China slowdown hits NZ economy
A downturn in China's property market is hurting New Zealand's economy but the situation should improve in a few months, an economist says.
Recent figures from China's National Bureau of Statistics show new house prices in the world's second-largest economy fell 0.5 per cent month-on-month in June, the second straight monthly decline following a 0.2 per cent fall in May.
Prices fell during the month in 55 of the 70 cities surveyed, with only eight cities recording an increase from May.
Despite the monthly falls, house prices were still higher year-on-year in all but one of the cities surveyed.
Westpac chief economist Dominick Stephens said there was a "clear slowdown" in China's residential property market.
"There was very rapid price growth earlier in the decade and the various authorities in China made an effort to clamp down on price inflation through methods such as tightened credit supply and restrictions on multi-home ownership," he said.
"They were building a lot of new homes, mostly apartments, and by the end of 2013 there was a huge inventory of new apartments. With the economy slowing they ended up with a bit of a glut, which led to developers discounting."
And although China's overall growth figures had held up, with annualised growth of 7.5 per cent in the second quarter compared to 7.4 per cent in the first, Stephens said the slow Chinese property market was having an effect on New Zealand.
"Chinese consumers are a bit disconcerted by the drop in house prices. The rate of consumption of milk has dropped and that has risen through the supply chain," he said.
"I expect it to come through in the exchange rate. There will be downward pressure on the New Zealand dollar."
However, Stephens said the downturn should only last a few more months, as Chinese authorities had room to loosen some of the restrictions put in place during the rapid price rises.
If it did continue, New Zealand's export performance would worsen and the dollar, currently trading at just under US87c, would probably suffer a big fall, he said.
Jonathan Wu, a spokesman for Premium China Fund Management, said a big drop in Chinese house prices was unlikely because of the tools available to the authorities to stimulate the market.
"This slow-down in the housing market is exactly what the Chinese government wants."
Even if China's property prices did continue to fall, Wu said it would have little effect on demand from Chinese buyers in cities such as Auckland and Sydney, as this tended to come from the "very wealthy" who buy for lifestyle reasons.
But while China's property market is tipped to bounce back, Wu said Chinese shares had taken a hammering in the past couple of years, to the point where there were some real bargains.
"Share price valuations are lower than they were during the peak of the GFC."