3.3 New Zealand's imports from China
China has recently become New Zealand's largest import provider, rising from 6.2% of total merchandise imports in 2000 to 16.3% in 2012, ahead of Australia at 15.2% (Figure 13.1). This underlines the importance of China as our second largest trading partner overall. The major imports from China are machinery, clothing, furniture and toys (Figure 13.2). Machinery is by far the largest import item and has been the major area of growth over the past decade. Chinese machinery imports have grown from 1.3% of total all country imports in 2000 to 5.9% in 2011. New Zealand's imports from China have arguably had a greater impact on the New Zealand economy than its exports to China as the total value of merchandise imports has exceeded exports since 1990. New Zealand's merchandise trade deficit with China peaked at $3.9 billion in 2008 as China exported low-cost manufactured products to the world, before falling to $0.9 billion in 2012 as China's demand for soft commodity imports surged.
- Figure 13 - New Zealand imports
- Source: Statistics New Zealand
This growth has coincided with China's industrialisation and rapid manufacturing expansion, becoming the largest manufacturer in the world. China's relatively inexpensive labour put downward pressure on manufactured goods prices worldwide. The negotiation of the free-trade agreement with China allowed for the phase-out of remaining tariffs on Chinese imports. The removal of tariffs will provide mutual benefits for both New Zealand and China. Chinese producers will receive a higher price, Chinese imports will be cheaper for New Zealand businesses and consumers, and there will be increased trade between the two nations. Around 40% of imports from China already enter New Zealand without duty. Some products, including furniture and whiteware, were to have their tariffs phased out by the end of 2012, while clothing and footwear products will have their tariffs removed by 2016.
- Figure 14 - Import prices
- Source: Statistics New Zealand
The growth in imports from China has had benefits for the New Zealand economy, as China's low labour costs have allowed it to manufacture goods for a lower price than most other countries. New Zealand has benefited from this access to cheaper imported goods. Since 2000, when imports of Chinese machinery began to increase, the cost of imported machinery has fallen by around 50% in New Zealand dollar (NZD) terms (Figure 14), assisted by an appreciating NZD with the TWI rising 23% over that period. The fall in the price of imported machinery and the increasing share sourced from China suggest that China has contributed to the fall in import prices.
Cheaper imports, as well as the high value of the New Zealand dollar (supported by the high price of commodity exports to China), have helped keep tradables inflation low since 2000. Over this period, annual tradables inflation (goods exposed to international competition, including imported products) has averaged 1.6%, whereas non-tradables inflation has averaged 3.5%. Lower tradables inflation has allowed annual CPI inflation to remain within the Reserve Bank's 1-3% target band at 2.7% on average. The downward pressure of cheap imported products from China on tradables inflation may be starting to fade though, with rising wages in China putting pressure on costs.[48] However, some production is likely to move to other low-cost countries, including India and Vietnam.
A negative impact of this imported price competition is less demand for locally-produced goods in New Zealand, with a fall in domestic production of some goods. Some New Zealand manufacturers have not been able to compete with the cheap cost-base in China, resulting in a decline in the low-value manufacturing industry. Other high-value niche manufacturers have performed better. Manufacturing has been declining as a share of GDP for some time, but output in the industry started falling only in the mid-2000s as manufacturing imports from China began to rise. Some New Zealand manufacturers have moved their production to China to take advantage of the low-cost environment in order to compete internationally. The high NZD, partly resulting from the high commodity prices,[49] has also made exporters in non-commodity areas less competitive, which can have a negative impact on export demand and economic growth.[50]
