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What if China Catches A Cold?

Max Bowden's BusinessSense:

What if China Catches A Cold?

In what part of the world does NZ's future lie? John Key makes no bones about it - his focus is on Asia, China in particular.

NZ's trade with China has been boosted greatly since the Free Trade Agreement was signed. The Trans Pacific Partnership will help as well. What these trade deals tell us is the old UK- Europe trade is declining.

The debt laden developed economies, particularly in Europe have their own problems. NZ is primed to send its exports to the booming markets of China and India.

But don't get too excited - the Chinese economy is huge, but it is still closely tied to the "old world" economies. The US especially has an intimate relationship with China. It is a crucial market for them as well.

Those close links mean when the US economy takes a hit, China can do as well. Despite what the Chinese say about dropping the US dollar as the global reserve currency, the US is still vitally important to the Asian nation's growth and development plans.

The globalisation of world trade means a weakening of the pulse in one place can cause thrombosis in another. The heartbeat of the Chinese economy is slowing - so as John Key notes, we had better watch out.

The Main Report Business Week has more -


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Keep Your Eyes On China's Economy

John Key says the US and Europe are not the most important economic indicators for NZ anymore. He says the Chinese economy is the most important indicator now, because of its direct impact on growth in Aust.

With Europe and the US slowing down, Key says NZ can expect slower growth than if those parts of the world were healthy. But he says “the one I worry about is China." He says China's economic growth is what affects Australia, which is what affects NZ. Aust is 100% exposed to China.

Latest data from China shows Key is not worrying unnecessarily. The Conference Board, a New York-based research organisation warns growth in China is slowing significantly.China’s economy is cooling after the Govt raised interest rates and banks’ reserve requirements and extended curbs on the real-estate market, adding to concerns about the outlook for the global economy.

Official Chinese figures show China's expansion may slow to 9.2% in the third quarter from 9.5% in the previous three months. This is more serious than the headline numbers suggest, and trade volumes show demand is slowing “sharply” in China and the world.

Meanwhile the PM says in his opinion current world financial turmoil is very different from the forces unleashed in the 2008 global financial crisis. He says "we aren’t immune to the rest of the world, but I genuinely think we are in a lot better shape than a lot of other countries.”

The lesson for business and politicians alike is the world keeps changing. NZ has been caught before with all its eggs in one basket. The entry of the UK into the European Common Market was a massive blow.

While it is great to have a huge market such as China on our doorstep, there is still the chance things could go wrong. NZ exporters need to be multi faceted.

It is vital the Government keep pushing for more trade access to other markets, and for exporters to look at products higher up the value chain than the sacks of milk powder and unprocessed logs the Chinese want.


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