Is Europe’s Debt Crisis Affecting China?

Recent Europe’s financial crisis has started in Greece and now threatens to spread across Europe.

Some Chinese companies are currently in difficult times because of euro’s fall against yuan (renminbi).

Their European clients who have signed contracts with them had wanted to cancel their orders since the depreciation of the euro. In the light of euro’s plummeting value against the yuan, the move by China to let their currency rise against the euro would create even more problems for Chinese exporters to Europe.

The euro plunge against the yuan is at its lowest level since 2002. Chinese policy makers have apprised the situation that if they let yuan rise in value against the US dollar or euro would make the American goods more competitive against Chinese products.

Hence, that would put Chinese companies less competitive in Europe, their largest market. Any move to break the Chinese currency yuan (renminbi) against the dollar, it would complicate the situation even more.

“The yuan has risen about 14.5% against the euro during the last four months which will increase cost pressure for Chinese exporters and also have a negative impact on China’s export to European countries,” Yao Jian, the ministry’s spokesman said, at the news conference in Beijing according to news services.

American and European companies compete each other in the Chinese market in many industries. With the euro’s decreasing value against the Chinese currency would put American companies in a disadvantage situation.

If China would not act of appreciating their currency, it could trigger Washington for US congress to draft trade legislation, threatening restriction on Chinese exports.

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