Was New Zealand capitalism's soft underbelly?
- Grant McLachlan
- Aug 3
- 8 min read
China wrote down the industries it intended to dominate, then found a small, indebted trading partner willing to hand them over one contract at a time.
Winston Churchill called Italy the soft underbelly of the Axis, the weak point through which a war could be won without a direct assault on Germany.
New Zealand has spent the past two decades handing China something similar. Not a military weakness, but an economic one, freely offered.
When China set out to dominate strategic industries under its Made in China 2025 plan, New Zealand did not wait to be asked. It queued to sell.
This is not a question of whether trade with China has been good for New Zealand's export receipts. On the government's own figures, it plainly has.
The question is whether the manner of that trade, a small and undiversified economy selling raw and lightly processed commodities into a single strategic buyer with a declared industrial plan, has left New Zealand more exposed than its export statistics suggest.
And whether that exposure was engineered on one side of the table and simply not noticed on the other.
Contents
The plan had a name
China's economic strategy toward the rest of the world is not hidden.
In 2015 Beijing published Made in China 2025, identifying ten sectors, including aerospace, electric vehicles, robotics, new materials and biopharma, that the state intended to dominate through subsidy, procurement preference and technology transfer.
A decade on, independent assessment is mixed but substantial.
The US-China Economic and Security Review Commission found China met or exceeded most of its targets in electric vehicles, electrical equipment and shipbuilding, while falling short in semiconductors and aerospace.
The World Economic Forum puts China's current share of global lithium-ion battery manufacturing above 75 percent and its share of solar module production near 80 percent.
None of this is conspiracy. It is published industrial policy, debated openly in Beijing and analysed openly in Washington and Brussels.
The relevant question for a small trading nation is not whether the plan exists, but what it means to sell into an economy that has told the world, in writing, which industries it intends to own.
BYD's profit is not what it looks like
Build Your Dreams is the plan's flagship.
In 2025 BYD's revenue overtook Tesla's for the first time, $116 billion against $94.8 billion, and BYD outsold Tesla in pure electric vehicles by more than 600,000 units. On the numbers most often quoted, BYD looks like a straightforward commercial triumph.
The full set of numbers tells a more complicated story.
BYD's own 2025 annual report disclosed 12.47 billion yuan, about $1.8 billion, in direct government subsidies, equal to 38.2 percent of the company's net profit for the year. Strip the subsidies out and BYD's adjusted profit falls by roughly half.
When Chinese authorities began tapering the subsidies that support lower-cost models, the effect was immediate. BYD's net profit collapsed 55.4 percent in the first quarter of 2026.
A company's profitability should not swing by half on the withdrawal of a government cheque. BYD's does.
Separately, the Hong Kong-based accounting specialist GMT Research, the firm that first flagged the Evergrande collapse, has argued that BYD's reported net debt of 27.7 billion yuan understates the company's true position.
Once overdue supplier payables and off-balance-sheet financing are included, GMT put the real figure closer to 323 billion yuan, more than eleven times higher.
BYD achieves this by taking as long as 275 days to pay suppliers, against a Western industry norm of 45 to 60 days, and by issuing internal promissory notes in place of cash. Separately, China's own dealer association has investigated BYD dealerships found to be holding more than three months of unsold stock, more than double the industry standard, a pattern consistent with channel stuffing to flatter headline sales figures.
None of this makes BYD's profit fictional, and none of it meets the legal test for predatory pricing. What it shows is that BYD's competitiveness is the product of unprecedented state capitalisation and aggressive financial engineering as much as of manufacturing skill.
That is a legitimate industrial strategy for Beijing to pursue.
It is a very different thing from the free-market success story the headline numbers imply, and it matters to any small country whose own manufacturers are expected to compete against it on ordinary commercial terms.
The Fonterra pattern
New Zealand's largest single exposure to China runs through Fonterra.
The relationship has already produced one catastrophic failure. Fonterra's Sanlu joint venture in China collapsed in 2008 in the melamine-tainted baby formula scandal, a $139 million write-down and six dead infants, a case I set out in more detail in A generation of ambition lost? The pattern identified there, a company that thrives behind protection at home discovering its skills do not transfer to a market it cannot control, describes the wider relationship as well as it describes Sanlu.
Today, China absorbs 31 percent of New Zealand's dairy exports and 61 percent of its timber exports, according to figures published by China's own embassy in Wellington.
Fonterra's domestic milk price is set substantially by Chinese and Southeast Asian demand through the fortnightly Global Dairy Trade auction, a mechanism I traced in The great butter racket.
New Zealanders now pay export parity for milk produced in their own paddocks, while Fonterra has sold its consumer brands to the French group Lactalis and returned capital to farmer shareholders.
The dependency on Chinese demand is not a side effect of the dairy trade. It is now close to the whole of the business model.
Cows, not cowardice
For two decades New Zealand, alongside Australia, was the dominant supplier of live dairy heifers to China, exporting animals for breeding rather than slaughter.
Between 2018 and 2023, China took more than 80 percent of all Australian and New Zealand heifer exports, a trade RaboResearch valued at up to 233,000 head in its peak year.
It was New Zealand, not China, that ended the trade.
In April 2023 the New Zealand government banned live animal exports by sea entirely, on animal welfare grounds, over the objection of exporters and against the wishes of a Chinese market that continues to lobby for the ban's reversal.
Digging in Australia's backyard
New Zealand is not the only small, resource-exporting democracy learning what it means to sell into a buyer with a strategy.
Australia's iron ore trade with China was, for two decades, considered a one-way street: China needed the ore, Australian miners set the terms, and the tax and royalty revenue flowed accordingly.
That assumption is now being tested.
In 2022 China established a state-owned buying group, CMRG, to consolidate the purchasing power of Chinese steelmakers against BHP and Rio Tinto, and has separately committed more than $120 billion to securing lithium, nickel and iron ore processing capacity outside Australia altogether.
The lesson for New Zealand is not that Australia's position is comparable in scale. It is that ownership of a resource, or of a market share, does not by itself confer leverage. Leverage lies with whoever controls demand, financing, processing and standards, and China has spent the past decade consciously building capability in all four.
A small country selling raw commodities into that structure is a price taker twice over: once from the market, and once from the buyer who is quietly reshaping the market.
The tap and the target
The exposure is not only commercial.
In 2017 the Canterbury University academic Anne-Marie Brady published Magic Weapons, a study of Chinese Communist Party political influence activity that used New Zealand as its central case study, documenting targeted political donations routed through ethnic Chinese business figures with close CCP links to both major parties.
The National MP Yang Jian was subsequently reported to have had an undisclosed background in Chinese military intelligence, a fact I set out with fuller sourcing in Has the 'Butter Chicken Tsunami' already arrived? Separately, the 2014 revelation that Justice Minister Judith Collins had dined with executives of the Chinese-owned company Oravida, of which her husband was a director, while on an official trade delegation, cost her a Cabinet post. As I noted in my comparison of New Zealand's corruption gap with Australia's integrity framework, no corruption investigation followed, no coercive-powers inquiry examined the conflict, and Collins returned to Cabinet and later led her party.
A country doing as much trade with a single strategic partner as New Zealand does with China should expect that partner to seek influence over the political system that regulates the trade. New Zealand's institutions have shown limited appetite for examining whether that influence has been secured.
We did the rest ourselves
Not every part of this story belongs to China.
New Zealand has spent the same two decades trading away the low-cost economy that once made it competitive, in favour of premium branding it cannot always support.
In the middle of a cost of living crisis, the government paid $6.3 million, later topped up to roughly $8 million, to bring the Michelin Guide, a French tyre company's restaurant ranking system, to four cities.
The lamb shank and the honey jar, once the cheapest items in the cabinet, are now among the most expensive.
A country that surrenders its own cost advantage does not need an external strategic competitor to explain why it has become dependent on one. It has done a fair share of the work itself.
The rivers we already have
The same self-inflicted pattern shows up in energy.
New Zealand once had among the cheapest electricity in the world, generated almost entirely from hydro. A physics-based audit I published in Rivers of wasted power, found that the Waikato river system alone is producing roughly 33 percent less electricity than the physics of its own water flow permits, a gap driven by decades-old turbines and a market structure that rewards withholding generation over maximising it. Across the Waikato, Waitaki and Clutha systems combined, an estimated 3,100 gigawatt hours a year, about 7 percent of national generation, is recoverable from infrastructure that already exists, without a single new dam or consent.
That underperformance matters to this story because of what fills the gap. As New Zealand turns to wind and solar to make up the shortfall its own hydro assets are not producing, it is buying hardware from an industry China has deliberately built to dominate. China now accounts for close to 80 percent of global solar module production and more than 75 percent of lithium-ion battery manufacturing.
A country that let its own cheap, renewable generation slip through inefficient market design is now purchasing its replacement from the very economy whose industrial strategy opened this piece.
A portfolio, not a partnership
Add it together and the exposure is structural, not anecdotal.
Exports to China have quadrupled since the 2008 free trade agreement, and China now takes 31 percent of New Zealand's dairy exports, 61 percent of its timber and 24 percent of its meat, figures confirmed by China's own embassy reporting. Even the log trade carries the same shape I described in The Bullshit Economy: raw logs exported to China, processed into timber and packaging, sold back to New Zealand at the international price China itself sets.
This is simply what happens when a small, trade-dependent economy builds its prosperity on a portfolio concentrated in one buyer, a buyer that has written down, in public, exactly which industries it intends to control.
New Zealand did not have to be capitalism's soft underbelly. It volunteered.
