China's recent growth and its impact on the New Zealand economy (WP 13/15)

Abstract

The People's Republic of China has become increasingly important to the New Zealand economy since the start of economic liberalisation in China more than 30 years ago, particularly in the past decade. This paper is the first of three looking at the impact of China on the New Zealand economy. It examines China's recent economic expansion and traces the channels through which this expansion and the subsequent increased demand for commodities have impacted on the New Zealand economy, concentrating on exports in the past decade. The second paper (Bowman and Conway, 2013) examines the outlook for China's impact on the New Zealand economy through these same channels. The third paper (Osborn and Vehbi, 2013) quantifies the impact of China's expansion and commodity demand on the New Zealand economy through the framework of an econometric model.

This paper concludes that China's expansion has had a large positive impact on the New Zealand economy, mainly through increased merchandise exports, but also through services exports, merchandise imports and other channels. Merchandise exports to China were equivalent to 3.3% of New Zealand's nominal GDP in 2012, up from 0.8% in 2000. The trend increase in exports to China since 2000 has mainly been a result of higher volumes, with higher prices providing a boost to incomes. The increase in exports to China has generally not come at the expense of lower export volumes to other markets.

Since 2001, dairy and forestry exports have outperformed the rest of the economy, contributing 7.9 percentage points to expenditure GDP growth, versus an expected contribution of only 1.9 percentage points if they grew at the same rate as the economy as a whole. Chinese demand has also been the main driver of increased dairy and forestry production recently and they have also outperformed the rest of the economy. Since 2008, the dairy and forestry industries have contributed 2.1 percentage points to real production GDP growth versus an expected contribution of 0.2 percentage points.

Acknowledgements

We would like to thank Paul Conway, Jason Young, Wei Zhang, Lee McCauley, Steve Cantwell, Bob Buckle and Simon McLoughlin for their helpful comments, as well as many colleagues at the New Zealand Treasury and Reserve Bank of New Zealand who commented on earlier drafts of this paper. All errors and omissions remain our own.

Disclaimer

The views, opinions, findings, and conclusions or recommendations expressed in this Working Paper are strictly those of the author(s). They do not necessarily reflect the views of the New Zealand Treasury, the New Zealand Productivity Commission or the New Zealand Government. The New Zealand Treasury, the New Zealand Productivity Commission and the New Zealand Government take no responsibility for any errors or omissions in, or for the correctness of, the information contained in these working papers. The paper is presented not as policy, but with a view to inform and stimulate wider debate.

Access to the data used in this study was provided by Statistics New Zealand under conditions designed to give effect to the security and confidentiality provisions of the Statistics Act 1975. The results presented in this study are the work of the authors, not Statistics New Zealand