New Zealand worst hit by Chinese import slump – Guardian infographic

A continuing Chinese economic downturn will hit New Zealand worse than other developed countries, according to figures from the Guardian.

A Guardian website interactive infographic – How China's economic slowdown could weigh on the rest of the world – suggests that if China’s imports continue to decline at the present rate (an average of 14.6% over the first seven months of the year) during 2015, New Zealand’s lost income will be $US3.54 billion, or 1.9% of GDP.

This is worse than the impact on all the other developed countries measured. For example, number two affected country Australia, sees lost income as a percentage of GDP of 1.7% in 2015, in Korea it is 1%, in Singapore 0.7% and in the US only 0.1%, although bilateral US-China trade is huge.

Only countries like North Korea, Burma and Mongolia fare worse than New Zealand on a percentage of GDP basis.

Because of our dependence on China, New Zealand’s loss compared to other developed countries would grow if China’s imports fell further, according to the Guardian’s model.

At a 30% drop over the whole of 2015, New Zealand’s theoretical export losses as a percentage of GDP would be 3.9%, as opposed to Australia’s 3.6% and 2% for third-placed (of major developed countries) South Korea.

New Zealand economists don’t dispute the dismal figures for the situation today, but say future projections have to be treated with caution.

ANZ chief economist Cameron Bagrie says going forward, Chinese demand is expected to be increasingly driven by consumption (people buying food and other consumer goods) and less by investment (building houses, factories, bridges, transport systems etc). And because New Zealand sends so much dairy and meat to China, it might be better placed than Australia, for example, which relies heavily on metal and fuel.

“People still have to eat, and the New Zealand economy is hooked into the consumption side, so we would expect the economic flow-on would not be so great [as for Australia].”

“Fast forward 6-12 months and if you imagine the Chinese economic story goes pear-shaped, it will be an investment-style bust and there will be a bigger implication for hard commodities [mined resources] than soft commodities [agricultural products].

“People still have to eat, and the New Zealand economy is hooked into the consumption side, so we would expect the economic flow-on would not be so great [as for Australia].”

The Guardian’s projections also don’t take into account services exports (in particular tourism), nor any change in the proportion of our exports taken by dairy, says NZ Institute of Economic Research senior economist Christina Leung.

She says the Guardian infographic is interesting but simplistic.

“For example, the estimated decline in New Zealand looks like it is based on the current amount of dairy products we export to China, but that has been declining and will likely continue to decline over the coming years.

“In contrast, other export sectors will pick up and partly offset this decline in dairy through 1) less competition for resources and 2) boost from the depreciation in NZD that is likely from such a drop in dairy income. 

“I'm not sure this infographic captures these dynamics.”