23 Apr 2014

Treasury accepts China trade reliance

7:24 am on 23 April 2014

The Treasury says it is relaxed about New Zealand's growing reliance on trade with China.

About 22 percent of New Zealand's exports went to China last year, compared with 4 percent in 2001, and China has overtaken Australia to become New Zealand's largest trade partner.

The Treasury is relaxed about New Zealand's trade ties to China.

The Treasury is relaxed about New Zealand's trade ties to China. Photo: PHOTO NZ

The speed of the rise has raised fears that New Zealand is vulnerable if China suffers a sharp downturn or a financial crisis.

Some 60 percent of exports to China are related to foods, mainly dairy products and meat.

But chief economist at the Treasury, Girol Karacaoglu, sees more opportunity than risk.

Dr Karacaoglu says New Zealand is well-placed to take advantage of China becoming richer, and demanding more food products.

"From a risk management perspective, while concentration is a concern, we have the capability to switch the market for these products to other areas.

"In the past, for example, dairy products were going to Venezuela and Saudi Arabia - so these are the kind of products that can be switched to other places."

He says there was a precedent in the 1950s, when 60 percent of exports went to the UK.

That showed New Zealand could cope with one country accounting for such a high concentration of exports.

Dr Karacaoglu says Australia is even more reliant on China, with 36 percent of its exports going to China - though he admits that does add, indirectly, to New Zealand's exposure, through its trans-Tasman trade.