THE FEROCIOUS reaction on global markets to a slump in the Shanghai stock market last week contains lessons for New Zealand.

It tells us something we should really know but are surprisingly reluctant to either realise or do anything about. It tells us this is the Chinese century.

Is New Zealand ready for, or able to cope with, this fundamental shift in the global economy and the social and demographic changes that will flow out of that? Apparently not, if we look at our trade statistics and how we are engaging with our resident fast-growing and dynamic Chinese population.

It is little known that New Zealand's merchandise exports to China have been stagnant over the past five years. This is astonishing given the boom in global trade in that period driven by China. Our total exports to China actually fell in 2004 and 2005. Milk powder exports are significantly down in the past five years.

Total exports to China have risen 19% in the past year to $1.869 billion, but this compares with a 23% rise in imports to $5.042 billion. New Zealand's exports to Britain and South Korea have actually grown faster than exports to China in the last year.

China is our second largest import provider after Australia and is a distant fourth largest export destination after Australia, the United States and Japan, which takes twice as much from New Zealand as its North Asian neighbour.

To show just how much we have missed the boat by, it's worth looking at how fast global exports to China have grown. They tripled in the first five years of this century. New Zealand's exports to China have risen by less than half.

There are some good reasons for this that we can't take the blame for. China's demand for raw materials for its rapid industrial revolution has been explosive. Our neighbour Australia has provided a good chunk of the coal, iron ore and copper to fuel that boom. We generally don't have those raw materials to export, although there are exceptions. We export the high quality coal needed for China's steel mills from the West Coast and some iron sands from the Glenbrook Steel Mill. This newspaper detailed last month how New Zealand Steel has quadrupled exports to China in the past four years, essentially saving the company.

Some would argue our export growth generally has been slow in recent years because of a high currency. That is true of the past couple of years, but the period when we fell sharply behind the rest of the world's growth rates was when our currency averaged US55 cents

At current export growth rates, Britain will catch up and pass China as our fourth largest export destination within the next year or two.

How could this happen? Why are we not engaging with China in a deeper way that would generate these exports? It is puzzling, particularly in a period when we have seen an influx of Chinese immigrants to New Zealand who, in theory, could have helped link our two economies more closely.

It's worth considering how well we as a nation understand China. Most newspapers carry little news of the economic and political drivers of the Chinese economy, and therefore the world's.

We hear about the "surprise" events that appear to come out of nowhere, but little of the bread and butter analysis that explains what's going on.

For example, anyone with any understanding of how the Shanghai market operated would have expected a crash. The market is notoriously poorly regulated. Disclosure is appalling by conventional standards. Most of the companies are shadowy government-owned companies where most of the stock is locked up in political hands. Yet the market has tripled in the past 18 months because of rampant speculative activity by average Chinese without other sensible options for investing or legal options for gambling. It was a disaster waiting to happen, but a largely irrelevant disaster. Few of the major Chinese companies are listed there, there is almost no foreign investment and its market capitalisation is minuscule compared to the size of the economy.

The real Chinese stock market to watch is the Hong Kong market, which has fallen 9% in the past week. There are genuine worries about a slowing of economic growth in China and recurring concerns about tensions with Taiwan.

For example, does New Zealand know Chinese Premier Wen Jiabao made a major economic speech to the opening session of the National People's Congress this week that detailed his concerns the economy was unbalanced, and he had forecast lower growth?

Or does it know that on Sunday Taiwan's President Chen Shui-bian called for independence from China, an incendiary move that China's military have regularly threatened to respond to with force?

How well do we know the history of China or how the power structures work? Do we know, for example, that more than 60% of the Communist Party's senior leaders will retire when China has its five yearly congress later this year, or that five of the nine Cabinet members are also expected to step down? These are details being reported by our China correspondent Colleen Ryan in Shanghai. This newspaper has made a significant effort to report Chinese issues from a political, economic and corporate point of view.

But New Zealand has failed to grasp what it means to engage with China. Take our language curriculum. Maori, French and Spanish are still more popular in schools than Chinese. We teach English and American history but little of Chinese history.

This is despite the presence in Auckland, in particular, of many students who have Chinese as their first language. Statistics New Zealand forecasts the combined Asian, Maori and Pacific Island population in Auckland to be 836,000 by 2016, almost the same as the Pakeha population. The Chinese element within this is substantial.

Our schools are rightly emphasising Maori in class. But what's to stop us adopting a third language. Many European schools choose English and a third language to teach alongside their own.

What better way to welcome in our new Chinese migrants and start to engage in a long-term way with a country that will dominate this century in economic terms.

Agree? Disagree? Got a better idea? email bernard. hickey@theindependent.co.nz

Copyright¸The Independent (1089 words)
The Independent Financial Review - 07 MAR 2007 : Page 012

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