New Zealand’s Two-Track China Policy

New Zealand’s foreign policy has for decades been based on a political consensus around making independent decisions and supporting the rules-based international order and multilateral system. Ahead of the hotly contested November 7 general election, however, and amid a rapidly deteriorating geopolitical environment, that consensus is being tested like seldom before.

The New Zealand Security Intelligence Service (NZSIS) recently issued its punchiest Security Threat Assessment yet, publicly calling out the Chinese government for espionage conducted “at scale” against New Zealand. The assessment concluded that spy services—especially China’s—with “a voracious appetite” for information have dramatically stepped up their effort to get information about critical assets and “cannot be described as benign.” This showcases a broader trend in New Zealand’s security posture: As China’s military, economic, and diplomatic ambitions in the Pacific—and in the wider world—have become increasingly obvious, New Zealand has become more willing to confront China’s security activities.

This is a significant shift after years in which New Zealand trailed its traditional partners—especially the United States during the first Trump administration, and Australia under Scott Morrison from 2018 to 2022—in acting on concerns about China’s goals and its tactics for achieving them. But this shift does not amount to a full strategic realignment: Like so many small and middle powers around the world, New Zealand now finds itself trying to hedge between an increasingly assertive China and an increasingly unpredictable United States under President Donald Trump. Even as it strengthens its security posture and seeks to diversify its trading relationships, New Zealand is even more dependent on China as a result of geopolitical disruption. Prime Minister Christopher Luxon said at a recent business forum that, as the world enters “an era of ongoing disruption,” New Zealand’s “consequential” relationship with China was becoming even more important.

The Old Bargain: Economic Dependence and Strategic Caution

New Zealand has for decades been one of the most eager Western nations to work with China. Over the years, both countries have repeatedly championed their “five firsts”: New Zealand was the first Western country to support China’s accession to the World Trade Organization, to recognize China as a market economy, and to sign a free trade agreement with China. It was also the first to sign up to the Asian Infrastructure Investment Bank and to sign a memorandum of understanding on the Belt and Road Initiative. New Zealand’s underlying assumption was that economic dependence could coexist with strategic distance: New Zealand could deepen its relationship with China without having to choose sides in the emerging U.S.-China rivalry.

This posture was bipartisan, with both left-leaning Labour Party and right-leaning National Party prime ministers embracing China as an enormous economic opportunity. China quickly became fundamental to the country’s prosperity: New Zealand sent 3.3 percent of its goods exports to China in 2000, but by 2021, that share had topped 32 percent. Export growth by share has since cooled, in no small part due to China’s slowing domestic economy, but the value has remained relatively stable, with New Zealand exporting almost NZ$20 billion worth of goods to China in 2025. This has created whole industries that rely on China, such as Fonterra, the dairy cooperative that is New Zealand’s largest company by revenue and earns one-third of its revenue from China. Similarly, almost 90 percent of China’s softwood log imports—especially radiata pine used in construction—came from New Zealand last year. These examples illustrate why diversification is so difficult: The industries that are central to New Zealand’s economy and identity rely on demand from China.

New Zealand’s Evolving Stance on China

New Zealand’s position on China began to slowly evolve about a decade ago, when it started to become apparent that Xi Jinping was leading China into a more muscular, party-state era. This influenced New Zealand’s thinking in several key ways:

• Erosion of Trust: As a small trading nation, New Zealand relies on the international rules-based order. Wellington became less confident that Beijing’s behavior would remain predictable or constrained by international rules. For example, China ignored the Permanent Court of Arbitration and continued building in the contested South China Sea, even after the Philippines won its complaint against China in 2016.
• Human Rights Issues: Reports of human rights abuses against Uyghur Muslims in Xinjiang and moves to bring Hong Kong under tight control despite the supposed “one country, two systems” framework also caused concern in Wellington. This coincided with the election of a Labour-led government in New Zealand in 2017, which devoted more attention to human rights issues than its conservative predecessor. Labour Prime Minister Jacinda Ardern became willing to voice concerns about what was happening in Xinjiang—albeit softly.
• Economic Retaliation: When former Australian prime minister Morrison angered China by calling for an inquiry into the origins of Covid-19, China responded by imposing severe trade restrictions on agricultural products. Australian wine exports, hit with tariffs of up to 218 percent, plummeted almost overnight. New Zealand was well aware that similar punishments would be devastating in its primary sectors. More than one-third of New Zealand dairy exports and 54 percent of forestry exports go to China, according to the Ministry for Primary Industries.

Together, these factors caused a strategic awakening and started changing how New Zealand policymakers looked at China, albeit at varying speeds. Before, it had been all upside, but now the risks, whether from retribution or recession, started to mount. The emerging conundrum for New Zealand was not simply that China was becoming more powerful; it was that China’s lack of compunction about breaching international rules made the assumptions underpinning New Zealand’s China strategy harder to sustain.

Security Becomes Harder to Ignore

Throughout all of this was also the growing recognition of China as a threat to New Zealand’s own national security. Beijing has stepped up its foreign interference efforts, especially through its United Front Work Department. The academic who sounded the global alarm on the United Front in New Zealand was Anne-Marie Brady, a University of Canterbury professor who used New Zealand as a case study in her influential Magic Weapons report, showing how China was using smaller Western economies to control academic institutions, media, and Chinese diaspora communities.

The pivotal moment for New Zealand came in 2023, when the NZSIS released its first public security threat environment report, naming China eight times and saying it was trying to interfere in New Zealand. Shortly afterward, defense minister Andrew Little declared that New Zealand did “not live in a benign strategic environment.” When Labour lost the election at the end of 2023, many observers thought National would return to its pro-business ways. However, the political approach to China had become more bipartisan, as agencies continued to ring alarm bells.

The NZSIS’s annual threat assessments have become notably blunter. This year’s report noted that the Purple Mountain Observatory, a research institution within the Chinese Communist Party that is particularly interested in Antarctica, was last year found trying to covertly install ground-based space infrastructure in New Zealand. This all followed the NZSIS earlier joining its Five Eyes partners in publicly warning that Chinese military intelligence services were using platforms such as LinkedIn to recruit New Zealanders with access to classified information. The NZSIS’s unprecedented willingness to address the practice underscored how China was becoming a concern not just for diplomats, but also for intelligence and defense agencies.

The rhetorical shift has been accelerated by two incidents of Chinese assertiveness in New Zealand’s backyard. The Chinese navy conducted live-fire exercises without notice in the Tasman Sea between Australia and New Zealand last year, causing passenger jets to be diverted, and this year, China fired a nuclear-capable missile into the nuclear-free zone in the South Pacific. The latter was widely viewed as a warning to Washington, but it nevertheless showed that Beijing calculated that such a move would not cost any of its diplomatic gains in the Pacific.

For New Zealand, these incidents show that its geographic isolation no longer provides insulation. In fact, its location in the South Pacific puts New Zealand in the middle of an emerging battleground. China’s security agreements across the Pacific—notably including last year’s comprehensive strategic partnership with the Cook Islands, a realm country that is obliged to confer with New Zealand’s government on international affairs—further raised concern about China’s intentions in the region, and specifically about whether it was trying to establish a permanent military foothold in the Pacific.

Policymakers and politicians received another wake-up call earlier this year when China put yearlong travel bans on four backbench parliamentarians who made a routine visit to Taiwan, which would be dropped if they apologized; they did not. China nevertheless issued an angry response to the visit, saying “anyone who crosses the line on the Taiwan question will pay a price.” This appeared to be an effort by China to use New Zealand to set a new red line on Taiwan and scare parliamentarians from other countries away from making similar visits.

The Politics of a Tougher Security Setting

One way that New Zealand is trying to mitigate its reliance on China is through trade diversification. It is trying to strengthen other relationships, upgrading ties across Southeast Asia in particular, and forging free trade agreements with the few remaining partners it did not have deals with: India, the United Arab Emirates, and the European Union. Yet even while New Zealand is expanding its markets, China remains the foundation of its export industries. These contradictions will continue to constrain the next government’s ability to act decisively on either security or trade, regardless of who wins the November 7 election.

Prime Minister Luxon and the governing center-right National-led coalition have embarked on an election campaign with economic growth at its core. Under Luxon’s leadership, the government is pursuing a target to double the value of New Zealand’s exports by 2034, with little regard to the makeup of those exports. Meanwhile, Luxon’s foreign minister, Winston Peters, has reoriented relationships toward the United States while trying to maintain strong economic ties with China. In his final speech of this term, Peters said New Zealand needs to take a realpolitik approach to “the world as it is, not how we wish it would be.”

For its part, the center-left Labour Party has said it would pursue “moral clarity” in foreign policy if it wins power next month. Foreign affairs spokeswoman Vanushi Walters said the sitting government had not taken a balanced approach to its relationships, accusing Peters of “outright racism directed at one partner”—China—but silence over the Trump administration’s breaches of the UN Charter. “There is a time for quiet diplomacy, and there is a time when quiet diplomacy must bend to moral clarity—that is undeniably the case when the scale of human rights abuses is so stark that it amounts to genocide, to ethnic cleansing,” she said.

Polls currently show a tight race, with National and Labour each sitting below 30 percent, putting the minor parties in a kingmaker position in New Zealand’s proportional representation system. These divergent views represent a significant cleavage in a country where foreign policy has traditionally been an area of bipartisan agreement—and one that could complicate New Zealand’s ability to navigate a rapidly changing global environment.

The Limits of New Zealand’s Reset on China

In its latest Defence Capability Plan, New Zealand said that “China’s assertive pursuit of its strategic objectives” was the “principal driver” of strategic competition in the Indo-Pacific. “Of particular concern is the rapid and non-transparent growth of China’s military capability,” the report said in notably blunt language. The report was accompanied by an additional NZ$9 billion in new spending over four years, with the goal of lifting defense spending from the current 1.1 percent of GDP to more than 2 percent within eight years, which aims to lift the defense force “out of the intensive care unit.”

At an intellectual level, more political leaders in Wellington are realizing that New Zealand must lessen its dependence on China, but doing so at a practical level remains difficult. New Zealand is changing its assessment of China faster than it can change the makeup of its economy and the destination of its exports. Nor does it have the rich stockpiles of minerals that make Australia indispensable to China, or the economic heft and advanced computer chips of the United States. That means there will be a limit to how far the country can strengthen its security posture, especially with Beijing trying to keep Wellington in its previous neutral stance. That problem will remain front and center, whatever the shape of New Zealand’s next government.

Anna Fifield is an adjunct fellow (non-resident) with the Australia Chair at the Center for Strategic and International Studies in Washington, D.C., and a New Zealand journalist.