China's economic growth spills over to NZ: Treasury

Every 1 percent increase in China's gross domestic product (GDP) correlates to a rise in New Zealand's GDP of 0.2 percent to 0.4 percent, New Zealand's Treasury said Tuesday in a report.

However, the paper, dubbed Empirical Evidence on Growth Spillovers from China to New Zealand, also noted that it was "striking that estimated growth spillovers are substantially greater from the US than from China, despite the latter's increasing importance in the world economy."

The Treasury researchers used models estimating growth from the mid-1980s to 2011 and found that commodity prices formed an important part of the growth spillover effect in a 10-year window of data from the mid-1990s, especially in the latter part of the period.

"The impact of China on global commodity prices has been steadily increasing over time, with growth in China having strongest effects on dairy and aluminum price inflation," said the paper.

Although data availability extended only to the end of 2011, recent indicators, including China's demand for New Zealand's dairy products, pointed to the role of China being maintained or increased in the near future.

The paper was one of three Treasury papers released Tuesday examining the impact of China's growth on New Zealand.

The second paper, The Outlook for China's Growth and its Impact on New Zealand Exports, forecast China would "remain strong relative to New Zealand's other trading partners" as its growth slowed over the next decade.

"The slowing export and investment growth is likely to lead to lower growth in China's demand for hard commodities, although the ongoing processes of industrialization and urbanization will continue to support this demand," it said.

"Dairy and meat consumption per capita generally grow as incomes increase. In particular, consumption of skim milk powder and cheese are expected to grow significantly in the next decade, keeping prices for these products high."

The third paper, China's recent growth and its impact on New Zealand's economy, outlined how rising Chinese demand had helped New Zealand's forestry and dairy sectors outperform the rest of the economy since 2008.

The two sectors had contributed 2.1 percentage points to the 4. 1-percent real GDP growth, but if they had grown at the same rate as the rest of the economy, they would have contributed only 0.2 percentage points, it said.

"This effect has helped the economy recover from the GFC (global financial crisis) and the high terms of trade, partly resulting from Chinese demand, have boosted incomes over this period."