“New Zealand is seen as a relatively safe haven in these difficult times and Chinese authorities want to diversify their international bond holdings,” English said in a speech to a conference on China in Wellington today. “China is also investing in New Zealand government bonds, contributing to record-low borrowing rates New Zealand currently enjoys.”
New Zealand’s dollar has gained 4.3 percent this year, the best-performing Group of 10 currency, and reached a three-month high of 82.24 U.S. cents on Aug. 6. Overseas investors owned 62 percent of government bonds on issue in June, up from 59 percent in December, according to central bank figures.
New Zealand and Australia are attractive destinations for debt investors because the countries are politically stable and have some reasonable prospects of economic growth, English said.
“As long as that is the case, we are going to be the least ugly in a beauty parade of developed economies, none of which look too good,” he told reporters after the speech. A recording of his comments was published by interest.co.nz.
New Zealand should build on a strong trading connection to encourage investment both to and from China, English said in today’s speech. China was New Zealand’s 11th-largest source of foreign direct investment last year, while it is the 13th- biggest investment destination. By comparison, China is New Zealand’s largest trading partner after Australia.
Prime Minister John Key’s government needs to find buyers for NZ$13.5 billion ($11 billion) of bonds in the year ending June 30, 2013. The government’s target is to return to a budget surplus by 2014-15. That will reduce the supply of bonds, which may slow demand for the currency, English said.
“We would prefer that the New Zealand dollar was a bit lower so we could get the rebalancing in the economy moving with a bit more momentum,” he told reporters. “It’s a continued challenge for exporters to be profitable at 80 cents.”
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