Damon Paling, a 15-year resident of Shanghai and outgoing Trade Commissioner with New Zealand Trade & Enterprise, shares some final musings on all things China.
In reflecting on the past five years, or thereabouts, so much has changed in China in such a short period of time.
China continues its transformation from a manufacturing economy to a services economy; its transformation from rural living to urban living; transformation from the ‘workshop of the world’ to the ‘consumer market of the world’; and transformation from a ‘cash-only’ to a cashless society.
China has arrived as an economic superpower and surged towards the technological frontier in several sectors of the economy. All of this has happened much faster than many in the West anticipated.
The Constitution has been amended with so-called ‘President for life’ provisions. Socialism with Chinese characteristics and ‘The China Dream’ are contemporary themes of the day.
This leaves many in the West feeling uneasy, and understandably so. We now live in an era of heightened political tension and distrust between China and America.
America’s foreign policy towards China has shifted from ‘engagement’ to ‘containment’ – the ramifications of which extend far beyond a trade imbalance and the imposition of punitive tariffs.
An evolving bilateral relationship
November 2019 saw Prime Minister Ardern and Premier Li sign off an upgraded bilateral Free Trade Agreement. Whilst the outcome was not ‘comprehensive’ in nature from New Zealand’s perspective, it does nonetheless represent a further opportunity to deepen cultural and economic ties. Expanding trade in services and the elimination of non-tariff barriers are critical to future export growth. Other areas of ongoing strategic mutually beneficial bilateral collaboration can include the Belt and Road Initiative, WTO reform, and climate change.
However, on a somewhat cautionary note, constructive engagement by Wellington with Beijing in a contemporary and more complex setting is a great challenge. Issues that come to mind include Chinese influence in the South Pacific, debt-trap diplomacy, Huawei 5G, and human rights in Xinjiang province.
An evolving scenario in export growth
Bilateral trade has in the past 12-months exceeded NZD30 billion!
Chinese consumers continue to trust and regard our primary sector has ‘heroic’. Dairy exports, notwithstanding recent infant formula policy changes, continue to enjoy steady growth. Meat exports, particularly lamb albeit against a backdrop of African swine fever, is enjoying a purple patch. Horticulture exports, lead by kiwifruit and a range of apple producers, are also enjoying a period of sustained expansion. Sustainable seafood exports are steady and lobster exporters are ‘all in’ with China representing over 90 percent of their export revenues.
That said, substitution at the banquet table of ‘Southern Rock Lobster’ with ‘Russian King Crab’ is a very real threat that is currently being navigated.
New sub-sectors for exporter growth have emerged, such as retail-ready pet food, mobile gaming, and specialized manufacturing. Bottled mineral water, a sensitive export sector, will see exports triple in value through December. Making headway in other sub-sectors, namely tech, remains a great challenge. And manuka honey businesses are in search of their next generation of consumers.
Exporters are advancing down the value-chain and evolving from ‘trading with China’ to ‘trading in China’. Exporters are recruiting more Chinese talent into the business, either locally in market or at home in headquarters.
Exporters are localizing their brand stories and product or service offering for the China market. Local intellectual property is being developed and the profit returns attributed with local distribution are being captured and remitted back home.
Exporters are thinking more about long-term ‘social accountability’ and engaging in Beijing-led initiatives such as Healthy China 2030.
Many of the above exporter activities are reflective of the fact that the ten-year honeymoon period for New Zealand’s trade with China is well and truly over. Simply being foreign and from New Zealand is not as special as it once was. Long gone are the days of accidental market entry via the ‘diagou’ channel.
Whilst Chinese consumers are more accessible than ever before, the complexity and cost associated with engaging and retaining these consumers is higher than ever before. A sense of nationalism has evolved and whilst New Zealand is more dependent on China than ever, China is less dependent on us.
The domestic economy is strong and not a week goes by without so-called ‘unicorn’ sized homegrown champions taking centre-stage.
Overall, doing business in China remains as challenging as ever, particularly as exporters broaden their distribution reach into Tier 2/3/4 cities.
Provincial capitals are enjoying faster growth rates higher than the traditional coastal regions – which can feel exciting and daunting in equal measure.
Positive reforms within China continue and can aid exporters in the years ahead. An updated version of the Trademark Law took effect on 1 November 2019, which aims to negate the practice of ‘malicious squatting’ or ‘bad faith filing’.
A revised Foreign Investment Law is scheduled to take effect 1 January 2020.
An eye to the future
Auckland will host APEC 2021 and we can expect President Xi to visit. Progressive bilateral meetings can take place on the sidelines. 2022 will mark 50 years diplomatic relations and this represents yet another opportunity for high-level government and commercial engagement.
2030 has people talking of NZD60 billion in two-day trade. Is this attainable? It’s possible. Consumption in China is forecast to expand by USD6 trillion over the next decade. That is more than ASEAN and India combined.
For New Zealand, growth in services will be key to success, including advancing sustainable high-value tourism and ongoing engagement in the education and motion picture industries. Growing value-add export trade in goods is an increasingly complex equation that many minds are aiming to solve. With prosperity for New Zealand people in mind there is much to play for in the years ahead.
Time to ‘Didi’ a taxi to the airport…
Yes, I have spent around four hours per day on my mobile phone.
Yes, I have embraced life in a modern cashless society.
Yes, Shanghai has transformed into a city for the 21st century. The Shanghai I depart from is a far cry from the Shanghai I arrived in some 15 years ago. And rightfully so.
However, the people remain the same. The entrepreneurial, open-minded, and optimistic spirit of the Shanghainese people lives on as the ever-present soul of the city.
