4 Conclusions
China's strong economic growth, urbanisation, industrialisation and international integration in recent times have had a significant positive impact on the New Zealand economy. In the past three decades, China's economy has grown at an average of 10% per annum, which - along with urbanisation and industrialisation - has led to rising incomes and increased demand for soft and hard commodities. Despite consumption having a relatively low share of GDP, household disposable income and consumption expenditure have grown several-fold in real terms in the past twenty years, leading to increased demand for food imports.
New Zealand merchandise export volumes and prices have been the main channel of increased Chinese demand. New Zealand's merchandise export values to China have grown from 3.3% of total merchandise exports in 2000 to 15.4% in 2012, making China New Zealand's second largest export destination, after Australia. Dairy exports have led the way and are now New Zealand's largest export product to a single market.
Services exports to China, mainly education and tourism, have also expanded significantly, while competitive Chinese imported manufactured products, along with the high NZD, have helped keep tradables inflation and business capital costs low. New Zealand has also received indirect benefits from China's growth through its largest trading partner, Australia. These factors have boosted New Zealand incomes, and real GDI (real GDP adjusted for the terms of trade) has grown faster than real GDP over the past decade and gives a better indication of how New Zealand incomes have grown and living standards increased.
Trend growth in total exports to China since 2000 has been driven by higher export volumes. There have been spikes up in export prices to China, boosting incomes, but there is not the same upward trend as for volumes. Dairy exports have been the main beneficiary of increased Chinese demand, with forestry exports having the second largest increase. China's shares of dairy and forestry exports have increased significantly over this period and Chinese demand has lifted dairy and forestry prices higher since 2000 compared with the preceding decade. This has led to a reallocation of resources in the economy, for example sheep and beef farms being converted to dairy and increased forestry harvesting. This impact has been seen recently with dairy and forestry industry GDP significantly outperforming the rest of the economy since 2008.
Rising dairy exports to China have generally not been at the expense of other markets, with most continuing to increase slightly in both value and volume terms, suggesting China's additional demand has been met chiefly by increased supply rather than redirected exports. Growth in dairy and forestry exports to China has outstripped that of other markets and has been the main driver of dairy and forestry export volumes growing faster than dairy and forestry industry real GDP. These results suggest that China has been the main driver of recent increases in dairy and forestry production, rather than domestic demand or exports to other markets.
Chinese demand has become more important for the New Zealand economy with merchandise exports to China being the equivalent of 3.3% of New Zealand's nominal GDP in 2012, up from 0.8% in 2000. On a real expenditure basis, additional Chinese demand has assisted dairy and forestry export volumes to outperform the rest of the economy. These industries contributed 7.9 percentage points to real GDP growth since 2001 out of total growth of 30.0%. If dairy and forestry exports grew at the same pace as the economy as a whole, they would have contributed only 1.9 percentage points to growth.
On a real production GDP basis, increased Chinese demand has assisted the forestry and dairy industries to outperform the rest of the economy since 2008, contributing 2.1 percentage points to the 4.1% real GDP growth. If these industries grew at the same pace as the economy as a whole they would have contributed only 0.2 percentage points. This effect has helped the economy recover from the GFC and the high terms of trade, partly resulting from Chinese demand, have boosted incomes over this period.
