Guy Trafford finds New Zealand's nuanced approach to trade with China has far less long-term risk than that of Australia, even if the short-term favours our cousins –

Credit: Original article can be found here

The halt on Fonterra share trading last week was done to presumably allow the market time to digest the latest news and speculations. Among the options floated has been that Fonterra may look to buy back tradeable shares thereby putting total ownership of the co-op in farmer owners’ hands.

The cap on Fonterra shares (of Fonterra shares into units) was done to prevent future exposure when it comes to having to buy back shares if that option is pursued. The result when share trading was re-open on May 7 was a free fall of the share price going as low as NZ$3.90.

It has been lower, going down to $3.19 in September at the trough of the Fonterra foreign investment woes, and since getting as high as $5.15 in March this year.

The reason for this latest drop? Probably shows that investors don’t like uncertainty. The cap on numbers I’d have thought would keep things relatively stable in the meantime given that milk volumes are not likely to increase and may well decrease.

The price fall appears to be showing there are more farmer sellers than buyer demand but could also be a knee jerk reaction by those with surplus shares to get rid of them now at a known value.

There is a lot more to go on this story when the final decision is made after further farmer consultation and put to the vote at the November AGM. The approval of 75%+ would be required from farmer shareholders to achieve any major change.

Much media time has focussed on the New Zealand government’s reluctance to more openly criticise China’s human rights record, especially in regard to the Uyghur people in Xinjiang province. Criticism has been coming from our Five Eyes partners (US, Canada, UK and Australia). Australia has stood out as being particularly vocal about various China policies but especially the Uyghur peoples treatment. It occurred to me that perhaps because Australia already has a Free trade Agreement the USA and appears close to settling one with the EU and UK they felt less exposed to the economic sanctions being applied to them by China?

In fact, the reality is just the opposite.

New Zealand as a country exports far less in percentage of total exports to China than Australia does, and despite no FTA exports more to the USA. (See figures below). New Zealand also has the ‘advantage’ of being able to export to Australia.

Market NZ goods share of all AU goods share of all
  exports NZ exports exports AU exports
  US$ bln % US$ bln %
China 10.8 29.0 90.6 43.0
Australia 4.8 12.7
USA 3.8 10.3 13.1 6.2
Japan 2.3 6.1 19.0 9.0
South Korea 1.1 3.0 13.0 6.2
UK 0.962 2.6 10.3 4.9
India 0.472 1.2 7.1 3.4
New Zealand 7.0 3.3
Taiwan 0.840 2.2 5.5 2.6
Hong Kong 0.747 2.0 4.7 2.2
Indonesia 0.694 1.9 3.4 1.6
Malaysia 0.678 1.8 3.3 1.6
Singapore 0.670 1.8 5.5 2.6
Thailand 0.613 1.6 2.3 1.2
Germany 0.596 1.6 2.6 1.2
Vietnam 0.533 1.4 4.4 2.1
Saudi Arabia 0.515 1.4    

So, with China (only) 2-3 times the value of our next closest trading partners we look decidedly balanced when compared to Australia where exports to China have nearly 5 times the value of the next closest partner.

It then begs the question as to why the two countries have adopted different stances when dealing with China?

Australian politicians appear to be overflowing with contradictions. Despite the fact that Australian politicians seem to find delight in giving Kiwi’s a hard time, withholding social welfare benefits despite years of tax paying and sending home anyone who dares break a law they do allow in far more refugees (pre-Covid) per head of population than New Zealand does and often will be happy to highlight other countries shortcomings around human rights issues. And in the case with China, at considerable expense to the country economically.

Part of it seems to be where the US goes, Australia is quick to follow. Where New Zealand tends to follow the lead of the UN.

Looking at some older research data done in 1989 and going back to 1969 it showed that Australians as a population held fairly moderate attitudes to Chinese and although the survey said they perceived Chinese less trust-worthy and the same survey said they found Americans more aggressive.

However, in the last couple of years (2018 -20) recent attitudes towards China have plummeted with trust in China and its leader going from 52% down to 23%. Similar to what has happened in the USA.

New Zealand, despite its past shocking treatment of Asians has research now that shows in general the population is quite supportive of Asian immigrants and sees them as providing benefits to the country. (although likely to also now view the Chinese government with more distrust than previously). Regarding immigration, this is at odds with almost every other country which generally have negative attitudes to any immigration.

New Zealand has also managed to achieve FTA’s with Taiwan and Hong Kong which no other OECD country has achieved while still managing to adhere to the One China policy.

So, while New Zealand’s neutral approach with China may leave it open to criticism from others, New Zealand is also less tied to the US and following their lead, perhaps a conditioning that goes back to the nuclear free days and the US’s reluctance to meet us part way.

What appears to be happening with the Uyghur population and Hong Kong etc. etc. cannot be condoned or even ignored but New Zealand and Australian (and the US) do not look great when put under closer scrutiny. For instance, Maori with 16% of the population make up 52% of the prison population and have a life expectancy nearly 10% less than non-Maori. The figures for Australian Aboriginals are far worse and the US and Canada both have similar stories. I’m certainly not trying to excuse what is and has happened in China and New Zealand is trying to reverse the negative trends with Maori. But it does make me feel vaguely uncomfortable when pointing the finger or worse being asked by other countries to point the finger at other countries.

Fortunately, New Zealand taking a more ambivalent approach is providing some respite from negative economic fallout and hopefully a diplomatic approach will bring some softening in China’s attitudes with some of its policies.

The road ahead does however look rather bumpy.

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