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NZCTA Commentary: Life in the Dragon Yet!

China General Interest

A recent briefing NZCTA received from its ex officio Government colleagues contained the classic mix of good news / bad news.

First, because NZCTA always sees the glass half full, the good news.

The China promotional effort will continue despite public service budget cuts and the international economic climate (maybe that should be because of the latter!).

So NZ Central is about to open its doors in Shanghai (see China Now posted 28/10/08 and we’ll feature a further article from NZTE soon). The Beachheads programme will also continue.

The programme to assist and encourage the implementation of FTA will continue in China and two of our former Executive members will be leading that with Pat English in Guangzhou and Sia’lei Van Toor in Beijing.

The Prime Minister will be visiting China in April and has already signaled, for instance in his speech at the recent ABAC Dinner in Auckland, that he will be keeping close contact and involvement in the continuation of the China strategy.

And – some would say, at last, - progress is planned to be made on the opening of satellite trade offices. Maybe three of them, maybe in Shenzen, Qingdao and Wuhan. As the Australian Government has 13 offices in China, that is very welcome news!

But all this comes in a climate of severe economic issues which, whilst not caused by China, is certainly hurting it (the bad news).

As well as the well publicised reduction in GDP growth to a modest 6.8% (versus 13% in 2007), China’s debt as a proportion of GDP has doubled to 6% (though everything is comparative, ours is 29%!). Around 60,000 businesses closed down in 2008 and forecasts for 2009 see that trend rising to 100,000 this year.

Imports are down, exports are down.

With unemployment figures being estimated at 20 million, the economy at its weakest point in seven years, and the consequent trend of urbanisation reverting to a drift back towards the rural sector, there is some alarm that the increasing instances of civil disturbance will continue and escalate.

Whilst Premier Wen Jiabao’s recent measures to boost the economy – huge increases in infrastructure and social welfare spending and his setting of a GDP growth target of 8% - appear to have a strong domestic focus, it did, at least temporarily interest international markets.

Whilst 8% is widely seen as challenging, the fact remains China's economy is the only one of the world's five biggest still growing. But the fall out from USA and Europe is bound to have a serious effect on demand for Chinese exports.

A recent PriceWaterhouseCooper's report on the world credit crisis made a comment which will come as no surprise to China watchers or those who engage with the Asian economies in general -

"Unlike in the wake of earlier crises in the postwar period, the world economy and its financial markets will not resume their former pattern…The long term shift in financial power from the West to the East has been accelerated by the financial crisis, as the credibility and strength of Western financial institutions has been severely damaged…The balance of economic and political power will shift towards the East as part of a trend towards a less US-centric world economy."

The report paints a picture where China will increase its investment in “western” financial institutions, a process already underway and one which reportedly drew the comment from the Australian ANZ Banking Group to the effect that a Chinese tilt at a major bank is a matter of when not if.

Whilst it may surprise some of the traditional thinkers in the west, those with a longer sense of history will merely see China clawing back its predominant position in world trade.

China and New Zealand signed its FTA almost a year ago and it is now being implemented. In an era where, at least temporarily, nations are retrenching and the spectre of protectionism is once more at large, that must give our exporters at least a kick-start.

So a modified Gan Bei from our half full glass!