New Zealand exporters feast on China's vast market

WELLINGTON Fri Apr 26, 2013 11:28am IST

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WELLINGTON (Reuters) - China has become New Zealand's biggest export market in the first quarter, adding luster to their economic links since they inked a free trade deal five years ago and providing a vital source of growth for the South Pacific nation.

New Zealand was the first developed economy to sign a free-trade agreement with China in 2008, and since then exports have roughly tripled to NZ$7.4 billion ($6.3 billion).

Official data on Friday showed exports to China rose 32 percent in the 12 months to March as the world's second biggest economy bought increasing amounts of logs, meat, and dairy produce, displacing Australia as New Zealand's biggest export market.

"This largely reflects the growing demand from China, as its growing middle class results in increased demand for protein. New Zealand is well positioned as a food producer to address that growing demand," said ASB Bank economist Christina Leung.

New Zealand shops have long been crammed with cheap Chinese goods, making it the country's biggest source of imports, worth NZ$7.8 billion in the year to March.

Overall, two way trade still sees neighboring Australia as New Zealand's biggest trade partner, but over the past year the total has fallen 1 percent while two way trade with China is up 12.8 percent.

New Zealand and China are aiming for two way trade of NZ$20 billion by 2015, a target reaffirmed when Prime Minister John Key visited with a large trade delegation earlier this month.

"New Zealand's post-free trade agreement trade and investment growth with China has helped to lessen the impact on New Zealand from the recent global financial crisis," Key said ahead of the visit.

In addition Chinese tourist arrivals have leapt 31 percent in the 12 months to March, while more than 24,000 Chinese students -- the largest source -- are studying in New Zealand this year.

That has seen increased flights between the two countries and relaxed visa procedures.

"We are now seeing wealthier, more educated and well-traveled Chinese coming to New Zealand," said Zane Smith of tourism marketing firm Vation Ltd, who was part of the trade mission.

Key forecast that visitor arrivals from China will rise five fold to around 1 million by 2018.

DIRECT INVESTMENT

The two countries are also increasingly becoming more directly involved in each other's economies.

New Zealand's biggest company and exporter, dairy co-operative Fonterra Ltd is also looking to plant itself directly in China by developing dairy farms.

Fonterra, which accounts for about a third of the global trade in dairy products, has three farms in Hebei province and two more being developed. It aims to produce 1 billion liters of milk in China by 2018.

"China has said to the world 'we want milk', and New Zealand has said 'sure thing'," Westpac economists said in a research note earlier this month.

It will start selling its own branded infant formulas from mid-year, and also plans a plant to make ultra-high temperature milk by 2016.

Two Chinese dairy firms -- Yashili New Zealand Dairy Co and Inner Mongolia Yili Industrial Group (600887.SS) -- were given the green light this month to build infant milk plants in New Zealand worth more than NZ$200 million each.

Earlier this week, the New Zealand Superannuation Fund, a government long term pension investor, sold more than 7,000 hectares of commercial forests to a subsidiary of the state-owned China Forestry Group Corporation.

A year ago, a Chinese based group Shanghai Pengxin succeeded on its second attempts to buy 16 New Zealand farms for around NZ$200 million from a failed local company.

Other direct Chinese investments in New Zealand includes a controlling stake in agri-business PGG Wrightson (PGW.NZ), and last November's NZ$927 million takeover of appliance maker Fisher and Paykel Appliances Ltd by the Haier Group.

($1=NZ$1.1724)

(Editing By Shri Navaratnam)

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