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Newsroom.co.nz
Newsroom.co.nz
Business
Sam Sachdeva

Digital services push for NZ-China trade as Covid effects continue

The New Zealand tourism industry has suffered more than most services exporters from the ongoing closure of China's borders. Photo: Lynn Grieveson

With Aotearoa’s service exports to China dropping almost 70 percent because of the Covid pandemic, a new report explores the possibility of doing more business with the superpower online - but its an approach with a degree of difficulty

New Zealand exporters are being encouraged to think more about China’s digital services sector, as tourism operators and other industries continue to suffer from the country’s closed borders and stringent zero-Covid approach.

While a new report predicts Chinese visitor volumes will rebound in time, uncertainty remains the prevailing sentiment - particularly as protests rage on in China over its stringent pandemic restrictions.

According to the report by the NZ China Council, bilateral services trade (excluding the export of commodities such as dairy and timber) has dropped by almost 70 percent in recent years, falling from $3.4 billion in the year to June 2019 to just $1.1b this year.

READ MORE: * NZ's China export share grows in face of overexposure concerns * After APEC, where to on China? * Xi's growing power brings risks for NZ

Report author and trade policy consultant Stephanie Honey said tourism operators had been particularly hard hit, with exports to China plummeting 92 percent in the same period (from $1.6b in 2019 to $119 million this year).

The international education sector had managed to weather the pandemic’s effects somewhat better by moving to online learning models, but their exports to China had still dropped 44 percent.

Honey said it was possible Chinese tourists wouldn’t return to New Zealand until 2024, and while that could lead to a rebound, the market might not reach its earlier heights. Chinese travellers’ preferences were moving away from group travel to family holidays and independent trips, which could match well with New Zealand’s growing emphasis on developing an environmentally and economically sustainable tourism sector.

Aotearoa’s education exports to China had dropped less than the equivalent student intake from India and other countries, with existing students in the country also helping education providers to perform better than other services that relied on an ongoing flow of Chinese people.

The online ‘study centre’ model used by some education providers to manage the impacts of the pandemic could continue, although that would depend on travel restrictions as well as how China treated the digital delivery of such services.

“China has previously had a restrictive approach to online delivery, but allowed considerable flexibility on this through the pandemic, unlocking the innovative models that are described in the case studies - albeit that providers still faced a range of restrictions, for example around accessing some platforms and apps, due to Chinese digital regulations.”

“In short, the digital economy, while offering enormous promise as an innovative, weightless and sustainable export sector, also requires very careful navigation. It may be that many New Zealand exporters have decided that China is largely in the ‘too hard basket’ for now.” - NZ China Council report

Honey said the digital services realm could have broader potential for New Zealand businesses. However, the country’s “complex, opaque and often restrictive” regulatory environment was a complication, placing stringent controls on the storing and processing of data as well as other cybersecurity requirements.

“These restrictions can affect not only cloud computing services and ‘tech’ companies but in fact any business that utilises data that relates to China and Chinese citizens.”

Increasing fragmentation in approaches, in particular between China and the United States, could also make for a difficult business environment, she said.

“In short, the digital economy, while offering enormous promise as an innovative, weightless and sustainable export sector, also requires very careful navigation. It may be that many New Zealand exporters have decided that China is largely in the ‘too hard basket’ for now.”

NZ China Council chairman John McKinnon told Newsroom the organisation had commissioned the report in part to remind the public of the value of New Zealand’s services exports to China.

“People tend to think in terms of whole milk powder and logs, and they don’t think quite so much of the other elements.”

While the education and tourism industries had suffered significantly from the impact of the Covid-19 pandemic, McKinnon believed they were likely to rebound in time as the ability and appetite of Chinese people to travel outside the country was restored.

There was also an opportunity for those in the services sector to move more of their business online, following on from pre-Covid trends which had been accelerated during the pandemic. A number of education providers had already set up online learning centres in China to compensate for their inability to bring students into the country.

“I don’t think this is a silver bullet in any sense: it’s more saying this is a trend … as we look ahead over the next 10 to 20 years, this is an area where New Zealand businesses will want to be involved, and it could well be a way in which things expand in the future.”

Growing economic headwinds

The council’s report comes as China’s economy faces growing headwinds. The International Monetary Fund has projected GDP growth of 3.2 percent in 2022 and 4.4 percent in 2023, considerably lower than the 8 percent the country recorded in 2021 and part of a broader downwards trend in the past decade.

Anger over ongoing enforcement of zero-Covid restrictions has also led to sizeable protests across China, an extremely rare sight in a country where Xi Jinping and the CCP have clamped down on civil liberties.

McKinnon, a two-time ambassador to China, said it was too soon to say what impact the protests would have on the country’s Covid restrictions or its broader economic performance.

“There are good reasons why China has adopted some of the policies it has, but it does seem from everything we’re seeing - both what we've seen reported, but what I've heard from others - that there's a high level of uncertainty as to whether that is going to be the way to go, so I think it's a case of watch this space.”

Travel barriers were hurting not just Kiwi businesses reliant on Chinese customers, but the ability of New Zealanders to travel to China and experience the country first-hand.

Reserve Bank chief economist Paul Conway told Newsroom China had inflation levels much lower than in other parts of the world, which was why the People’s Bank was trying to stimulate economic activity rather than dampen it.

If demand in China for imports remained weak, that would hurt Kiwi exporters, while the civic unrest in China and rising Covid cases could also have an impact, but such negative scenarios were in line with existing forecasts.

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