The most important new element in the international political economy after 1990 was the rise of the Chinese economy. In 1990, although China had been travelling on a market-led economic path for a dozen years, its engagement with the world economy as a whole was still limited, dominated by the export of low-cost goods. In the two decades after that, China’s economy quadrupled in size. In purchasing-power parity terms it was a larger economy than Japan’s in 2009, and about half the size of the US economy, though much poorer because it had four times as many people.
The melamine debacle, 2008
Fonterra gained a 43% stake in Chinese milk producer Sanlu Group in 2005. A Fonterra media release explained that Shijiazhuang San Lu Group was renowned for the quality of its products. But Fonterra did not identify some poor practices in its new investment, in particular the dilution and contamination of baby formula with the chemical melamine, which led to the deaths of four infants in 2008. When the scandal broke, Fonterra’s reputation was initially badly affected by the misconduct of its partner company.
As a country once completely organised on socialist lines, China was far more disconnected from the Western-dominated world political economy than Japan had ever been. But as with Japan a generation earlier, China’s rise was not destabilising, because of its shift to a more capitalist economic structure, and the fact that the US was China’s most important economic partner.
China, along with Hong Kong and Taiwan, joined the Asia–Pacific Economic Co-operation organisation in 1991. It joined the World Trade Organization in 2001, a landmark in its move away from a centrally planned economy.
The Asian financial crisis of 1997 prompted a move towards regional associations. The ASEAN + 3 (APT) forum, which linked the 10 ASEAN (Association of South-East Asian Nations) member states with China, Japan and South Korea, became an important part of regional economic organisation. New Zealand was outside this grouping. But after 2005 it was complemented by the Comprehensive Economic Partnership in East Asia (CEPEA), which linked India, Australia and New Zealand with the 13 members of APT.
Parallels between China and Japan
For New Zealand there were parallels between the new relationship with China and the ‘mature’ relationship with Japan:
- China, like Japan, is far more important to New Zealand than New Zealand is to it
- China, like Japan, is a key country in the Asia–Pacific region of the world economy, of which New Zealand is a part
- In 2017/18 China was New Zealand’s largest trading partner; Japan was fifth largest
- In 2017 China and Japan were Australia’s two largest trading partners, and they also had an important presence in other South Pacific economies
- New Zealand’s reputation in China, as in Japan, can be damaged easily and is restored with difficulty.
There are also differences in New Zealand’s relationships with the two countries, in part because China was still a developing country in the early 2000s, whereas Japan was a developed country by the 1960s.
Growing economic links
There were opportunities for exporters in the supply of services as well as goods. In 2008 China bought over $1 billion of services from New Zealand, compared with over $1.6 billion of merchandise. In 2009 the Chinese appliance maker Haier bought a 20% stake in New Zealand’s largest appliance seller, Fisher & Paykel, which was keen to increase sales in China (and around the world) from its production facilities in Asia and Mexico.
Not so good service
Chinese parents identified New Zealand schools and universities as a favoured destination for their children in the early 2000s. In 2003 foreign student numbers were seven times what they had been in 1998, with many students coming from China. But the collapse of some institutions and changes in visa requirements led to a sharp decline in numbers – from 27,600 students in 2003 to fewer than 5,000 in 2008. Numbers subsequently revived.
Chinese have emigrated to New Zealand in larger numbers than have Japanese: in 2013 more than 100,000 New Zealand residents had been born in China (including Hong Kong) or Taiwan, the second-largest group of foreign-born after UK-born.
In 2008 China concluded a free-trade agreement with New Zealand, its first with a developed economy. For China it was a useful precedent. For New Zealand, which had no such agreement with the EU, the US or Japan, it held out the possibility of an expansion of agricultural exports.