Chinese squeeze starts to hit home

THE number of foreign applications for investment in Australian housing is plunging as credit conditions tighten in China, according to Australia’s top financial bureaucrat.

Treasury secretary and Reserve Bank board member John Fraser says there has been steep fall in applications since the Chinese Government moved last year to slow capital outflows and reduce credit availability.

Foreign investment applications for residential housing in Australia totalled 40,000 last financial year, Mr Fraser said yesterday.

This financial year, that number was expected to fall more than 60 per cent to about 15,000, he said, “partly reflecting” the change in Chinese credit markets.

The revelation follows warnings from property buyers’ advocates that strong foreign demand for Australian property has contributed to a price surge in some cities.

Mr Fraser was speaking after Moody’s downgraded its credit rating on China by one notch, citing the likelihood of a material rise in debt across the Chinese economy.

China was maintaining a strong rate of economic growth of about 6.5 per cent a year as it tried to balance expansion and economic stability, Mr Fraser said.

Its growth had been fuelled by credit, he said, but “Chinese authorities are clearly aware of the risks attached to this and probably now even more in light of Moody’s downgrade”.

“They are now implementing measures to maintain stability and this has included measures to reduce the outflow of capital,” he said.

Moody’s cut its long-term credit rating on China from Aa3 to A1 — still an uppermedium investment grade.

In a report explaining the decision, analysts at the ratings agency said they expected “China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows”.

Mr Fraser said given its size, the Chinese economy could absorb shocks more easily than many smaller economies.

“The good news is that other Asian economies, including India and Indonesia, continue to show strength and there has also been some pickup in growth in Japan,” he said.

He also warned he was concerned about rising Australian household debt, saying “current low interest rates should not blind us to long-term debt servicing obligations”.