Yeung framed China\u2019s economic transition with a simple concept: a K\u2011shaped economy.<\/p>\n
On the downward arm of one K-shaped slide, property investment in China is shown as sharply negative \u2013 a 14% drop. <\/p>\n
Yeung noted residential construction has slowed. Retail sales have posted consecutive monthly contractions, as households digest the property slump.<\/p>\n
Demographic realities are biting: births have fallen to around eight million a year, roughly half the level of a decade ago.<\/p>\n
But on the upward arm, another China emerged. <\/p>\n
\u201cThere has been a big shift of investment profile from a property\u2011led economy to a technology\u2011driven economy,\u201d Yeung said. <\/p>\n
Investment in equipment, robotics, automation and advanced manufacturing is surging. <\/p>\n
Last year, by ANZ\u2019s estimates, more than half of China\u2019s GDP growth came from total factor productivity.<\/p>\n
The robotic story is arresting. Yeung said China was now producing around two million industrial robots a month \u2013 some 24 million a year \u2013 versus seven to eight million babies.<\/p>\n
\u201cThe problem of China is not GDP, because we have robots now,\u201d he said drily. <\/p>\n
\u201cThe problem is distribution: how to protect workers and support this economic transition.\u201d<\/p>\n
Visitors to Shanghai or the Greater Bay Area see this for themselves: hotel deliveries handled by machines, food carried to tables by robotic runners. And in factories, automated lines that even a decade ago would have been labour\u2011intensive.<\/p>\n
ANZ\u2019s Greater China chief economist Raymond Yeung spoke at the China Business Summit in Auckland this week. Photo \/ Annaleise Shortland<\/p>\n
Arguably, China is becoming the laboratory for what an ageing, automated economy looks like in practice.<\/p>\n
Yeung pointed out that China had been a giant disinflationary force in the global economy for four decades. <\/p>\n
He put up a famous Volcker\u2011era United States inflation chart, then pointed out that behind the US central banker was a structural shock of another kind: hundreds of millions of Chinese workers entering global supply chains.<\/p>\n
Now, he argues, China is reshaping the inflation story again, this time through technology and green capacity.<\/p>\n
He showed how Beijing has responded to tariff walls and \u201cde-risking\u201d rhetoric by rerouting supply chains through Southeast Asia. <\/p>\n
China\u2019s share of the US market has dropped back to levels last seen in the early 1990s, while trade surpluses are increasingly booked through Southeast Asia as intermediate hubs.<\/p>\n
On energy, another K\u2011shape slide: crude oil imports are still huge, but Chinese exports of solar panels and related equipment have exploded.<\/p>\n
\u201cSolar exports surged after the Middle East shock,\u201d Yeung said. <\/p>\n
\u201cThis is how the world reacted \u2013 by buying renewable energy capacity. China is now, in effect, an exporter of energy.\u201d<\/p>\n
China has become a net exporter of capital, says Raymond Yeung. Photo \/ Annaleise Shortland<\/p>\n
But it was his capital story that should really concentrate New Zealand minds.<\/p>\n
Japan\u2019s government bond yield has crept up to around 3%, China\u2019s 10\u2011year is hovering closer to 1.7%.<\/p>\n
\u201cChina is heading towards a low\u2011yield environment,\u201d Yeung said. <\/p>\n
\u201cThat means China becomes a net exporter of financial capital, just as Japan was after its bubble burst.\u201d<\/p>\n
In other words, the cheapest large pool of funding is sitting in a country we already know extremely well.<\/p>\n
Warren Hu, from the China Chamber of Commerce in New Zealand, hammered home the practical implications.<\/p>\n
He began with a provocation: \u201cNew Zealand productivity has lagged the OECD for decades. The reasons are well known: infrastructure gaps, high capital costs, and a small, remote economy. The question is not what New Zealand can do for China, but what China can do for New Zealand \u2013 and what we can do together.\u201d<\/p>\n
Chinese banks can raise funds in renminbi much more cheaply than funding available in New Zealand wholesale markets, says Warren Hu, CEO of Bank of China in New Zealand. Photo \/ 123RF<\/p>\n
His basic point was simple: China is the perfect \u201cthird party\u201d to New Zealand\u2019s productivity problem.<\/p>\n
On infrastructure, Hu related that China had built more infrastructure in the past 30 years than any other country in human history. <\/p>\n
That has produced world\u2011class engineering capability, full supply chains, and an ability to deliver complex projects on time and on budget.<\/p>\n
He cited the Cook Strait ferry replacement, where a construction contract with a Chinese shipyard is estimated to save millions.<\/p>\n
On finance, Hu \u2013 also CEO of Bank of China in New Zealand \u2013 was direct.<\/p>\n
\u201cChina is on a different interest\u2011rate system,\u201d he said. <\/p>\n
\u201cChinese banks can raise funds in renminbi much more cheaply than funding available in New Zealand wholesale markets. The question is: why should New Zealand borrowers not benefit from that?\u201d<\/p>\n
He outlined two channels. <\/p>\n
Cross\u2011border lending: Chinese banks can fund in renminbi (RMB) at low cost, swap into NZ dollars, and on\u2011lend to creditworthy Kiwi borrowers at lower rates than are otherwise available \u2013 particularly for long\u2011dated infrastructure and productive investment.RMB capital markets: New Zealand agencies and corporates could issue RMB\u2011denominated bonds.<\/p>\n
There would need to be regulatory changes to allow this to happen.<\/p>\n
\u201cWe already see other countries issuing billions in RMB,\u201d Hu noted. <\/p>\n
\u201cThere is no reason New Zealand cannot do the same, with the right structures and risk management.\u201d<\/p>\n
His conclusion was blunt: geopolitical tension comes and goes, but the need for productive capital does not.<\/p>\n
I\u2019m not making an argument here to open the floodgates to Chinese investment (internationally, China has withdrawn from sectors where it is not making a profit).<\/p>\n
New Zealand has a legitimate interest in protecting sensitive assets, screening for strategic risk, and ensuring we do not undercut our security relationships or values.<\/p>\n
But as the Prime Minister underlined, New Zealand has the tools for that. There are national interest tests, and the strength of the relationship with Beijing allows for conversations where red lines can be made clear.<\/p>\n
Notably, other Western-aligned nations are now accessing cheaper Chinese capital.<\/p>\n
It seems self-defeating to accept permanently higher capital costs, doing fewer infrastructure projects than we need, and talking endlessly about productivity while neglecting to explore one of the levers within our control.<\/p>\n
Disclosure: Fran O\u2019Sullivan curates and co-chairs the China Business Summit in partnership with the Auckland Business Chamber<\/p>\n