Prime Minister Jacinda Ardern with Chinese Premier Li Keqiang in Beijing in 2019 talking trade.

A new study has found that despite Covid, New Zealand’s economic dependence on China has grown over the past four years.

China is now nearly three times bigger than any other New Zealand export market.

The study, commissioned by the New Zealand China Council, says that in 2021, China accounted for 32.6% of our goods exports, up from 25% in 2018.

Our next largest export market, Australia, accounted for 11.5%.

The study raises whether there are risks in being so dependent on one market.

Comparisons are made with New Zealand’s trade with the United Kingdom before it entered the-then EEC in 1972.

But the dependence on Britain was much greater; in 1960, 53 per cent of all New Zealand exports went to Britain.

The other concern is that China has shown it is prepared to use economic intimidation to counter political reactions from trading partners.

A 2020 report from the Australian Strategic Policies Institute tracked China’s use of what it called  “coercive diplomacy” over the previous ten years, recording 152 cases of affecting 27 countries as well as the European Union. The data shows that there’s

The report said China’s coercive tactics could include economic measures (such as trade sanctions, investment restrictions, tourism bans and popular boycotts) and non-economic measures (such as arbitrary detention, restrictions on official travel and state-issued threats).

“These efforts seek to punish undesired behaviour and focus on issues including securing territorial claims, deploying Huawei’s 5G technology, suppressing minorities in Xinjiang, blocking the reception of the Dalai Lama and obscuring the handling of the Covid-19 pandemic.”

New Zealand was a target in 2019 when the opening of the China-New Zealand Year of Tourism was postponed amid diplomatic tensions over China’s growing influence in the Pacific and New Zealand’s decision to ban mobile service provider Spark from using Huawei equipment in its 5G network.

The China Council report comes as concern continues over the recent security agreement between the Solomon Islands and China.

New Zealand has already been brought into this, with Foreign Minister Nanaia Mahuta in March saying the agreement risked destabilising the Pacific region’s security.

“Given this would not benefit New Zealand or our Pacific neighbours, we will continue to raise our strong condemnation of such agreement directly with the countries involved,” she said.

Australia has been subject to various Chinese restrictions on most of its exports there starting from 2020 when Prime Minister Scott Morrison led international calls for an investigation into how Covid originated in China.

The China Council report says  42% of Australia’s total goods exports are sent to China, considerably higher than the 32.6% of New Zealand exports.

“The risk of exposure has come into play over the past year as China has imposed several trade barriers against Australian imports,” it says.

In 2020, shortly after Morrison had called for an inquiry into the Chinese origins of Covid when speaking at the United Nations, China banned coal imports from Australia; banned the import of beef from four Australian beef processing firms, instituted an 80% tariff on barley imports and imposed “anti-dumping” tariffs ranging from 107.1% to 212.1% on wine imported from Australia.

However, the report says Australia has managed to weather the storm because exporters, particularly coal, were able to divert their exports elsewhere.

Nevertheless, the dependence on China and the risk of intimidatory economic measures being imposed on New Zealand exports is something that worries the New Zealand Foreign Minister.

“We cannot ignore, obviously, what’s happening in Australia with their relationship with China. And if they are close to an eye of the storm or in the eye of the storm, we’ve got to legitimately ask ourselves – it may only be a matter of time before the storm gets closer to us,” she said in 2020.

“The signal I’m sending to exporters is that they need to think about diversification in this context – Covid-19, broadening relationships across our region, and the buffering aspects of if something significant happened with China. Would they be able to withstand the impact?”

The chair of the New Zealand China Council and a former Ambassador to China, John McKinnon, was reluctant to speculate on any potential Chinese actions against New Zealand.

“In my view, the New Zealand circumstance over many decades has been that we have relations with many, many countries of many different hues, and we have to manage those in terms of our foreign policy as we have always done,” he told POLITIK yesterday.

“So, in a sense, the situation is not any different now from what it’s always been for the last 20 or 30 years.

“We have to be fleet of foot and very fly in terms of managing those relationships.”

The report analyses New Zealand exports to China in terms of their potential vulnerability to economic measures and identifies three key commodities which would be at risk; infant formula, logs and milk and cream.

They named them because there were alternative suppliers available, and China took the bulk of New Zealand’s exports.

Thus any Chinese action would have a big impact on New Zealand at possibly little cost to China.

The report addresses the calls for diversification of exports away from China to try and limit the damage if there were economic measures taken against New Zealand.

“Calls to diversify New Zealand’s export profile have become louder since our last report,” it says.

“This is fine in theory but difficult to achieve in practice.

“Individual companies assess risk and make decisions based on many factors, including selling into markets with existing customer relationships and which provide the greatest returns.

“New Zealand’s aggregate exports to China represent the sum of thousands of individual business decisions.

“Who determines which companies should export which products to China, and how much is too much?”

Instead, the report says, New Zealand should focus on opening up trade agreements such as the UK and EU Free Trade Agreements.

“This is the most meaningful way of supporting optionality for exporters.”

But the report cautions that we should not dismiss the trade relationship with China, which has thus played to our strengths.

“It has allowed us to do what we are good at and to earn significant export revenue doing so.”

Other countries have higher exposures to single markets.

“For example, the UK and Canada both have a significantly higher concentration in their primary trading partners, the difference being this partner is not China.

“In our view, it is challenging to determine whether New Zealand’s trade is “too exposed” or “too concentrated” in the Chinese market.

“That is a value judgement, and there is no right or wrong answer. But there are certainly trade-offs to consider, and it is absolutely appropriate to acknowledge that being exposed to a single market brings risks, both for individual firms and the export sector as a whole.”

The report is positive about the future of New Zealand’s trade with China.

But as the Biden administration and if Scott Morrison wins re-election, then New Zealand can expect more pressure on it to support the confrontational approach the US is taking towards China.

Slowly, the space in which New Zealand can exercise its independent foreign policy is contracting.

The question must be whether that contraction will carry a direct economic price.