product in the New Zealand market because it heads straight offshore.

Apart from dairy, what are the other exports from the agricultural sector?

There’s quite a wide range. The Chinese buy a lot of our wood products, for instance. Shipments of logs for use in the construction industry are another of the leading exports. Meat has been another major export, especially lamb but also beef.

Sales of more specialist goods, like Manuka honey, which is known for its medicinal purposes, have been growing as well. All the main wineries here are exporting to the Chinese market and seafood sales have also been increasing, like rock lobster exports, which are flown up to China in specially chilled containers so that they can be sold live.

How about kiwi fruit?

That’s an interesting one. It is another of our exports to China, although kiwi fruit didn’t originate in New Zealand. Its roots are actually Chinese and it used to be better known as the Chinese gooseberry.

We started to grow it commercially here in New Zealand in the early 1900s and it was rebranded as ‘kiwi fruit’ in the late 1950s and sold around the world.

China is the largest export market for New Zealand fruit in general and our companies are constantly looking for new opportunities there. You can see that in the kiwi fruit market as well, where farmers have been diversifying into different types, like a yellow-flesh variety that is sweeter than the original green-fleshed version.

Has the pandemic been disruptive for trade between the two countries?

Yes, it has. We have seen some of the worst impact on services exports. The education sector was worth about NZ$5 billion a year in sales to international students in general but it disappeared almost overnight during the pandemic.

We had a really tough lockdown here and it completely closed the tourism trade to Chinese visitors as well. Before Covid they were an important source of income for New Zealand’s tourist operators, as well as for the retail sector, especially luxury goods stores in Auckland that had been getting queues of visitors from China.

More recently we have been seeing a different kind of impact, because of the lockdowns in cities like Shanghai. That’s creating new challenges for our exporters, because of longer delivery times that stretch their working capital. Delays in shipments have also created storage problems for the timber merchants, as well as for companies that rely on cold chain distribution.

But you expect to see a fuller recovery after the pandemic?

Yes, because the longer-term trend is more trade between the two countries. Larger companies from New Zealand already have a presence on the ground in China, while the bigger Chinese companies have the same here, of course.

We are also seeing an increase in the numbers of specialist staff with language skills and deeper understanding of the regulatory and operating requirements of doing business in China.

New Zealand Trade and Enterprise, a government agency, also helps local firms to access international markets like China, while HSBC is the Platinum sponsor of the New Zealand-China Trade Association, which focuses more specifically on trade between the two countries.

An awards night for the association in April showcased some of the companies already trading successfully between the two markets. As a selection: Grin Natural is exporting all-natural toothpaste to the Chinese market; Rockit Global sells its apples in recyclable tubes which protect them and make them easier to ship; and New Zealand Wild Catch is harvesting wild seafood, including sea cucumbers, for export to China.

There were awards for companies from a more diverse mix of sectors as well. Les Mills, a New Zealand firm that licenses exercise programmes to fitness studios, won recognition for growing its sales in China, while Skills Group has had success in services to customers in education and well-being in the workplace.

Coming in the other direction is Fu Wah Group, a Chinese construction firm that developed the Park Hyatt hotel on the waterfront in Auckland, which was another winner in the investment category.

How does HSBC support trade and investment between the two markets?

HSBC’s global network connects international companies into the New Zealand market, as well as helping Kiwi firms get into markets abroad.

Of course, New Zealand’s economy depends on exports for growth and doing more business with counterparties in China is a key part of that. But HSBC is also providing support to Chinese companies doing business in New Zealand across a wide range of sectors, not just dairy and forestry, but in other areas including infrastructure, pet food and car imports.

It’s a real cross-section of clients, which reflects the diversity of what’s happening in trade terms between the two countries.

These clients want the full range of services: from day-to-day payables and receivables, through supply chain and working capital management, to credit and lending. Fortunately, HSBC has been active in New Zealand for more than 30 years and we are the fifth largest clearing bank here.

We are also fully focused on meeting the changing needs of our clients: for example, we pioneered the first blockchain trade transaction between New Zealand and China, for a shipment of milk powder to China for one of the large dairy firms. We see the digitisation of the supply chain as a key area, not only in building trust around product integrity, but also in making trade more efficient as the business world recovers from the pandemic.

---

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.