Are We Too Reliant on China?

3-minute read

Many super-sized cities in China have been in tight lockdown for weeks as the country sticks to its zero-COVID strategy in the face of the fast-spread Omicron variant of coronavirus.

It is thought that some 340 million people, 25% of the national population, live in the 46 cities under full or partial lockdowns.

By also adopting zero-COVID strategies, other countries such as New Zealand and Australia won time to get a high majority of citizens fully vaccinated. Once there, and with the jabbed levels in the high ’90s, we and the Aussies have moved to eliminate restrictions and open borders.

This has also allowed importers and exporters to resume planning face-to-face sales missions offshore. The costs of continuing zero- COVID policies may have been crippling to both commerce and the country.

But can the country where the pandemic began now halt the current variant? And at what cost? China’s economy is facing a spell of slower growth.

“A recession commonly means two straight quarters of contraction, and that remains unlikely for China, many economists say,” the Wall Street Journal reported this week.

“The country has many ways to ensure it posts stronger growth than the US and Europe this year, including the ability to unleash heavy government spending.”

What happens in China really does matter to all the nations (is it 40 or more) that now rank China as their No 1 market.

We are not alone in having a high trade exposure to one destination, but we are also well-diversified, and the new FTA with the UK and the FTA under negotiation with the EU are critical to future trade flows.

New Zealand has a NZ$37.7 billion bilateral trade relationship with China (2021 data). We export $21.4 billion in goods and services to China and import $16.3 billion of their goods and services.

That may make for discomfort about being too reliant on one country and an authoritarian state with ambitions to boot. Yet, the reality is that the trade that has swelled so astonishingly since the initial FTA has cushioned the financial toll of COVID.

“In Perspective: The New Zealand – China Trade and Business Relationship 2022 Update” shows trade with China has played a significant role in pulling the New Zealand economy through the COVID-19 pandemic.

After a slight decline in 2020, the report shows that goods exports to China rebounded strongly by $3.3 billion (19.8%) in 2021, while imports from China increased by $3.1 billion (26%).

NZCC chairman John McKinnon says China’s market performance was welcome at a time when trade flows between other key markets, Australia, UK and Japan, dipped due to the pandemic.

“The report shows that New Zealand’s trading relationship with China is a resilient cornerstone for our economy. This reflects our companies’ robust relationships with their Chinese counterparts.

“But it hasn’t all been plain sailing…We anticipate further impacts in 2022 as China continues to manage COVID domestically” and “trade diversification remains as important as ever.”

Importers and exporters must continue to assess risks and opportunities when considering heavy market exposure. “The potential for trade disruption in various forms is ever-present, including currently.”

Much depends on the ability of firms to switch between markets. An informed understanding of specific sectors and products in the Chinese market will help companies assess and plan.

The supply chain situation in China has become very significant for NZ importers and exporters as the nation adheres to a zero-COVID strategy that has locked down key manufacturing cities for weeks.

An understanding that the supply chain issues are likely to persist potentially longer than many expect, and expedited freight solutions will be the key to manage through this difficult supply chain environment.

Source: The New Zealand Shipping Gazette

P.S. Easy Freight Ltd helps New Zealand importers & exporters to save money on international freight and reduce mistakes by guiding how to comply with Customs and biosecurity rules. 

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