China’s $14.3t property debt crisis: How it could hurt NZ

Name: Markets with Madison: China’s property crisis
Uploaded: 2023-09-08T09:25:36+12:00
Description: Goldman Sachs researchers estimate China’s total property debt was 48 per cent of GDP at the end of last year, worth US$8.4 trillion. Their chief economist explains how it could cause a “significant negative income shock” for some New Zealanders. Video / NZ Herald

By Madison Reidy

Senior Business Journalist, host of Markets with Madison·NZ Herald·

8 Sep, 2023 03:27 AM2 mins to read

Goldman Sachs researchers estimate China’s total property debt was 48 per cent of GDP at the end of last year, worth US$8.4 trillion. Their chief economist explains how it could cause a “significant negative income shock” for some New Zealanders. Video / NZ Herald

Goldman Sachs economists are warning Chinese banks could be forced to absorb potential losses on US$8.4 trillion (NZ$14.3t) worth of property debt, and the fallout could cause a “significant negative income shock” for New Zealanders.

In a research note titled China’s property downturn and its implications, Goldman estimated China’s property debt equated to 48 per cent of its GDP.

About two thirds of it (US$5.4t) was individual mortgages, with one third (US$2.6t) held by developers, mostly borrowed from banks.

“In our view, property credit risks are concentrated in developers’ debt,” the note said.

Goldman chief economist for Australia and New Zealand, Andrew Boak, told Markets with Madison “the adjustment underway in China is a big deal”.

Distressed Chinese property developer Country Garden missed interest payments on some dollar bonds last month. Another embattled developer Evergrande has filed for bankruptcy protection in the US. Qilai Shen/Bloomberg via Getty Images

He added: “Australia and New Zealand are very much in focus, you can see that in currency markets, the Aussie and the Kiwi are very depressed.

“This is something we’re concerned about.”

New Zealand’s dairy sector was feeling the impact of its deteriorating economy most and was in line for a “significant negative income shock,” he said.

Watch Andrew Boak discuss our exposure to China’s economy in today’s episode of Markets with Madison above.

Get investment insights from the experts on Markets with Madison every Monday and Friday on the NZ Herald.

Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.

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Madison Reidy is the host of New Zealand’s only financial markets show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.