International Business News – With the recent rapid depreciation of the euro, the exchange rate against the U.S. dollar fell below the 1 to 1 mark, foreign trade enterprises on both ends of the Asian and European continents have felt no small shock. Foreign trade enterprises are the most directly affected by the exchange rate changes in the market subjects, the relevant parties have said that the exchange rate changes for China-Europe trade to bring more uncertainty. For Chinese enterprises, what changes in orders from Europe? Is the purchasing power of European people “made in China” decreasing? How can Chinese and European enterprises reduce the risk of exchange rate fluctuations?
“European orders have dropped significantly”
On the 18th, the exchange rate of the euro against the yuan was reported 1 euro to 6.81 yuan, almost the same as the dollar against the yuan. Just at the beginning of this year, the euro to RMB exchange rate also maintained at 1 euro to 7.21 yuan or so. A number of Chinese foreign trade enterprises are responsible for the devaluation of the euro and the impact of weak economic growth in Europe, the volume of orders have dropped significantly.
Mr. Qiu, the person in charge of a sanitary ware enterprise in Wenzhou, Zhejiang Province, said that in April and May this year, with the release of news such as the Federal Reserve’s interest rate hike, the orders from abroad began to show a significant decrease. “Most of our customers are in Europe, after the devaluation of the euro against the dollar, the local purchasing power has also decreased, many customers cut orders, a Spanish customer has informed in advance that the demand for orders this year will be reduced by 20%”, said Mr. Qiu, now the biggest hope is to have orders, “some companies Even if they lose money, they are willing to do it”.
With Mr. Qiu also feel the same Yiwu lighting exporter Li Ping, she said that this year’s export orders to Europe has been reduced, an important reason is the significant devaluation of the euro, resulting in importers can not afford the price increase. “Many European customers in the order requested a price reduction, the reason is that the devaluation of the euro makes them a lot of pressure”, said Li Ping, as a small foreign trade, they have little bargaining power, if the profit is too thin can only give up, “the little money earned is not as big as the exchange rate fluctuations, transport and other aspects of risk “.
In fact, for domestic foreign trade enterprises, the rapid fluctuation of the exchange rate itself is a risk. Since this year, in addition to the rapid depreciation of currencies such as the euro and the yen, the exchange rate of the yuan against the U.S. dollar has also fallen by about 5% in the second half of this year, from a high of 1 dollar to 6.3 once below the 6.8 mark.
The person in charge of a state-owned enterprise engaged in commodity trading said that due to the exchange rate changes this year, the importance of financial instruments has increased significantly. The company analyzes currency trends and product trends every week to determine whether to use futures to “hedge” or “lock” at any time. Foreign exchange” to reduce risk, and these have increased the financial pressure of enterprises.
The so-called “hedge” is “foreign exchange rate hedging”, meaning the use of foreign exchange futures transactions to ensure that the value of foreign currency assets or foreign currency liabilities are not or less subject to losses caused by changes in the exchange rate. And “lock exchange” is an agreement between the enterprise and the bank, in the settlement of foreign exchange on the day not in accordance with the day’s foreign exchange rate, but in accordance with the previously determined exchange rate for the settlement of foreign exchange.
The person in charge of the state-owned enterprises said, as the recent plunge of the euro against the U.S. dollar, every time the Fed released news will trigger market volatility, “for our kind of stable demand for traders, no matter what the Fed’s decision is not good, we are looking forward to a smooth market”.
European enterprises: “Made in China” more and more expensive
Just as China’s domestic exporters struggle to get European orders, European importers also for the devaluation of the euro brought “made in China” price increases headache. In Hamburg, Germany, operating a home appliance shopping mall You Dan said, in order to a Chinese-made TV sets used to be priced at 300 euros, for example, consumers now need to pay more than 50 euros.
Yudan said that in recent years, Chinese home appliances are becoming increasingly popular, Huawei, Xiaomi, Haier, Hisense and other brands have become better known among German consumers. Since the new crown pneumonia epidemic, Chinese home appliances are often off the market. Yudan said that the devaluation of the euro is certainly not good news for pure sellers like them. Especially the current high prices in Germany, consumers will reduce the purchase of non-urgent goods, appliances are often delayed or canceled purchases.
“The devaluation of the euro also has a big impact on trade between China and Europe.” A few months ago, the euro has depreciated to 1 euro to 7 yuan below, after a rebound, and now down to 1 euro to 6.8 yuan, which affects the German import “made in China”, but for Chinese consumers is a good thing, said Rudiger, head of an import and export trading company in Cologne, Germany.
Rudiger played an analogy, for example, a bottle of German Riesling wine export price is 3.5 euros, a few weeks ago is still equivalent to 25.2 yuan, now it is 23.7 yuan, Chinese customers can save 1.5 yuan. Rudiger said his business will be adjusted according to the exchange rate, when the euro depreciates, will increase exports to China; when the euro appreciates, will increase the “made in China” imports.
However, Yudan also mentioned that the devaluation of the euro at the same time, the recent container transport costs from China to Europe has been greatly reduced. At present, the price of 40-foot container from Shanghai to Hamburg has dropped to less than 7,000 euros, compared with the second half of last year, the price is more than 10,000 euros, which allows European importers to keep some goods without price increases.
Of course, the factors affecting trade between China and Europe are by no means just exchange rate changes. According to data released by China’s General Administration of Customs, China’s total imports and exports to the EU reached 2.71 trillion yuan in the first half of this year, up 7.5 percent. The news released by China Railway Group also shows that from January to June this year, China-European Liner operated a total of 7,473 trains and sent 720,000 TEUs, up 2% and 2.6% respectively year-on-year, with an integrated re-export rate of 98%. From one of the operators of China-EU Liner, YUXINOU Company, we know that since the freight of China-EU Liner is mainly settled in US dollars, we have not yet seen any obvious impact.
Euro may still continue to depreciate
AFP 18 said that the European Central Bank will announce its first interest rate hike since 2011 this week, influenced by high inflation and a downward economic spiral. Analysts at Germany’s Berenberg Bank recently released a report saying, “The euro is in free fall against the dollar and there is no bottom in sight.” Analysts say that market participants have a price target for the euro exchange rate between 0.98 and 0.90.
Liang Haiming, director of the Silk Road Wisdom Valley Institute, said that if the future economic recovery in the euro zone stalls, the Russian-Ukrainian conflict leads to energy shortages, inflation is getting worse and other situations do not improve, coupled with the depreciation of the euro due to push up import prices, do not rule out that the European Central Bank will eventually take a stronger policy to deal with a more substantial depreciation of the euro. But Liang Haiming also stressed that unless the ECB rate hikes than the Fed more ruthless, and the Fed at the same time to end the super “hawk” monetary policy, otherwise the euro is more difficult to bottom out.
Market expectations for the euro to continue to fall also means that domestic foreign trade enterprises still need to be prepared for exchange rate changes, reduced orders and other issues. Liang Haiming suggested that China and Europe should further play the role of currency swap, expand the scale of RMB and Euro denominated settlement, so that bilateral trade and investment between China and Europe from the use of third-party currencies (such as the dollar) caused by artificial exchange rate risk damage. According to the bilateral local currency swap agreement between the People’s Bank of China and the European Central Bank, which was renewed in 2019, the scale of the swap between the two sides is 350 billion yuan/45 billion euros, and the agreement is valid for three years. According to the analysis, such local currency swap agreements allow Chinese and European companies to use the funds directly for bilateral trade, avoiding the exchange rate risk of using third-party currencies.