China has overtaken Australia as New Zealand's top trading partner, and could soon also replace our trans-Tasman neighbour as our top exporting destination.
New Zealand was the first developed country to sign a Free Trade Agreement (FTA) with China in 2008, the first comprehensive agreement covering goods, services and investment signed by China.
Over the decade ended 2012, New Zealand’s bilateral trade with China more than doubled while trade with Australia recorded only 30 percent growth.
In terms of imports, China bypassed Australia in 2011 and remains in the top to date.
China has now become the key business partner of the Pacific region by becoming the major trade partner of both New Zealand and Australia.
Importance of international trade to New Zealand
New Zealand is small and remotely located. Local firms rely on export market to increase revenue and remain internationally competitive. Imports are useful for local producers and consumers.
International trade contributes nearly two thirds of New Zealand’s economic activities. New Zealand maintains an open economy and provides free access to 85 percent of goods from the world. However, New Zealand firms face barriers overseas; therefore the government is responsible for negotiating trade deals.
Currently New Zealand has eight FTAs and is negotiating with other parties including India. The main objective of an FTA is to provide the gateway to foreign market for New Zealand exporters and investors. When competitors gain preferential market access in countries where New Zealand has a trade interest, New Zealand makes an attempt to level the preferential access by signing FTAs.
The future of New Zealand trade
Will China become the most important strategic partner for New Zealand? China, with over US$8.3 trillion GDP and a population of more than 1.3 billion, expects 7 percent growth and high demand for agricultural products.
New Zealand has probably chosen the correct partner for the future.
On the other hand, the time has come for New Zealand to consider the benefits from the proposed FTA between Australia and Japan.
Due to political rivalry between Japan and China, and New Zealand’s strong relationship with China, building direct relationship with Japan may not the best way forward. The Tokyo 2020 Olympics will bring a massive trade opportunity and New Zealand should use its existing partner in Australia to capitalise on this opportunity.
Pramuk Perera is undertaking a PhD in international business at the University of Otago