China-New Zealand Economic Relations and Business Potential

Auckland, February 16, 2007

 

Mr. Chairman,

Distinguished Panelists,

Ladies and Gentlemen,

I am glad to be here to exchange views with so many business leaders on such important subjects as China-New Zealand economic relations and business potential.

The past year has been quite eventful for China-New Zealand relations. Earlier in the year, Chinese Premier Wen Jiabao made a successful visit to New Zealand. Among other things, he joined Prime Minister Helen Clark in announcing that the two sides would wrap up a free trade deal within one or two years. The FTA negotiations have proceeded smoothly, if not all at a pace we, our NZ friends too, wanted it to be. At the recent East Asia Summit, the two leaders met again to reaffirm their commitment to the time frame. Needless to say we have some tough issues to deal with. With a larger country and a larger bureaucracy, we have a more difficult job at internal coordination and therefore need more time to work things out.

But I want our NZ friends to rest assured that China remains strongly committed to opening to the outside world. Having benefited from being part of the world, and for the past five years, as a member of the WTO, we have no intention of returning to the old little cocoon. Yes, China runs a growing trade surplus and a large foreign exchange reserve. But it is not because we are following some kind of mercantilist trade policy. Given the magnitude of our development agenda and mountains of problems we face at home, these surpluses are far from enough. What is more, China has never stopped buying from abroad. We bought 2.17 trillion US dollars worth of goods and services in the past five years. It is likely we will buy over 4 trillion in the next five. Still, we recognize the need for a more balanced trade. Our trade surplus with NZ, for example, needs to be addressed. We are now putting equal emphasis on both export and import. Some of you may have noticed that the 50 years old Guangzhou Export Fair has now been renamed Import and Export Fair. We encourage imports of foreign luxury items and outbound tourism. Individuals can exchange for up to 50 thousand US dollars in foreign currency if they need.

Trying to sell more goods to China is completely justified, especially when China is eager to reduce its trade surplus. But today's China is more than just a potential destination of export. Our business friends must know that after decades of reform and opening up, China has changed a lot. Chinese consumers have become more sophisticated. Business dealings with Chinese counterparts have become more competitive and law-based. Old maxims of doing business with China, perhaps, need to be treated with a grain of salt.

What I am going to do today is to talk about a few trends in China's economic situation. Hopefully, I may give you a rough backdrop for China-NZ economic relations.

First, let us talk about some latest statistics on China's economic performance. In 2006, China's GDP went up by 10.7% to 2.68 trillion US dollars, with an inflation rate of 1.3%. We had a bumper harvest for the third strait year, which was rather rare. Our foreign trade totaled 1.7 trillion US dollars with a 150 billion surplus. The foreign exchange reserve surpassed 1 trillion US dollars. The country attracted over 60 billion US dollars in FDI. More than 10.5 million new jobs were created. In China-New Zealand trade, with a volume of 6.84 billion NZ dollars, China remains your No. 4 trade partner, being the fourth largest export market and the second largest source of import. According to your statistics, the top five items you export to China are dairy, timber, wool, pulp and animal products. And the top five items you import from us are machinery, clothing, electronics, furniture and toys. This is a strong and mutually complementary relationship.

Second, China seeks to fundamentally change the modality of growth. China's remarkable growth for more than two decades was achieved by investing heavily in the secondary industry, particularly manufacturing. It is now the world's leading supplier of coal, steel, cement, as well as shoes, toys and other household items. It made a lot of sense for China to play the role as a world factory, not least of which being jobs for urban laid-off and surplus laborers from the countryside. But such a way of achieving growth has increasingly proved insufficient, even wasteful, in terms of energy and resource consumption, and highly damaging to the environment. We are completely convinced that it is not going to be sustainable. Last year, my government called for a 20% decrease in energy consumption per unit of GDP over a five-year period. Though the target for that year, a 4% reduction, was not met, the energy consumption per unit of GDP went down for the first time in three years. The message you get here is that we are now very serious about the quality, rather than the quantity, of development. As the world's largest developing country, China has been anxious to get a quick fix to its poverty and backwardness. But the blind pursuit of a bigger GDP will not get us to our goals. Development must be both "quick" and "good" if it does not defeat the very purpose of seeking development in the first place.

Third, China will take bolder steps at social development. Building a harmonious society is a slogan you often hear in today's China. We need to do many things to construct a harmonious society. For China's citizens of hundreds of millions, a social safety net covering all segments of the population is particularly critical. It features minimum income, health care insurance, unemployment benefits, old age pension, etc. The government at various levels is to play a leading role, but enterprises and individuals must also contribute. China's rapid growth makes this critical reform possible, while increased public awareness of the rights and interests allows no delay. China will move rather quickly in establishing and perfecting various systems so that all citizens can benefit from the country's newfound prosperity.

So, what is China going to look like in the future? One government think-tank predicts that in the next ten years, China's middle-income households (7.5 to 50 thousand US dollars) will reach 50 million with a total purchasing power of 500 billion US dollars a year. There are only 12 million such households now. By 2030, China's population increase will level off. By 2040, China's energy and resource consumption will see a zero growth. And by 2050, the environmental degradation that plaques China now will come to a stop. Of course, all this will not come by easily or automatically. We in China must try our best, making no big mistakes in policy and working hard with other countries to secure a peaceful and cooperative international environment. If successful, China, by the centennial year of the People's Republic, will become a medium-level developed country with an average life expectancy of 85 years.

On that happy note, I conclude my presentation.