China's property bubble could have far-reaching effects on Australia's economy, Wingate Asset Management's chief investment officer said yesterday.
Chad Padowitz said Australia, where robust resources sales to China have propped up much of the economy, had more to lose than any other country from China's potential economic fallout.
"Australia's biggest risk is something going [awry] in China," he said.
China's command economy meant things could be supplied or created without underlying demand, leaving the vast, populous nation with an over-reliance on fixed assets.
"If they want 4000 houses built tomorrow because they've got some reason - they want to keep enough people employed - that's going to happen," Padowitz said.
However, consumer wealth-creation efforts were stymied because China's capital controls meant investment money could not go offshore but bank savings were unattractive because deposit rates were below inflation.
"One of the few avenues you can put your money into is the stock market, which has proven to be a bit of a casino there. The other avenue is property. It lends itself to a property bubble; negative real interest rates lend themselves to a property bubble," he said.
He said China's enormous size made data unreliable, creating an emphasis on anecdotal reports, some of which put metropolitan vacancy rates at 30 to 40 per cent.
"You've got a lot of money invested in apartments which are not being used, the asset depreciates over time and investment value deteriorates. When this happens, you get lower demand for everything - lower demand for commodities," he said.
"If China slows down significantly, there will be a significant impact on [Australian] commodities -- not just on the price but on the tonnage; it's not only that BHP Billiton will get less money for the iron ore, they'll be selling less of it so it's a double impact.
"If that happens, revenue to the government goes down, the budget surplus falls, jobs decrease. All kinds of things happen."
Padowitz said weaker economic conditions in Australia would extend to the banking industry because of its deep ties to the domestic property market.
"So, if property prices come down, it would have a significant impact," he said.
