The expansion of China-New Zealand trade and investment

Researchers are examining the bilateral impact of the New Zealand-China Free Trade Agreement.

Until quite recently, Fonterra, the New Zealand dairy cooperative responsible for nearly one-quarter of New Zealand’s export earnings, met the growing Chinese demand for New Zealand dairy products—including cheese, butter and milk powder—by exporting to China. Then, in 2007, Fonterra opened its own farm in Tangshan which it stocked with Friesian heifers from New Zealand, to supply China with milk produced within China.

Now two political scientists from Victoria’s Contemporary China Research Centre, Dr Marc Lanteigne and Dr Jason Young, are looking at Fonterra’s investment in dairy farming in China as part of a wider study on the bilateral impact of the New Zealand-China Free Trade Agreement (FTA).

“Traditionally, foreign companies shift manufacturing to China then sell their products to the Western market, but Fonterra is following a new model and selling the product within the domestic market,” says Dr Young, who is funded by an ASIA:NZ Emerging Researcher Grant.

In the time the FTA has been operating, bilateral investment has focused on the agricultural sector. At the same time as Fonterra is establishing dairy farms in China, Chinese companies are starting to buy New Zealand dairy farms and processing companies.

“Consumers within China have a great deal of respect for the New Zealand brand,” says Dr Young.

“If a Chinese company can produce milk within New Zealand, process it, then brand it and sell it in China as New Zealand milk, it could be a highly lucrative business.”

While Chinese trade and investment in New Zealand has been credited with sheltering the country from the worst of the global recession, some people are concerned that New Zealand could be losing its economic sovereignty.

“The dairy industry is the jewel in the crown of the New Zealand economy and traditionally there’s been a great deal of reluctance to allow too much foreign ownership. How would China be in a position to influence the sector if they continue to invest here?” says Dr Lanteigne.

The overall goal of the project, he says, is “a better understanding of how China’s commercial diplomacy in New Zealand is affecting both countries’ economic and political policy. Fonterra and New Zealand’s dairy industry will be crucial case studies in the understanding of this little-studied form of Chinese diplomacy.”