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International economic relations

by Malcolm McKinnon

New Zealand is a small player in the world economy. Until the 1960s Britain dominated its external economic relations. In the early 2000s it relied on trade diplomacy and a network of treaties to bolster its access to world markets.


New Zealand in the world economy, 19th century

Empires, nations and businesses, most centred far from New Zealand, have shaped the country’s economic life since the first arrival of Europeans.

World economy and New Zealand, 1770–1840

At first New Zealand was not part of Britain’s empire. Individual trading ships from many nations came for seals, whales, flax, timber and provisioning.

However, Britain’s influence grew after it established penal colonies on the eastern Australian coast at Port Jackson (Sydney) in 1788, and Hobart in 1807. Many of the early trading ships came out of Australian ports. Until 1833 the British East India Company monopolised Pacific trade with Britain, but the monopoly was not fully enforced after 1819.

Britain annexes New Zealand, 1840

Britain incorporated New Zealand into its empire in 1840. European powers had traditionally been ‘mercantilist’ – they favoured their own traders and their own ships. But in the 1840s Britain was moving towards ‘free trade’, a view that commercial dealings between countries should not be restricted. Apart from the very early years of the colony, New Zealand did not give significant preference to British commerce, nor was it expected to.

In the gold rush years of the 1860s Britain’s Australian colonies remained important economically to New Zealand. Dunedin, the main outlet for the Otago goldfields, was developed by businesspeople and migrants from Melbourne. Most of New Zealand’s gold found its way to Australia in the first instance.

But in the 1870s gold declined, and wool rose in importance. British firms supplied around 60% of New Zealand’s imports and Britain took around 75% of exports. Perhaps 20% of wool imported into the UK was sold on to mainland European manufacturers.

Base economies

The British government itself was important to New Zealand economically. Britain supplied forces when relations between Europeans and Māori broke down. Military spending was vital to the economy of Wellington in the mid-1840s and Auckland in the mid-1860s.

Acting reputably

Being of good standing – and therefore able to borrow more cheaply – was a persisting goal of colonial governments. The UK colonial stock legislation in 1877 allowed colonial loans to be ‘inscribed’, which made them more reputable, and the Colonial Stock Act of 1900 allowed trustees in the UK to invest in such stocks.

Lending to the colonies

Another important connection was financial. British investors lent money to the colony – to individuals, companies and the colonial and provincial governments. Banks lent the colonial government £1 million in 1863 (around $100 million in 2009 terms), at a time when the economy of the colony as a whole was reckoned at about £12 million, and exports earned less than £2 million. £10 million was lent in the early 1870s.

British investors were often sceptical about New Zealand enterprises. Colonial banking practices attracted critical comment, criticism borne out by the difficulties that colonial banks got into in the late 1880s and early 1890s.

The most important financial officer in the New Zealand government was the agent general in London, who organised loans. In 1904, of £53 million of government debt, £46.5 million was raised in London: ‘England is for [New Zealanders] a banker provided by nature’ said one commentator.1

Footnotes
  1. André Siegfried, Democracy in New Zealand. Wellington: Victoria University Press, 1982, p. 238 (originally published 1904). Back

International economic order after 1900

British dominance

At the beginning of the 20th century the UK was the dominant international power. The economies of both Germany and the US were larger, but only the UK was a truly global trader. It imported far more from most countries than it exported to them, financing the difference from the return on its many overseas investments. The City of London financed world trade, and the British currency, the pound sterling, was used alongside gold to settle accounts, not just within the British Empire but beyond. New Zealand’s per-capita consumption of British goods was high, but two-thirds of British exports were sold outside the empire.

First World War and after

During the First World War the US replaced the UK as the world’s principal creditor country, and it continued to play a key role in the international system after the war. New York rivalled London as a financial centre.

US dominance

The Second World War crippled the UK economy, and most other economies, especially in Europe and Japan, but not in the US. In 1945 the US accounted for half the world’s output and was its major creditor. It lobbied for other economies to open their borders to investors and businesses from other countries.

New Zealand was keen to maintain a full employment policy, keep its special agreements with the UK, and develop its industry. So it kept the new system at arm’s length – it chose not to enter the International Monetary Fund, which was established to manage international financial relations, until 1961, even though Britain had joined. It did join the general agreement on tariffs and trade (GATT), a world trading organisation, in 1948.

US and other capitalist economies

Over time the relative economic significance of the US declined, as Europe and Japan recovered and grew. During the period of financial instability in the later 1960s and 1970s, meetings between finance ministers and senior financial and economic officials of the principal capitalist economies became common. From the mid-1970s these were regularised as G7 meetings.

New Zealand abandoned protectionist policies in the 1980s. Its main difference of opinion with the major powers remained their inability or unwillingness to open their food markets, which were largely insulated from international prices and supply.

A feared food fight

Why was wool never subject to protectionist barriers the way food products such as butter, cheese and meat were? Wool was an industrial input, and overseas factory owners were keen to source it as economically as possible. But New Zealand food products were ‘final goods’ (sold directly to the market) – while food consumers wanted a bargain, their influence was outgunned by the lobbying of domestic producers for whom the New Zealand product was a feared competitor.

OECD

The Organisation for Economic Co-operation and Development (OECD) admitted New Zealand to membership in 1974, shortly after the UK joined the European Union, then the EEC. The OECD, an outgrowth of US economic assistance to Europe after the Second World War, grew to embrace most developed economies. It engages in economic and social investigation and data gathering and has become the principal reference group of economies in respect of debate on political economy issues in New Zealand.

WTO and the Cairns Group

GATT gave way to the World Trade Organisation (WTO) in 1995, which became the principal forum for multilateral trade negotiations. In 1986 New Zealand was a founder member of the Cairns Group – a group of 19 developed and developing primary-producing economies which sought free trade in agricultural products. The place of agriculture in international trade negotiations was secured through the Uruguay round of trade talks (1986 to 1994) and in 2009 the group played a part in the ongoing Doha round, which started in 2001. The group’s goals were contested not just by protectionist rich economies, but by some developing economies with large rural populations dependent on farming, such as China and India.

In 2009 the Cairns Group included 10 Latin American countries, four South-East Asian countries, Pakistan, South Africa, Canada, Australia and New Zealand.

Slow race to the bottom

Returning New Zealand to ‘the top half of the OECD’ in terms of per-capita standards of living was an oft-cited goal in the early 2000s – the benchmark for New Zealand’s economic performance had once been provided by comparisons with other British Empire countries. The OECD goal remained distant; in 2008 New Zealand ranked 22nd out of 30 countries.

G8 and G20

With the end of the Cold War, and the adoption of market-oriented policies in much of the developing world, new structures for managing the international economic order were explored. Russia became a full member of the G7 in 1997, making it the G8.

The G20 was established in 1999 to bring together ministers of finance and central bank governors. It was an effort to draw developing countries with rapidly advancing economies, such as China and India, into the framework of international economic diplomacy. Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Saudi Arabia, South Africa, South Korea and Turkey, together with the G8, were members in 2009.

New Zealand’s economy is too small for it to have membership in the G20, and it is an outlier of the international political economy.

New Zealand’s diplomacy seeks to ensure that larger economies and states foster environments that give New Zealand businesses opportunities anywhere in the world, and do not harm the interests of New Zealanders at home.


Britain and New Zealand, 1900 to 1940

British anxieties

An empire trade commission toured New Zealand and other dominions in 1913 to collect information on the ‘natural resources and trade’ of the dominions – it was concerned with the expansion of dominions’ trade with Germany. German exports to New Zealand had doubled between 1909 and 1912, from £327,000 to £653,000 (by place of shipment), and they exceeded £1 million (by place of origin) in 1914 – over $138 million in 2009 terms.

After the First World War, UK interests were most concerned about the US, which had expanded trade with British dominions, including New Zealand. New Zealand had offered UK goods a modest degree of favoured treatment since 1904. But whereas the UK had usually supplied over 50% of New Zealand’s import needs before the war, the figure was between 45% and 50% after the war.

British imports and direct investment

From the 1890s the UK had become a major purchaser of New Zealand frozen meat, butter and cheese, as well as wool. The UK was New Zealand’s principal customer, taking at least two-thirds of its exports most years in the decade before the First World War.

British capital was invested in the new pastoral economy:

  • two British meat-processing companies – Vesteys and Borthwicks – bought meat freezing plants, and together with Swifts, a US company, controlled about 30% of meat processing in New Zealand
  • British companies controlled all shipping from New Zealand after the P&O company bought the Union Steam Ship Company in 1917
  • dairy production remained in the hands of New Zealand cooperatives, but British businesses controlled the marketing and sale of dairy produce in the UK, from headquarters on Tooley Street in London.

Depression pressures

In 1932 economic and financial pressures saw the UK impose import duties. British farmers lobbied their government to give them a favoured place in the home market.

Stop the socialists

The election of a Labour government in New Zealand at the end of 1935 made British financial and commercial interests anxious. After New Zealand imposed import and exchange control at the end of 1938, the British imposed tough conditions on the loans it sought to refinance. Only the outbreak of war in September 1939 dampened the bitterness on both sides.

New Zealand wanted exemption from UK import duties, but was in a weak bargaining position. The collapse of world trade saw the percentage of its exports going to Britain reach nearly 90% in the early 1930s. New Zealand was heavily indebted to UK lenders, but the UK still supplied only about half of New Zealand’s imports.

New Zealand agreed to maintain an approximate 20% preference on imports from Britain, and to give British producers the right to compete with domestic producers. The UK did not significantly restrict imports from New Zealand, but nor did it exclude suppliers from outside the empire, and it offered financial support to its own farmers. The UK share of New Zealand’s imports increased marginally, to over 50%, for a few years.


Britain, New Zealand and the EU after 1940

Sterling area

At the outset of the Second World War countries allied to Britain agreed to share the proceeds of their earnings from exports and hold them in pounds sterling – the British currency. This was the beginning of the ‘sterling area’. After the war it became a means for the UK to encourage its associates to buy British goods in pounds, rather than non-sterling goods. It was a delicate balancing act, because many countries – New Zealand amongst them – had built up ‘sterling balances’ which they would like to have converted into US dollars.

Access to UK markets, 1955 to 1973

Peacetime concerns had resumed by the mid-1950s. In 1958 New Zealand negotiated an agreement that gave it the option to reduce the preferential treatment given to British imports. But anxious about its access to the UK market, it continued to give preferential treatment to British imports. The net benefit of this for Britain in the early 1960s has been estimated at $540 to $617 million per year (in 2008 terms).

Battle of the skies

In 1966, fearful that New Zealand’s state-owned National Airways Corporation (NAC) airline would buy US Boeing 737s, the British Aircraft Corporation (BAC) lobbied vigorously, invoking not just the merits of its own BAC 1-11, but the close links between the two countries, and New Zealand’s dependence on the UK market. But NAC convinced the government that three B737s could do the job of four BAC 1-11s, the government agreed, and Boeing got the contract.

In 1961 the UK applied to join the European Economic Community (now the European Union, or EU). Negotiations – on and off – lasted until 1971. The UK obtained a special arrangement – the Luxembourg agreement, later ‘protocol 18’ of Britain’s accession treaty – which guaranteed access and prices for defined quantities of New Zealand butter and cheese for a five-year transition period.

End of the sterling area

Through the 1960s Britain exercised moral pressure on sterling holders not to withdraw or convert their balances suddenly. But the sterling area came to an end when Britain imposed exchange controls on other sterling countries in mid-1972. In 1973, on entering the EU, almost all UK trade agreements with New Zealand save the Luxembourg agreement came to an end.

Britannia’s roles

The UK, once New Zealand’s principal supplier and market, accounted for less than 4% of New Zealand’s imports and less than 5% of exports in 2008/9. But people-to-people contact boomed. Visitor numbers from the UK tripled between 1991 and 2006 to 300,000, making Britons the second largest group of foreign visitors after Australians. The UK also remained the largest source of immigrants – the UK-born population was 242,000 in 2006, up from 217,000 in 2001.

New Zealand, the UK and the EU after 1973

The EU intended the arrangements made under the Luxembourg agreement to last for five years, but they continued through the 1980s and early 1990s. Negotiations were on occasion acerbic. However in 1994 the conclusion of the Uruguay round of international trade negotiations included provision for bilateral agreements, and New Zealand and the EU concluded an agreement on long-term access for set quantities of cheese and lamb, as well as butter.

In 2009 the UK, France, Germany and Belgium all took significant quantities of meat exports, and horticultural products were sold throughout the EU. Germany and Italy were both sources of machinery. Cars were also imported from Germany, although on a far smaller scale than either Japan or Australia. In 2009 the EU in total supplied around 22.5% of New Zealand’s imports, and took 18% of its exports.

The EU took about 10% of New Zealand’s outward direct investment, nearly half of which went to the UK. The EU accounted for about 12% of inward direct investment, mostly from the Netherlands and the UK – Dutch investment was particularly in banking. If investment of all kinds was taken into account, the UK share rose to 16%.


The US and New Zealand

The leading role the US has played in the international political economy has overshadowed the US’s bilateral relations with New Zealand. Nonetheless for a long period the US supplied the second or third largest volume of imports into New Zealand.

US imports, early 20th century

In the early part of the 20th century US businesses reached out beyond their massive domestic market. American companies saw New Zealand as yet another part of the British Empire in which profits could be made.

A losing bet

The Civic Theatre opened with great fanfare in Auckland in December 1929. Built at the onset of the great depression it was not a financial success. Owner Thomas O'Brien's determination to screen British rather than American films also contributed to poor attendances. Falling receipts led to the collapse of O'Brien's company and his hasty departure for Sydney in 1932.

US business was particularly active in New Zealand (as elsewhere in the world) in cars and petrol, and in movies. US petroleum companies, notably those later known as Mobil, Caltex and Atlantic, all entered the New Zealand market in the 1920s. General Motors opened a car plant in Petone, near Wellington, in 1926 to assemble cars from the US.

Before the First World War the US usually supplied around 10% of New Zealand’s imports, but in the 1920s it was usually between 15% and 20%.

A 1928 law set up a rising quota of British films that cinemas had to show – it was expected to reach 20% within 10 years. But feature films from Hollywood were the most popular – British films were usually ‘shorts’.

The right kind of car

In the 1920s US- and Canadian-made models accounted for most cars sold in New Zealand. Tariff revision in 1927 and 1934 saw a preference given to British over Canadian makes, and a substantial preference over US makes. British makes after 1934 faced tariffs of 5% to 15%, but for Canadian makes it was 10% to 25%, and for the US 50% to 60%. In 1929 the US and Canada accounted for over 80% of car imports, but by 1939 they were under 40%. By then however, the US companies General Motors and Ford were making cars in the UK as well as in the US.

Growing trade with US

During the depression of the 1930s imports from the UK gained more favoured treatment and the percentage of imports supplied by the US fell back to around 10%. After the Second World War currency restrictions made it difficult to import from the US, or Canada, not least after devaluations of all sterling-linked currencies against the dollar in 1947 and 1949. Through the 1950s the US still supplied only around 10% of New Zealand’s imports.

Until the late 1950s New Zealand’s food exports had difficulty gaining a foothold in the US, because domestic competitors had powerful allies in Congress. There was some improvement in the 1960s, although the lobbies remained. The most reliable markets were those for products which were manufacturing inputs – notably casein and beef for hamburgers. In 1981/82 beef and veal accounted for 50% of US imports from New Zealand. Through most of the years after 1970 the US supplied between 15% and 20% of New Zealand’s imports, and bought about 15% of its exports.

Some lamb for guns

In 1969 New Zealand was a supporter of US involvement in Vietnam, with soldiers serving with US forces in that country. After representations from New Zealand, US government officials spoke against a Senate proposal to place embargos or quotas on New Zealand lamb.

US banking interests first floated loans to New Zealand in the 1950s, and New Zealand became a regular client for such business thereafter. When New Zealand’s official levels of indebtedness rose in the 1980s, credit rating agencies such as Standard and Poor’s and Moody’s acquired a higher profile in New Zealand. A credit downgrade by Standard and Poor’s early in 1991 highlighted rising concerns about the growth of public and overseas debt.

On the lookout

US investors took advantage of the privatising of many of New Zealand’s state-owned enterprises in the late 1980s and 1990s, though the investments were usually short-term. Telecom, sold principally to two US companies – Ameritech and Bell Atlantic – in 1990, was sold by them in 1997. Wisconsin Rail bought New Zealand Rail in 1993 and sold it in 2003.

A long-established protest organisation, the Campaign Against Foreign Control of Aotearoa (CAFCA), was critical both of the original sales and of what it saw as excessive profit-taking.

In the 1990s and 2000s the US expanded its imports in non-traditional areas. At a time when trade in goods each way amounted to around $10 billion, trade in services between the US and New Zealand amounted to $1.1 billion. US customers bought computer, information, personal, cultural and recreational services from New Zealand, and New Zealanders bought computer and information services from the United States.

Lamb skewered

In July 1999 US President Bill Clinton signed a three-year trade-restrictive measure against lamb imports from Australia and New Zealand. Farmers paraded sheep outside the US embassy in Wellington in protest, but the issue got no air time in Washington.

Aircraft, vehicles, machinery, medical equipment and pharmaceuticals were among major items that US firms supplied to New Zealand in 2009, and meat and dairy produce accounted for around one-third of US purchases from New Zealand.

In the early 2000s the US usually accounted for 5–10% of direct investment in New Zealand, and about the same proportion (but about one-fifth in value) of outward investment from New Zealand.

In 2008 the US announced that it intended to join the trans-Pacific partnership agreement, which included New Zealand, along with Brunei, Singapore and Chile.


Australia and New Zealand

The Australian colonies united in 1901. New Zealand could have joined but chose not to. At that time New Zealand conducted around 14% of its trade with Australia, while the Australian colonies had conducted between 25% and 55% of their external trade with each other. The principal Australian presence in New Zealand was financial. Three of the banks trading in New Zealand – the Union Bank and the Bank of Australasia (later to merge), and the Bank of New South Wales – were primarily Australian operations, although they had head offices in London.

Commonwealth of Australia and New Zealand

It was not until a trade agreement was signed in 1922 that Australia took New Zealand items off its general tariff. Australia gained duty-free entry to New Zealand for its timber, but New Zealand’s main exports to Australia remained items that were not covered by the agreement – butter and wool.

CER

A mutual interest in the two economies expanding their relations came about in the 1960s, partly against the backdrop of Britain’s shift towards close economic relations with mainland Europe. Australia’s manufacturers were keen to export, and New Zealand’s pulp and paper industry wanted free entry into Australia.

A 1965 free-trade agreement had a schedule listing items which would be exempt from duty. Two-way trade increased, but within a decade the Australian government and businesses had become exasperated with this limited approach and sought a proper free-trade agreement. Enough interests in New Zealand agreed, and it was foisted on unwilling manufacturers in 1983.

The new trade agreement was known as ANZCERTA (Australia–New Zealand closer economic relationship trade agreement) – in New Zealand this was quickly abbreviated to CER. It provided for a phased removal of duties, and the removal of other limits to open trade such as quotas and export incentives.

Mutual trade

Mutual trade grew to the point where Australia became New Zealand’s largest trading partner, accounting for approximately 20% of its merchandise trade. In the early 2000s the range of goods and services traded was much more varied than between New Zealand and any other economy. The top five imports into Australia from New Zealand – mechanical and electrical machinery, textiles, petroleum and timber products – accounted for less than one-third of total imports. There was a similar variety of exports to New Zealand, with the top five – petroleum, vehicles, iron and steel, and machinery – accounting for around 40% of total exports. The overlap of the two trade flows is indicative of a high level of integration, as is the existence of a common labour market – the only large economy with which New Zealand has such an arrangement.

Investment and services

In the early 2000s Australians were far and away the biggest foreign investors in New Zealand, accounting for between a third and half of direct investment. Australia also received around half of New Zealand’s much smaller volume of direct investment overseas. New Zealand’s biggest banks were Australian-owned, as was one of its two largest supermarket chains, and its largest media company. Australia had a large two-way trade in services with New Zealand – it amounted to $1.2 billion in 2002 (compared with $16 billion of two-way merchandise trade), of which the largest items were communications and business services.

A single market?

Australia has not been as committed to the creation of a ‘single market’ – including harmonisation of taxation, investment regimes and a single aviation market – as New Zealand. For Australia there has been little incentive to invest effort in harmonising with a smaller partner, as New Zealand only accounts for around 5% of Australia’s exports. But in 2009 New Zealand and Australia were jointly engaged in negotiating a free-trade agreement with the Association of Southeast Asian Nations (ASEAN).


Japan and New Zealand

New Zealand’s economic relationship with Japan loomed large between the 1960s and 1990s. As the first substantial economic relationship with a non-Anglo-Saxon country, in which the other country had weight and influence, the relationship was a reminder to New Zealand of its lack of power in the global political economy.

A modest commercial exchange obtained between the two nations before the Second World War, principally on account of Japanese wool buying, but did not survive the war.

Japan signed a trade treaty with New Zealand in 1958, part of the process by which it resumed normal trading relations worldwide. In 1959 there was a 25% increase in Japanese exports to New Zealand, mostly of machinery. By 1970, Japan supplied about 10% of New Zealand’s imports, and took nearly the same percentage of its exports; it was a particularly significant market for mutton and timber.

Trade in the 1970s

A Japanese company invested in an aluminium smelter, which began production in Southland in 1971. Japanese car companies – Toyota, Honda, Mazda, Mitsubishi and Nissan – set up plants to assemble cars in New Zealand, which survived until import tariffs ended in 1998.

What’s the beef?

After New Zealand introduced a 200-mile exclusive economic zone around its coast in 1978, it was thought that fishing rights might provide leverage to negotiate improved access for New Zealand exports to Japan, especially beef. But Japan didn’t ‘bite’, and New Zealand gave way. Japan secured fishing access, though New Zealand had received no assurances of increased exports.

In the 1970s Japan became the world’s second-largest economy, but it supported rather than challenged the US-led world economic order – it too was a capitalist democracy, and the US was its most important trading partner. Japan’s rise was not destabilising, though it did produce some anxiety.

Japanese trade from the mid-1980s

Japan agreed in the mid-1980s, after pressure from the US especially, to let its currency rise in value and to liberalise access to its market. The currency rise did not prevent Japan becoming the source of nearly one-fifth of New Zealand’s imports by 1990.

Japanese tourist numbers to New Zealand increased rapidly with the advent of direct flights between Japan and New Zealand in 1980. Japan became the second-largest source of international tourists (around 150,000) after Australia by 1995, and Japanese bought real estate, including golf courses.

New Zealand’s reputation in Japan was severely damaged in 1989 when the Development Finance Corporation collapsed – its biggest creditors were Japanese, who were not impressed at government unwillingness to accept responsibility for the actions of a state-owned enterprise. At one point Japanese banks blocked a proposed New Zealand government bond issue. A debt restructuring scheme was agreed to after protracted negotiations.

A yen for the Kiwi

The globalised character of world money markets was evidenced by one aspect of Japanese dealings with New Zealand – the ‘carry trade’ conducted by Japanese in the New Zealand dollar. Japanese invested in the Kiwi dollar to benefit from its significant interest-rate premium, higher than the yen. This had the effect of maintaining a higher exchange rate for the kiwi than would otherwise have been the case.

APEC

The establishment of the Asia–Pacific Economic Co-operation organisation (APEC) in 1989 brought together economies on either side of the Pacific, mostly because the US and Japan sought a forum to guide the region’s rapid transformation. For most of the countries of the Association of Southeast Asian Nations (ASEAN) the US was their major market and Japan their second most important. Australia and New Zealand, which both traded extensively on both sides of the Pacific Ocean, were members from the start.

Japan and New Zealand, 1990s and 2000s

Japan’s economy grew much more slowly after 1990, though it remained the world’s second-largest economy and a power in the global political economy. Japan’s relationship with New Zealand changed little, though its relative significance in New Zealand’s trade declined. In the early 2000s it accounted for 10% or less of both merchandise exports and imports.

Japan bought aluminium, timber, dairy products, fish and produce from New Zealand, and sold machinery and motor vehicles. Cars and car parts accounted for over half of Japan’s exports to New Zealand in 2007. Around three-quarters of the cars on New Zealand roads were Japanese-made. Compared with Australian and US relationships with New Zealand, the trade in services was undeveloped. Japan accounted for only about 2% of foreign direct investment in New Zealand in 2009.


Socialist bloc, the Middle East and New Zealand

First, second and third worlds

In the second half of the 20th century the principal Western economies, including Japan, accounted for most of the world’s trade and economic output, but had only 20% of its population. The socialist bloc – the Soviet Union and its European satellites – and China stood outside the framework of the Western system. Countries of the developing, or third, world had more dealings with the West.

The rich developed countries dominated New Zealand’s economic dealings with the rest of the world. But socialist countries and some developing countries had significant economic links with New Zealand, especially in the 1970s and 1980s.

Soviet Union and China

Soviet bulk purchasing organisations negotiated many contracts for the purchase of dairy produce, wool and mutton, especially in the 1980s. In some years the totals exceeded $350 million – around 5% of New Zealand’s exports.

China’s main interest was in wool – in 1984/85 China was the single largest purchaser of New Zealand wool, and when wool was at its height 80% of New Zealand’s exports to China were wool.

Oil states

Oil-rich Middle Eastern countries did not stand outside the capitalist world to the same extent as the Soviet Union and China. Their wealth derived from sales of petroleum to developed countries – New Zealand itself bought approximately three-quarters of its crude oil from the Persian Gulf region.

From purchases of $3 million in 1970/71, Middle Eastern states became significant markets. In 1980 Iran bought more from New Zealand than any other country, after Australia, the US, Japan, the UK and Germany. Middle Eastern states bought $840 million of New Zealand produce, especially lamb, in 1985.

How much influence?

In July 1980 the New Zealand Broadcasting Corporation decided not to screen the British television programme Death of a princess, about the execution of a member of the Saudi royal family, to which Saudi Arabia had taken strong exception. The NZBC said there were valid grounds for the claim that the film misrepresented and distorted Saudi values. The government welcomed the decision.

Waning importance

Growth in Middle Eastern markets levelled off in the 1980s, in part due to the decade-long Iran–Iraq War. Centrally planned economies could shift course abruptly – in 1987/88 China took only 7% of New Zealand’s wool, but then returned to more substantial purchases in the following year. With the disbanding of the Soviet Union, bulk state importing ceased. The New Zealand Dairy Board made its last major sale there in 1990.

After 1990 most second- and third-world economies adopted more market-oriented policies – the world formed a common economic space to a greater degree. In the early 2000s China increased in economic significance to New Zealand.


China and New Zealand

The most important new element in the international political economy after 1990 was the rise of the Chinese economy. In 1990, although China had embarked 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, and about half the size of the US economy in 2009, 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 pick up some poor practices in its new investment, in particular the dilution and contamination of baby formula with the chemical melamine. Contamination 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.

Global linkages

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 China’s 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 (APEC) in 1991. It joined the World Trade Organisation in 2001, a landmark in its move away from a centrally planned economy.

Regional association

The Asian financial crisis of 1997 prompted a move towards regional associations. The ASEAN + 3 (APT) forum, which links the 10 ASEAN (Association of South-East Asian Nations) member states, 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 links 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 2008/9 China was New Zealand’s second largest trading partner and Japan was fourth
  • Japan and China are Australia’s two most important trading partners, and they also have an important presence in other South Pacific economies
  • New Zealand’s reputation in China, as in Japan, can be damaged easily and restored with difficulty.

There are also differences in New Zealand’s relationship with China and with Japan, in part because China was a developing country in the early 2000s, whereas Japan in the 1960s and 1970s was developed.

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 worldwide 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.

Chinese have emigrated to New Zealand in larger numbers than have Japanese: in 2006 nearly 80,000 New Zealand residents were born in China, the second-biggest number 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 has no such agreements with either the EU, the US or Japan, it held out the possibility of an expansion of agricultural exports.


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How to cite this page: Malcolm McKinnon, 'International economic relations', Te Ara - the Encyclopedia of New Zealand, http://www.TeAra.govt.nz/mi/international-economic-relations/print (accessed 20 August 2019)

Story by Malcolm McKinnon, published 11 Mar 2010