3.1 China's demand for primary products
The major direct impact China's rapid growth has had on New Zealand is increased demand for primary products. New Zealand's merchandise export values to China grew steadily from 3.3% of total merchandise exports in 2000 to 6.1% in 2008, before the dairy and forestry boom increased China's share of exports to 15.4% in 2012 and made it our second largest export destination after Australia (Figure 8.1). New Zealand exports to China have been led by dairy and forestry products (Figure 8.2), with exports of these products to China making up 5.8% and 2.8% respectively of total all-country exports in 2012, up from less than 0.5% each in 2000. Wool, meat and seafood exports have also increased in value over the past decade (although wool exports are lower than at their peak in the late 1980s/early 1990s), but not to the same extent as dairy and forestry products. New Zealand's exports to China have become less diversified, with the top five products (dairy, forestry, meat, wool and seafood) increasing from 45% of exports to China in 2000 to 72% in 2012. Dairy products account for more than half of this share.
The majority of the trend increase in total export values to China since 2000 has been through increased volumes. On an Overseas Trade Index (OTI) basis total, export volumes (including services) to China have increased by more than 460% since 2000, with a 190% rise since 2008 alone. Prices spiked in 2008 and 2011, boosting exporter incomes, but there has not been the same upward trend as in volumes (Figure 8.3). This shows that Chinese demand has been met chiefly by increased volumes supplied to that market, although it has had an effect on the world price for the commodities we export, especially dairy.
- Figure 8 - New Zealand exports
- Source: Statistics New Zealand
Merchandise exports to China were equivalent to 3.3% of New Zealand's nominal GDP in 2012, up from 0.8% in 2000. On an expenditure basis, dairy and forestry export volumes have contributed 7.9 percentage points to GDP growth since 2001, out of a total increase in real GDP of 30.0%. This indicates that dairy and forestry exports have accounted for a more-than-proportionate share of total real expenditure GDP growth (not taking into account the offset from imported goods used in these industries), as dairy and forestry exports made up only 6.4% of GDP over the period since 2001. If forestry and dairy export volumes had grown at the same rate as the economy as a whole, they would have contributed only 1.9 percentage points to real GDP growth rather than the 7.9 percentage points they actually did. The impact has been concentrated in the period since 2008 with a contribution to growth of 3.9 percentage points versus an expected contribution of 0.4 percentage points. This shows that dairy and forestry export volumes significantly outperformed the rest of the economy as Chinese demand and the resulting price signals contributed to a reallocation of resources in the economy towards dairy and forestry exporting.
On a production GDP basis, the dairy industry grew in line with the economy as a whole between 2000 and 2007, while the forestry industry lagged behind (Figure 8.4 above). Since 2008, these two industries, have significantly outperformed the rest of the economy, having contributed 2.1 percentage points to the 4.1% growth in New Zealand's economy between 2000 and 2012. If these industries, which made up 5.3% of the economy, grew at the same rate as the economy as a whole they would have contributed only 0.2 percentage points to GDP growth rather than the 2.1 percentage points they did. The dairy and forestry industries have contributed to New Zealand's recovery since the GFC, at least partly owing to strong demand from China. Supply has responded to this higher demand and subsequent increase in prices, demonstrated by a growing dairy herd and ongoing dairy farm conversions. There were 6.4 million dairy cattle at June 30 2012, up more than 20% from 2007. The dairy and forestry industries have increased from 4.8% of real GDP in 2008 to 6.0% in 2012.
The growth in real dairy industry GDP has been outstripped by the growth in real dairy exports since 2001. Dairy GDP has risen 75% over the past 12 years compared to 102% growth in dairy exports. This suggests that growth in export demand, primarily from China, rather than domestic demand has led to the growth in dairy production. This impact has been even more pronounced since 2008, with real dairy export growth of 63% outstripping real dairy GDP growth of 40%. Allocating all of this growth to China's impact on New Zealand would unrealistically assume that all additional output in these industries is owing to increased demand from China. On the other hand, this approach does not take into account other benefits from growth in China, including investment in these industries and service exports boosting real GDP, as well as increased incomes which were lifted by a higher terms of trade and cheaper imports from China. In addition, New Zealand has benefited indirectly from China's growth through Australia which is New Zealand's largest trading partner.
