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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 second of three looking at the impact of China on the New Zealand economy. The first paper (Bowman and Conway, 2013) examined China's recent economic expansion and traced the channels through which this expansion has impacted on the New Zealand economy, concentrating on China's demand for commodities. This paper examines the sustainability of China's economic growth and demand for commodities, and the impact that China is likely to have on the New Zealand economy in the next decade. The third paper (Osborn and Vehbi, 2013) quantifies the impact of China's past expansion and commodity demand on the New Zealand economy through the framework of an econometric model.
This paper concludes that while there are cyclical risks to China's economic performance in the medium term, these risks are manageable; China's economic growth is likely to ease to a more stable and sustainable rate over the next decade compared to the previous decade. However, demand for commodities is likely to remain high over this period, as urbanisation continues and incomes grow faster than other trading partners. A gradual shift in the driver of economic growth from investment to consumption is likely to transfer demand from hard to soft commodities.
Dairy and meat consumption per capita are expected to grow as incomes increase and combined with China's large population will result in significant impacts on global markets. China's shortage of agricultural land and water resources will limit its supply response and, along with concerns about the quality of domestic production, result in a reliance on imports of agricultural products. New Zealand's reputation for producing quality products and its efficient supply chains, which are already well established, put it in a good position to benefit. China's growing share of New Zealand exports will continue to increase its contribution to New Zealand's economic growth, despite a slowdown in China's growth.
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.
The authors wish to thank our referees, Phil Briggs, Paul Conway, Andrew Coleman and Mario Di Maio for their very helpful suggestions and comments on this paper. We are also grateful to our editor, Grant Scobie.
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 or the New Zealand Government. The New Zealand Treasury 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.
Table of Contents
- 1 Introduction
- 2 The outlook for China's economic growth
- 2.2 Credit growth and quality a manageable risk
- 2.3 Population growth to slow
- 2.4 Growth likely to slow with rebalancing and income convergence
- 2.4.3 Slowdown in growth with income convergence
- 2.5 Consumption to continue growing strongly
- 3 Outlook for China's impact on New Zealand
- 3.2 China's commodity imports will continue to rise
- 3.3 Increased demand for dairy products
- 3.4 China's demand for forestry products to increase
- 3.5 China's demand for services imports likely to grow
- 3.6 China's large impact to continue despite slowing growth and risks
- 4 Conclusions
- 5 Bibliography