China bubble burst could risk NZ recovery - English

The bursting of a Chinese property bubble could put the NZ economic recovery at risk, says Finance Minister Bill English. Photo / Thinkstock

A bursting of the Chinese property bubble, or recognition that there is one in Australia, would put New Zealand's recovery and economy at risk, Finance Minister Bill English said.

Speaking to Victoria University's School of Government, English also reiterated his concern that a banking crisis in Europe would shut off New Zealand's tap for foreign funds.

New Zealand's moderate path of recovery was generally dependant on two things staying relatively stable, English said.

"One is European financial markets where we borrow and refinance our NZ$170 billion stock of overseas debt," he said.

"You don't have to be a rocket scientist to figure out that a banking crisis in Europe is not completely unlikely. Maybe [a] 10 per cent chance, maybe 20 per cent, but [it is] certainly growing."

The price Spain had to pay to borrow money had gone up "quite dramatically" even just today, English said at last night's function.

"So a banking crisis in Europe could lead to a sudden stop in our ability to source foreign funds. It happened in 2008. It's a long tail event, but it's possible," he said.

The second piece of stability New Zealand needed was to do with the fact we were hooked to the China-Australia train, English said.

"[It's the] fastest economic train in the world at the moment, and it has certainly saved us from [a] much deeper recession, and much deeper questioning of our ability to fund public services," he said.

"As long as they keep growing, and as long as the Chinese economic management is able to manage inflation administratively, which you have to say is a risk, then we'll probably get on OK.

"But if the Chinese property bubble actually bursts, or we finally realise there is one in Australia, things slow down," he said.

"Well there is one [a property bubble in Australia]. It's just a matter of people recognising [it]."

"Then we could be at risk," he said

The next five or ten years were going to be a "very exciting time in public policy," English said, with New Zealand going to find itself walking the boundaries of the geo-political shifts that are "happening on fast-forward right now".

"We happen to be a debt-ridden open economy of the European-UK sort, but we happen to be also seeing our future as trading with the surplus (and) savings driven economies of the Asia-Pacific area," English said.

That was very evident in a forum like APEC, where Australia, Canada, New Zealand and the US were talking about economic growth rates of two or three per cent, and "rubbing their foreheads vigorously" worrying about how to deal with the middle class welfare that became entrenched during the 'great moderation' from about 2000 onwards, he said.

"We're a minority, small, sad looking group and the other 10-12 members of APEC are all talking about growth rates of eight or nine per cent per annum - whether it's Indonesia, Philippines a bit behind that, Vietnam, Thailand, certainly China, everyone except Japan. If that plays out over the next ten years, we're going to see enormous shifts."

English said New Zealanders still underestimated the ongoing impact of the global financial crisis on the economies with which we it generally compare ourselves.

"Australia of course [is an] exception, and Canada to some extent, but most of them are going to be burdened with fast rising public debt, and public debt cycles are long - 20 to 30 years," he said.

New Zealand's last public debt cycle went from 1972 to 2006.

"That's how long it took us to get back to where we started. These other economies, their public debt is still growing," he said.

"Governments in their instinct for the common good, have to a large extent helped fix private sector problems from the global financial crisis, simply by taking those problems over. They've yet to be solved."

New Zealand was fortunate to be able to plot a more moderate path than those countries through the same kind of shocks, English said

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