Thursday, July 29, 2010

Thank god for China

From Granny:

New Zealand recorded a trade surplus of $276 million for the month of June, equivalent to 7.3 per cent of exports.

Publishing the data today, Statistics New Zealand said the largest increases in exports last month, compared to June 2009, were in milk powder, butter, cheese, and logs, wood and wood articles.

The trade balance for the year to June was a surplus of $639 million, or 1.6 per cent of exports. That compares to an average deficit of 15 per cent of exports over the preceding five June years.

For those who bemoan our relationship with China, please explain how else our bills would get paid.


Bartholomew Longbottom said...

Very true. And they're likely to be a major market into the future. perhaps even surpassing Australia at some point.

However, selling production is different to selling the factors of production. Unless we can get a better return on the sale price of those assets than we could with the factors of production themselves (and our investment history shows that we don't invest that wisely) perhaps we should stick with partnering with foreigners, rather than selling out means of production outright.

Partnership would mean that the overseas capital would be available to NZ, the overseas investors would make the same (or better) ROI and NZ investors would benefit too.

In fact, partnership with foreign companies is a great opportunity to revitalise our capital markets. The Australians have the right idea - look what they're FIRB did with Yancoal.

Let them invest, but on terms that are beneficial to both parties.

Bartholomew Longbottom said...

*their FIRB

The Gantt Guy said...

Agreed, Barthomolew. We trade with China by selling them (primarily) dairy, and buying from them (primarily) cheap plastic crap and electronics. If we sell to Chinese interests the means of producing dairy products, does it still count towards our BoP, if it's in fact China selling to China (albeit from the Waikato).

Anonymous said...

Does this ignore invisibles?

Bartholemew Longbottom said...

@the Gannt Guy
Good question. My understanding is that the initial acquisition would be an immediate increase in the capital account, reducing BoP. Future revenues would be BoP neutral because the farms sell their milk internally, to other NZ based firms, and those firm's exports would still add to the current account, and BoP. But there would be a reduction to future BoP from the repatriation of profits (factor income)...

All this of course ignores that the Crafar farms are highly leveraged with foreign capital anyway. So the economic significance seems to me to be limited to the difference between lender and owner i.e. interest payments vs dividends.

I don't know what you mean by "invisibles".