A sculpture of the euro symbol in front of the European Central Bank's headquarters in Frankfurt, Germany. The euro is expected to decline this year against the dollar and yuan after hitting record lows this week. Simon Dawson / Bloomberg

Conditions worsening for exporters, but are a boon for students, tourists

BRUSSELS - The euro is expected to decline this year against the dollar and yuan after hitting record lows this week, according to analysts and executives in China and Europe.

They ruled out a freefall, however, saying that the currency would fluctuate in response to uncertainties over the European economy and sovereign debt crisis.

The falling euro has worsened conditions for Chinese exporters and European importers but helped Chinese investors, students and shoppers in Europe.

"It's been tough for us to make business decisions since last year," said Su Xinying, general manager of Belgium-based trading company Arpadis Polyurethanes NV, which imports chemicals from the Asia-Pacific region for re-sale in Europe.

Her company pays in dollars when buying in China, Japan and South Korea but receives euros from European clients. So she must keep a close watch on exchange rates. The euro-yuan rate can be more volatile than the euro-dollar rate.

"Generally, our profits have been dented by declines in the euro," Su said.

"Excessive fluctuation has hit importers like us harder than expected," said Su.

"I don't think such volatility will decline in 2012."

Rating agency Standard & Poor's lowered the eurozone's rescue fund credit rating by one notch to AA+, not long after a raft of sovereign ratings cuts. Men Jing, professor at the Belgium-based College of Europe, was also downbeat on the euro's outlook.

"I am afraid that the euro will be unstable this year, and it will all depend on how the economic and institutional fundamentals in the eurozone change," said Men.

Li Zhenyu, deputy president of Open2Europe, a Paris-based consultancy, said the decline of the euro and the appreciation of the yuan have deepened the difficulties faced by Chinese exporters, especially small and medium-sized companies.

"However, if they can readjust, there should be opportunities," said Li. "A cheaper euro has given Chinese investors more opportunities in Europe."

Chinese students and tourists are happy about the lower level of the euro. "The recent decline by the euro is good news for me," said Wang Xiaoping, 60, from Shanghai, who came to Europe to visit her daughter in Brussels.

"We can get more euros to pay for my shopping spree in the sale season," said Wang, who said that she planned to buy watches, diamonds and fashion bags.

On micro blogs, many Chinese students complained that they changed their yuan into euros when the rate was less favorable, but they said the euro's decline was generally cheering news as it would allow some to stay longer in Europe to study.

"The weaker euro will encourage more Chinese families to send their children to obtain an education overseas," said one micro blog posting.

The euro's volatility has drawn attention from regulators. Mario Draghi, president of the European Central Bank, said this week that excess volatility and disorderly exchange-rate movements had adverse implications for economic and financial stability.

"We will consult closely with regard to actions in exchange rates, and we will cooperate as appropriate," Draghi told a news conference.

"Though the falling euro is not good for Europe European exporters have been benefiting from the trend," said Bernard Dewit, chairman of Belgian-Chinese Chamber of Commerce.

While it didn't anticipate a sharp drop for the euro, Fitch Ratings said a weakening euro would generally be positive for manufacturers.

"In particular, aerospace and defense companies, such as EADS and MTU Aero Engines, would benefit from the industry's convention of pricing export contracts in dollars," said Fitch.

China Daily

(China Daily 01/20/2012 page14)