New Zealand’s balance between securing its periphery and maintaining trade ties with China could shift toward the former over the next year as domestic defense pressure and Beijing’s military activities in the Pacific both accelerate. The New Zealand Defense Force published its Defence Assessment 2021 on Dec. 8, the first such report since 2016, in which the military called for shifting away from a “reactive risk management” approach to a proactive strategy that helps “pre-empt and prevent security threats.” This is notable because the country has long attempted to deftly balance its deep economic ties with China against its regional security concerns, which has often caused New Zealand to distance itself from the United States and Australia’s more proactive efforts to address China’s military advancement.

The report cited China’s rise as a strategic competitor in the region, including its militarization of the South China Sea, and rapidly modernizing military as justification for a New Zealand defense shift.
The potential for a dual-use facility in the Pacific was one of the top “concerning developments to watch” identified in the report. This was likely a veiled reference to China, which has been expanding its commercial and security relations in the Pacific Islands in recent years.
Internal political dynamics will likely still push New Zealand to keep its distance from major U.S. security agreements. New Zealand’s position on defense matters, especially during the tenure of Prime Minister Jacinda Ardern, is likely to remain split. Ardern will probably continue pushing for a reserved approach to strategic alignment with an emphasis on human rights issues, as the country’s military leaders push for a realization of the security threats from China’s maritime activities. Wellington is thus likely to remain hesitant to join U.S.-led security arrangements in the region, like the Quadrilateral Security Dialogue (the Quad) and the recently signed AUKUS trilateral security pact.

Under Ardern, New Zealand has pushed a human rights-focused foreign policy, with the parliament in May passing a motion to condemn China’s human rights abuses against Uyghur Muslims in Xinjiang. New Zealand also announced in October it wouldn’t send high-level officials to the Beijing Winter Olympics in February, but cited COVID-19 as the main concern.
Wellington has been hesitant to wield Western security groups, like the Five Eyes intelligence-sharing pact, as a platform for broader strategic competition with China. In April, the country’s foreign minister Nanaia Mahuta stated New Zealand did not want to use Five Eyes to address issues over Xinjiang, which came three months after New Zealand opted out of a Five Eyes statement condemning China’s mass arrests in Hong Kong.
Wellington may be forced to reconsider its conservative approach if Beijing accelerates military activities in the Pacific Islands. But New Zealand’s small military budget and heavy dependence on Chinese trade would limit the extent of this rethink. In recent years, China has been steadily increasing its influence in the Pacific Islands, a critical region for sea lines of communication. In February, for example, China’s WYW Holding Limited announced a plan to build New Daru City, including an industrial zone and a seaport, on a “build, operate, transfer” basis for Papua New Guinea. Should China step up its military engagement in the region via dual-use ports or more extensive surveillance installations, Wellington’s strategic shift toward counteracting Chinese regional dominance may also speed up. Still, New Zealand’s small military budget (approximately $3.7 billion for fiscal year 2021-2022), combined with its reliance on China as its top export destination, would make a strategic rethink limited in scope — likely focusing on deepening joint exercises and training with partners like the United States and Australia, as well as pursuing security cooperation (e.g. joint maritime access agreements) with Pacific Island nations.

New Zealand’s ability to outcompete China’s trade ties with the Pacific Islands is limited, given the small size of its market (5 million people with a GDP of $209 billion in 2019) compared with China’s (1.41 billion people with a GDP of $14.3 trillion in 2019).