Can Eurozone Quantitative Easing Be Enough To Offset The Chinese Economic Slowdown?

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Yuan Bank Notes
Yuan Bank Notes
Yuan Bank Notes

Many eyes are glued on the upcoming European Central Bank decision on quantitative easing. How can they not? It’s not like they have much choice. Besides the unevenly-based US jobs recovery, the US is the only bright spot on the global finance market. Many key European economies are either already near recession territory or getting dangerously close to it. If there were ever any doubts that China’s once reliable economic engine is showing signs of sputtering, all those doubts were laid to rest with the recent round of housing numbers. They aren’t encouraging at all.

The price of new homes in 68 of 70 Chinese cities surveyed fell a worrying 4.3 percent on a year over year basis. 4.3 percent! However, sales volume shot up 9 percent. This very troublesome combination shows a moment of truth may be looming in the horizon (sooner than we expect?) where sinking pricing meets sales volume and the market tanks as a whole. At the very least, it shows the heady days of massive price spikes tracking sales volume may very well be over.
These statistics also highlight the trend that an increasing large number of developers are refusing to sell homes in a futile effort to put a brake on the erosion of home prices in China. What if they didn’t engage in such tactics? The Chinese economic picture would definitely look worse. Still, given current trends, the global finance markets expect China’s GDP numbers to clock in at 7.2% for the previous quarter. While this is very decent compared to the US and EU’s numbers, for China this is not good enough. If this is the actual GDP number to roll out officially this Tuesday, last quarter would be China’s slowest performing quarter for the past 24 years. Expect markets to trend lower if China’s GDP figure hits less than 7.2%. This also puts more investors’ reliance on any market pop afforded by an ECB-based quantitative easing round.

 

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