During his recent trip to China as the new Prime Minister of New Zealand, Chris Hipkins adopted a cautious approach, focusing primarily on trade and economic opportunities while avoiding sensitive subjects like human rights abuses in Xinjiang and security concerns.
With the upcoming election just three months away and the country already experiencing a technical recession, analysts believe that Hipkins aims to establish his own identity separate from the high-profile former leader, Jacinda Ardern, and demonstrate his capability to lead the country for another three years.
Fearing recession
Recent statistics indicate that New Zealand’s economy has entered a recession after the country’s central bank, the Reserve Bank of New Zealand (RBNZ), implemented a series of interest rate hikes, reaching a 14-year high. Official figures reveal that the country’s gross domestic product (GDP) contracted by 0.1% in the first quarter of the year, following a 0.7% contraction in the previous quarter. This consecutive decline in GDP qualifies as a “technical recession.”
Unlike many other countries, New Zealand took early action in raising interest rates in response to the COVID-19 pandemic, outpacing the US Federal Reserve. Since October 2021, the RBNZ has significantly increased borrowing costs. In its most recent move, the central bank raised the main interest rate to 5.5% last month. Consequently, New Zealanders are grappling with the consequences of higher rates, including increased mortgage repayments and the cost of other loans.
The impact of these interest rate hikes is evident in the sentiments expressed by individuals in New Zealand. David Jordan, an Auckland-based web engineer, described the interest rates as “crippling,” and highlighted the job losses experienced in his industry as a result. However, consultancies working with large global firms seem to be faring better.
Central banks worldwide have raised interest rates to curb rising prices as economies reopened following COVID-19 lockdowns. Inflation was further fuelled by escalating costs of various commodities, including fuel and food, partially influenced by the Ukraine war. New Zealand’s economy also faced additional challenges in the first quarter, such as the impact of Cyclones Hale and Gabrielle, as well as teachers’ strikes. These factors contributed to declines in horticulture, transport support services, and disruptions in the education sector.
A technical recession is defined as an economy experiencing three consecutive quarters of contraction. With the latest decline in GDP, it is anticipated that the RBNZ will not pursue further rate hikes in the foreseeable future. This contraction further solidifies expectations of a pause in the central bank’s interest rate adjustments.
Hipkins to use “the China” trump card
One of Hipkins’s key objectives is to assure voters that the Labour Party is best equipped to restore prosperity to New Zealand. To achieve this, he understands the importance of avoiding conflicts with China, the country’s largest trading partner, as such disputes could potentially harm New Zealand’s exports. Professor Robert Ayson from Victoria University described this visit as a significant opportunity for Hipkins to solidify his profile as a new prime minister during an election year. By refraining from addressing controversial issues directly, New Zealand indirectly acknowledges its disagreements with China on certain significant matters without explicitly mentioning them.
Among the Five Eyes security grouping, consisting of Australia, the United States, Britain, Canada, and New Zealand, New Zealand has traditionally been viewed as the most conciliatory towards China. However, in recent meetings, Foreign Minister Nanaia Mahuta and former Prime Minister Ardern did raise concerns about the situation in Xinjiang, the erosion of democracy in Hong Kong, potential militarisation in the Pacific, and tensions in the Taiwan Strait.
The statement released after Hipkins’s meeting with Chinese President Xi Jinping did not mention any of these issues. Ayson from Victoria University noted that Hipkins’s visit provided China with international legitimacy and Beijing gained significant benefits from the visit, potentially outweighing the advantages gained by New Zealand exporters.
Although New Zealand exporters played a prominent role during the visit, with a delegation of 29 businesses accompanying the Prime Minister to China, the business sector is not traditionally aligned with the Labour Party. However, Hipkins has been actively working to win their support since assuming office. In January, on his first full day as Prime Minister, he engaged with business leaders in Auckland. David Capie, the Director of the Centre for Strategic Studies at Victoria University, suggested that domestic politics plays a significant role in this election year, and Hipkins aims to be seen as a reliable steward of the relationship with China.
Recent opinion polls conducted in late May indicated that the coalition of opposition parties, National and Act, was ahead of a potential Labour-Green party coalition. However, neither coalition was projected to secure a clear majority, which further underscores the importance of Hipkins’s diplomatic approach with China.
According to Derek J Grossman, a senior defence analyst at the RAND Corporation in the United States, New Zealand’s trade-focused visit to China is unlikely to result in negative consequences for its relationships with other partners. Many countries are aware of the delicate balancing act that New Zealand is undertaking. Similarly, the Biden administration has demonstrated a willingness to tolerate certain behaviours from its partners, as long as they cooperate on the Indo-Pacific strategy to counter China. This implies that New Zealand’s trade-centric visit to China should not significantly impact its relations with other nations, as long as it aligns with broader strategic objectives in the Indo-Pacific region.
Trade take center stage
Amidst the visit, New Zealand exporters took center stage, as a delegation of 29 businesses accompanied the Prime Minister during his trip to China. It’s worth noting that the business sector is not traditionally aligned with the Labour Party. However, since taking office, Hipkins has been actively focused on winning over this sector. On his first full day as Prime Minister in January, he spent time engaging with business leaders in Auckland. David Capie, the Director of the Centre for Strategic Studies at Victoria University, highlighted the significance of domestic politics in an election year, suggesting that Hipkins wants to be perceived as a capable steward of the relationship with China.
Recent polls conducted in late May indicated that a coalition of opposition parties, National and Act, was ahead of a potential Labour-Green party coalition. However, neither coalition was projected to secure a clear majority, adding to the importance of Hipkins’s diplomatic approach with China.
Derek J Grossman, a senior defense analyst at the RAND Corporation in the United States, expressed the view that the trade-focused visit is unlikely to have negative repercussions on New Zealand’s relationships with other partners. Many countries are aware of the delicate balancing act that Wellington is undertaking. He also mentioned that the Biden administration, as demonstrated in its approach with India regarding its ties with Russia, is willing to tolerate certain behaviors that do not align with its interests or values as long as partners cooperate on the Indo-Pacific strategy to counter China.
