Bernard Hickey: Bubbles float from China

Opinion

Here's a little factoid that should make any politician and first-home buyer uncomfortable. Last week it emerged the average house price in Vancouver, Canada has now hit C$1 million ($1.4 million), partly because of heated interest from Chinese buyers.

And evidence is growing of Chinese buyers pushing up prices at the top end of the real estate markets in Sydney and Melbourne. Figures out on Friday from the Real Estate Institute of New Zealand show strong interest at the top end of the Auckland market, too.

The noise around May Wang's attempts to buy into dairy farms has focused attention on a flood of money leaking out from the Chinese market into the rest of the developed world. Last week the International Monetary Fund issued a report warning about the impact of large capital flows washing around the world if interest rates are kept too low for too long. The risk is that investors will be able to borrow money cheaply in countries like America and China, then invest in other countries for higher returns.

Talk is focused on China's practice of fixing its exchange rate at a rate of 6.82 yuan to the US dollar. America is alive to the danger of China's exchange rate being fixed and the risk of a return of the problems that caused the global financial crisis. China runs massive trade surpluses then lends the money to American consumers cheaply to keep the exporting merry-go-round turning.

The Americans want the Chinese to float their currency and allow it to appreciate, which would reduce that trade surplus and stem the flow of jobs across the Pacific.

We can only hope the Americans are successful in nudging China into allowing its currency and interest rates to rise. Otherwise we risk another explosion of cheap money rushing around the globe, pushing up asset prices into bubbles.

The signs in recent weeks are not good.

* Bernard Hickey is managing editor of interest.co.nz