The Chinese economy operated at two speeds in the first five months of this year, with the consumption and the property markets stalling while manufacturing and exports were robust.
This is detailed in a Ministry for Foreign Affairs and Trade market intelligence report, which says first quarter economic growth in China was 5.3%, exceeding market expectations of 4.9% growth.
In the March 2024 quarter China bought $5.34 billion of New Zealand goods and services, 21.6% of all NZ exports for that period.
Sluggish demand due to high property debt and low consumer confidence is a key reason for weak prices of primary sector exports to China for the past year.
Retail growth remained below pre-pandemic projections at 2.3% in April, the slowest rate since 2022, although there was improvement in May, when it grew at 3.7%.
The property sector was also depressed, with sales falling 20.7% year on year in May, after a 22.8% drop in April.
Investment in property fell 10.1% in the year to May.
In May the Chinese government announced new support measures for the property market, including relaxed mortgage rules and $67bn in loans to fund the state purchases of unsold homes.
Domestic tourism has performed strongly but there was a 12.3% drop in per-head spending.
China’s manufacturing and export sectors also performed strongly through April and May with investment in manufacturing growing 9.6% and exports 7.6%.
NZ dairy exports for the first four month of this year totalled $2.4bn, 3% higher than the same period a year earlier, although the report describes demand as “tepid”, noting total imports to China fell 12% in the year to April.
“Taken together, 3% year-on-year growth in the year to date April shows the relative resilience of NZ dairy exports and savvy business decisions of some firms to concentrate on higher value sales channel (food services and bakery), and less so on retail channels,” the report says.
Exports of NZ infant formula in the year to April were $410 million, nearly 17% down on the same period last year, but that came off a high base after NZ companies moved quickly to meet China’s new infant formula registration requirements.
“The increase in China’s total imports of infant formula from competitors shows they have now caught up.”
The report notes indications that China’s total infant formula imports in the year to April could be 31% lower due to growing trust in local brands and China’s low birth rate.
Exports of NZ meat to China in the four months to April were $985m, down almost 29% on the prior year due to high inventory reducing imports of foreign meat and competition from Brazil, Australia, Argentina and the United States.
China also released some pork reserves for sale, which pushed down meat prices during a period of weak domestic consumption.
Chinese pork production is declining, with the number of piglets born in the first quarter 4.9% lower than a year ago.
“This should see pork prices – and meat prices by extension – increase in China over the medium term, third and further quarters of 2024.”
NZ forestry and wood product exports to China increased by 8% in the year to April 2024, to $1.1bn, compared with the same period a year earlier.
China buys about 89% of NZ’s softwood logs.
The MFAT report notes that trade tensions are growing with the US imposing tariffs on a range of Chinese manufactured goods, and the European Union on Chinese electric vehicles.
Foreign direct investment is also an issue, falling 27.9% year on year to April, but a third straight monthly rise of inflation has lessened the risk of deflation, although at 0.3%, inflation is well below the government’s 3% target.
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