Have your say: Is cheap Chinese money pumping up house prices in NZ?

By Bernard Hickey Here's a little factoid that should make any politician and first home buyer in New Zealand uncomfortable. Last week it emerged that the average house price in Vancouver in Canada jumped over C$1 million, partly because of heated interest from Chinese buyers. There is also growing evidence 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 have also focused attention on a flood of money leaking out from the Chinese market into the rest of the developed world. Australian real estate agents also reported this week a 10 fold interest by Chinese buyers in Australian farms, in particular cotton and beef farms. It's something that hasn't escaped the attention of the International Monetary Fund either. It issued a report this week 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 and then invest in other countries for higher returns. That's why it's crucial for all investors to watch what is happening right now in the delicate discussions between the leaders of the United States and China. All the talk is focused on China's current practice of fixing its exchange rate (the renminbi or yuan) at a rate of 6.82 yuan to the dollar. This also means that China and the United States are forced to share obscenely low interest rates of close to zero. America is alive to the danger of China's exchange rate being fixed and the risk of a return of the problems that caused that global financial crisis in the first place. China is able to run massive trade surpluses and then lend the money to American consumers cheaply to keep the whole exporting merry go round going. The problem for America is that this transfers jobs to China and creates huge imbalances in capital flows. The Americans want the Chinese to float their currency and allow it to appreciate, which would reduce that trade surplus and staunch the flow of jobs across the Pacific. This would be good for New Zealand too because it is likely to make our exports more attractive to Chinese consumers, who are currently subsidising their exporters by living with an undervalued currency. It would also allow China to have higher interest rates and take some of the heat out of the credit boom that has more than doubled house prices in China. 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 ever higher into bubbles. The signs in recent weeks are not good. * This article was first published in the Herald on Sunday. Your view? I welcome your comments, details and insights below.