ECONOMICS: It’s a question of management

Finance Minister Bill English obviously enjoys answering patsy Parliamentary questions that have been crafted to allow him to claim or infer that his economic management is greatly superior to that of his Labour predecessor. An example: an innocent-sounding question from MP Amy Adams about challenges in the economy to creating permanent and sustainable jobs.
English replied saying there was little point in having the job creation that occurred under the previous government, “based as it was on temporary property boom, or back-room bureaucracy that the economy does not need and cannot afford. That gave many New Zealanders false hopes, which have been dashed. That is why we are working on creating better-quality jobs in an economy focused on saving and exporting.”
But another recent question inadvertently drew attention to the benefits flowing from good policy initiative by the Clark government, the negotiation of the free-trade agreement with China.
National MP Colin King wanted to know what reports Agriculture Minister David Carter had recently received on the state of New Zealand’s primary sector. He was told the Ministry of Agriculture and Forestry had just launched its annual flagship publication, Situation and Outlook for New Zealand Agriculture and Forestry. This “shows that our primary producers are at the forefront of New Zealand’s export-led recovery and, despite number of challenges, can look forward to mainly positive outlook over the next five years”.
So what were the key findings of the report and what significant trends did it pick for the sector in coming years? Carter replied that it identified robust economic outlook for our primary sector “on the back of an increasingly strong demand from developing economies, most notably China”.
Agricultural and forestry export earnings from China rose from $1.47 billion to $2.19 billion in the year to December 31, 2010 (up 49 percent), with whole milk powder increasing from $250 million to $610 million. Forestry export earnings increased from $529 million to $864 million (up 63 percent).
China didn’t show up among New Zealand’s top 10 export markets two decades ago. It now sits in the number two position.
On his recent visit there, Prime Minister John Key said he wanted to double the two-way trade between the two countries to $20 billion within five years. But his figures ($4 billion export revenue and $6 billion import payments in the year to 31 May) are for merchandise goods trade only. New Zealand has growing trade in services with China which has even more growth potential, as Wellington Employers’ Chamber of Commerce spokesman Charles Finney pointed out.
Finney reckons Key has understated what is achievable, especially when services sector exports are included, and he noted that doubling the trade amounted to less than 15 percent growth per annum, which is much less than New Zealand’s annual growth in exports to China since the Free Trade Agreement was signed. It is not much more than the levels of annual economic growth China has been experiencing in recent years.
Let’s not forget, then, that in May 2003, when the Clark government was being criticised for its handling of diplomatic relations with the United States, Trade Minister Jim Sutton was sanguine. He was focused first on the Doha round of World Trade Organisation negotiations to liberalise global trade, and then on free-trade agreement with the US. But he said: “To me, there’s no trade and economic relationship more important for New Zealand for the 21st century than our trade and economic relationship with China.”
It’s worth wondering what would have happened to our economy without China’s trade during the recession. Total merchandise exports fell 7.5 percent in the year to May 31. Receipts increased in just one of our six markets – China (up 23.8 percent).
China was willing to negotiate free trade partnership on terms generally acceptable to people in this country. The United States – so far – is not. This makes it hard to disagree with Sutton’s judgement.

Bob Edlin is leading economic commentator and NZ Management’s regular economics columnist.

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