Diversifying from China imports neither necessary nor feasible, report shows

There are very few strategic risks to New Zealand from our current levels of exposure to imports from China, a new report from the New Zealand China Council concludes.   And even if we were to diversify our sources, China is now so embedded in regional supply chains that we would often in effect still be sourcing from China through an intermediary.

Sourcing from the World’s Factory:  Our Import Relationship with China was written by economic consultancy Sense Partners and is available here.

The report confirms that in 2023 New Zealand sourced $17.2 billion in imported goods and services from China (16.5% of our total imports), just ahead of $16.2 billion from Australia.  Our imports from China are almost exclusively goods rather than services.

The research examined if New Zealand could be at risk from over-dependence on Chinese imports of some products.  It concluded that China supplies less than 50% of specific products for over 80 per cent of our imports by value.

Only 3 per cent of our imports are of products where China could be assessed as very dominant – mostly consumer items where potential disruption would not pose a systemic risk to our economy.

On the other hand there are some clear benefits from importing from China, for example potential cost-effective contributions to New Zealand’s decarbonisation through the import of Chinese environmental tech products.  China’s global exports of US$480 billion in environmental goods has increased 75% since 2013.

New Zealand’s import of electric vehicles (EVs) from China has been a remarkable development, the report says, with over 10,600 vehicles entering in 2023 up from just 752 in 2020.  China also supplied 89% of our solar PV panels and components in 2023, up from 49% in 2014.

Should external factors lead New Zealand to look to diversify from China for goods imports, the report points out that goods like electrical equipment, machinery and textiles from Southeast Asia will still typically include a 10-20% contribution from China through raw materials and other inputs.  Even electronics from Mexico include 27% contributions from China.

New Zealand China Council Chair John McKinnon says the new research highlights the benefits that kiwi households derive from a supply of cost-effective, high-quality products from ‘the world’s factory’.

“Amidst all the focus on China as our largest export market, it is sometimes forgotten how a supply of quality-made, cost-effective imports from there benefits our economy, household budgets and quality of life as well”, McKinnon says.

“This is likely to continue for the foreseeable future.  Despite recent economic headwinds and changing demographics, China has policy tools, labour, and innovation expertise to maintain manufacturing strength for the foreseeable future.”

But the report also notes the impacts that worsening trade relations between the United States and China and a more protectionist global trade environment could have on New Zealand imports from China.  “This will simply serve to increase the price of our imports” McKinnon says.