Over the past week, concern has been growing about the bad debts being carried by China’s largest property developer Evergrande. Evergrande is carrying around $447 billion (US$315b) in debt.
With Chinese households holding more than 60 per cent of their wealth in the form of property, a default by Evergrande could trigger a much broader housing market crisis and significantly impact the economy.
If Evergrande does collapse, it will most likely have a flow-on effect on New Zealand’s property market. Should Chinese investors who have properties in New Zealand suffer losses in China, they may be forced to sell their New Zealand assets. Some suburbs with a high proportion of Chinese ownership could see a significant increase in the number of properties on the market.
Exporters could also feel the pressure. With Chinese consumers feeling economic hardship, there will be decreased demand for New Zealand products.
While there is a lot of negative news comparing China’s current situation with the United State’s 2008 Property crisis, the problem is quite different. Unlike the United States in 2008, household debt in China is comparatively low. The Chinese government has a significant financial reserve and a range of economic levers to bolster the economy.
