Kiwis Say ‘Ni Hao’ as China Ties Trump Australia Sales: Economy

Chinese visitors to The Rees Hotel in Queenstown can have Chicken Congee for breakfast, watch their favorite dramas from back home on TV, then speak to reception in Mandarin to book a jet-boat ride on Lake Wakatipu.

At the Alpine Resort Wanaka an hour away, owner Simone Hildebrand moved to Hong Kong in July to better service the mainland, boosting the proportion of Chinese customers to about 10 percent from 2 percent. The efforts underscore the growing importance of China to the New Zealand economy and businesses from tourism to commodities.

Prime Minister John Key flies to China today with a business mission to further cement ties with a market that overtook Australia as New Zealand’s biggest export destination in January and February. Tourists from the Asian giant are the second-biggest spenders in the country, which together with growing demand for Kiwi products from milk powder to logs have helped sustain growth as a strong currency hurts manufacturers.

“China is providing an important offset,” said Annette Beacher, head of Asia-Pacific research for TD Securities Inc. in Singapore. “The size of China means that all you need is the increasing wealth and urbanization in China and New Zealand will be a direct beneficiary.”

China is New Zealand’s largest market for milk powder, logs and wool, making it a key customer for an economy in which about 60 percent of exports are commodities. When fears of a slowdown in China emerged last year, there was a slump in confidence in New Zealand that saw economic growth slow to 0.2 percent in the second and third quarters of 2012.

China Boost

China’s economy revived, as did demand for New Zealand exports. Shipments to China rose 49 percent to NZ$787 million ($662 million) in February from a year earlier, a March 26 government report showed, overtaking for a second month those to Australia, which has been the biggest since mid-1987. The value of milk powder exports surged 80 percent.

“China is increasingly important to us,” said Craig Ebert, senior economist at Bank of New Zealand Ltd. in Wellington. “Commodities are their game. That’s another reason we’re hooked in to them.”

Fonterra Cooperative Group Ltd., which accounts for about a third of the global trade in dairy products and collects milk from 10,500 New Zealand farmers, expects dairy demand in China will double by 2020. The Auckland-based company is developing five farms in Hebei province as part of a strategy to provide high quality fresh milk there, and it plans to offer infant formulas under its own Anmum brand in selected Chinese cities from mid-year.

Rapid Growth

“China is going very well,” Chief Executive Officer Theo Spierings said on a March 27 conference call. “It is growing from a small base. The footprint has to grow faster.”

Key will meet with Chinese President Xi Jinping during his visit to mark the fifth anniversary of a free trade agreement between the two nations.

“New Zealand’s post-FTA trade and investment growth with China has helped to lessen the impact from the recent global financial crisis,” Key said March 25. His delegation, which will include other government ministers and representatives of companies such as kiwifruit exporter Zespri, visits Guangzhou, Shanghai and Beijing over eight days.

Australian Prime Minister Julia Gillard also begins a five-day visit to China today that will promote trade, investment and education, and will meet with President Xi at the Bo’ao Forum and Premier Li Keqiang in Beijing.

Japan Surge

Elsewhere in Asia, Japanese shares jumped to a 4 1/2-year high, the yen dropped and bond yields fell to a record low as the central bank expanded stimulus. The Bank of Japan will double the monetary base by the end of 2014 through buying government bonds, joining the Federal Reserve in taking unprecedented stimulus to boost their economies.

Later today, a report may show factory orders in Germany rose in February after an unexpected fall a month earlier, an economists’ survey shows. Euro-zone retail sales probably fell in February, economists predicted.

In the U.S., non-farm payrolls probably increased 190,000 in March, according to the median of 87 economists in a Bloomberg survey. The U.S. trade deficit was probably little changed in February, Commerce Department figures are projected to show.

New Zealand’s economy grew 3 percent in the fourth quarter of 2012 from a year earlier, buoyed by a global recovery. Policymakers are looking for exports to sustain economic growth as the government curbs spending to eliminate its budget deficit and the currency’s 9.2 percent gain in the past two years forces manufacturers to close plants and fire workers.

Wine Shipments

“The downside risks around global growth have receded,” Reserve Bank of New Zealand Governor Graeme Wheeler said in a March 14 monetary policy statement. Prices for New Zealand exports are rising, in part reflecting the improving global conditions, he said.

China’s gross domestic product expanded 7.9 percent in the final three months of last year after a 7.4 percent gain in the previous quarter. By contrast, Australia’s economy outside mining and related infrastructure investment has been patchy, curbing demand for New Zealand goods.

In February, New Zealand shipments to Australia of wine, electrical machinery, refrigerators and other mechanical appliances led a 9.2 percent decline in exports from a year earlier. Crude oil and aluminum sales also fell.

New Zealand’s wine industry is tapping increasing wealth and an emerging middle class to boost sales in China, which have increased about tenfold in the past four years, according to Charlotte Read, Asia and Middle East Market Manager for Villa Maria Estate Ltd., which last year celebrated 50 years making wine at its original site south of Auckland.

‘Exciting’ Market

“The opportunity lies with the young, educated, middle class who surf the Net and will increasingly travel and embrace a more western lifestyle,” Read said in an interview from Shanghai where she is based. “The pace with which this market can change is very exciting. It could double or be three times the size in the next five or 10 years.”

Villa Maria, which produces a range of wines including sauvignon blanc, pinot noir and merlot, has had a presence in China since 2000 when it began supplying Shanghai’s M on the Bund Restaurant. It will supply wine to a dinner for invited business guests hosted by Key at the Fairmont Peace Hotel in Shanghai next week.

Chinese visitors became New Zealand’s second-biggest spenders from abroad in the year ended Sept. 30, according to government figures, behind Australians.

Mandarin Speaker

Chinese spending rose 42 percent to NZ$651 million in the year ended Dec. 31, 2012 -- the only one of New Zealand’s top four visitor markets to show an increase in spending. The Chinese are also second-ranked in terms of average spend per person, lagging behind Japanese visitors.

New Zealand’s hotels are making the most of the boom.

“When one of our groups arrive, we always have a Mandarin speaker at the desk,” General Manager Mark Rose said in an interview from The Rees Hotel, which boasts floor-to-ceiling windows offering views of the mountain ranges that featured in the Lord of the Rings movies. “They get information in Mandarin. It makes life easier for us and makes them more comfortable.”

To lure more Chinese visitors to the Alpine Resort Wanaka, an apartment-style hotel with views of the Southern Alps about an hour’s drive from Queenstown, Hildebrand has hired two marketing managers with local language skills in Hong Kong.

The nation needs to attract more independent travelers rather than those on bus tours, because they are the visitors who are prepared to spend on jet-boat rides, bungee jumping or sky diving, she said in an interview.

“Chinese people are becoming more adventurous,” she said. “They try and do what they can’t do at home. You can’t jump out of a plane easily in China.”

Before it's here, it's on the Bloomberg Terminal.