07 September 2017

At your service: the Chinese middle class and New Zealand’s service exports

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As the growing Chinese middle class looks to the rest of the world for food, education, and tourism, New Zealand service exports are uniquely placed to take advantage.

In March China's second in charge, Premier Li Keqiang, and his delegation joined the ever growing numbers of Chinese arriving in New Zealand. For Kiwi service exporters the visit was an important sign that opportunities will continue to grow in Asia as the massive middle class starts to flex its disposable income.

Premier Li signed deals that extended tourist and business visas from three years to five1 for Chinese passport holders. A new air services deal increased the number of direct flights from 49 to 59 per week. And during the visit New Zealand signed on to support China's One Belt, One Road2 - a global multi trillion-dollar infrastructure project.

The growth of the Chinese middle class has reached a tipping point that is impacting across Asia. And this a huge opportunity for New Zealand's service exporters to strengthen the economy and provide a stable path away from its reliance on primary industries, according to Dr Asha Sundaram, Senior Lecturer at the University of Auckland's business school.

It is very important for New Zealand to focus on service exports. If you combine India, and China and countries in Southeast Asia you are looking at a critical mass of people who demand these services.

Dr Asha Sundaram, Senior Lecturer, University of Auckland

In the year ending March 2017 services exports increased by $406 million3 (2%), while goods exports dropped $139 million (-0.3%), according to statistics from MFAT. Tourism was the largest service export (and second largest export sector), valued at $9.1 billion. And education travel services grew $916 million over the past two years, as increasing numbers of students travel to New Zealand from India and China.

The coming out of the Asian middle class has collided with some of the pullback from globalisation of New Zealand's traditional partners, and China's push to take their place on the global stage. A month after President Trump was inaugurated, China's President Xi Jinping delivered a speech celebrating economic globalisation at Davos's World Economic Forum4. It was a stark juxtaposition of the new world order, according to HSBC's New Zealand Head of Commercial Banking, Rob Roughan.

“Of course the US will remain absolutely critical as a partner to New Zealand, as will the UK, and the rest of Europe. But given some of the developments it puts the focus more and more on us developing those Asian linkages, those Chinese linkages specifically and building everything that goes into making that happen in as seamlessly as possible,” he says.

New Zealand's place in the Asia-Pacific region and its growing Asian population5, puts the country at an advantage. Returning to New Zealand after ten years away, Roughan has seen New Zealand's Asian identity become a defining characteristic of its culture. Local service exporters need to embrace and use that diversity to navigate the cultural idiosyncrasies that come with expanding into China and Asia more generally, he says.

“You build your expertise in line with the cosmopolitan nature of the country, the changing nature of the country. You start to reflect that in your business and that helps in the diversity of understanding, thinking, and cultural appreciation.”

While New Zealand's large and established tourism and education sectors grow rapidly, there is huge opportunity for small and medium-sized enterprises (SMEs) to push their knowledge, expertise and high-value products to the increasingly discerning Chinese consumer.

There are 415 million millennial consumers in China, and they have increasingly western tastes. In Beijing, a firm is has created a platform for innovative hospitality providers to test their ideas on this new market. Founded by Kiwi, Alex Worker, The Hatchery is a food incubator that helps test, validate and grow hospitality enterprises and food ideas in China.

“The fact is that New Zealand is mainly comprised of SMEs who don't have big marketing budgets for offshore positioning, let alone brand investment,” says Worker.

So the Hatchery provides a space for foreign food brands to “pop up” and quickly learn if their concept will fit the Chinese market by putting their brand in front of a community of sophisticated, influential young Chinese who enjoy eating and drinking and have money to spend.

Popping up in the Hatchery is Auckland free-range chicken restaurant, Bird on a Wire6. Building on the New Zealand Inc story of a quality product, they are putting their philosophy of ethically sourced, hip and healthy food before an increasingly savvy Chinese market.

“There isn't a great deal of trust in the food industry [in China] and as a result I think there is hopefully a place for concepts and businesses like ours who are fully transparent and uncompromisingly committed to sourcing and acting responsibly across all aspects of the business. And of course to selling delicious and nutritious food,” says co-owner Ben Grant.

And the potential market is significant.

If you get it right the opportunities are massive, the middle class is exploding and along with it the consumer spend.

Rob Roughan, Head of Commercial Banking, HSBC New Zealand

This is where service export success lies. Increasingly New Zealand is not just being seen as a source of commodity food products, but higher value food products and high quality services, say Roughan.

“It is better quality healthcare and services around tourism and education, and everything that goes with a growing middle class,” he says.

“It's on our doorstep. We are part of it.”

  1. https://www.beehive.govt.nz/sites/all/files/China-New%20Zealand%20Initiatives.pdf
  2. https://www.economist.com/blogs/economist-explains/2017/05/economist-explains-11
  3. https://www.mfat.govt.nz/assets/Uploads/Goods-and-Services-Trade-YE-March-2017.pdf
  4. https://www.weforum.org/agenda/2017/01/full-text-of-xi-jinping-keynote-at-the-world-economic-forum
  5. http://m.stats.govt.nz/browse_for_stats/population/estimates_and_projections/projections-overview/nat-ethnic-pop-proj.aspx
  6. https://www.deloitteprivate.co.nz/fast50/2016/results/bird-on-a-wire/
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