CLASH OF INTEREST: Police restrain a protester in central London on November 30 during a public service workers' demonstration against changes to their pensions (XINHUA/AFP)
Despite Europe's economic woes, China faces no real risks from the sovereign debt crisis. China's flourishing domestic market has offset part of Chinese exporters' losses. Also, European companies may ramp up their investment in China because of sluggish demand back home. All this will help alleviate the impact of Europe's crisis on Sino-EU business ties.
China's trade with crisis-ridden European nations is only a small proportion of its total foreign trade.
In 2009, China's export volume was about $1.2 trillion. Its export volume to the EU was $236.28 billion. And its exports to PIIGS countries (Portugal, Ireland, Italy, Greece and Spain) were $41.68 billion, which accounted for 3.47 percent of China's total exports and 17.64 percent of China's exports to the EU.
In 2010, China's export volume was $1.58 trillion. Its exports to the EU were $311.24 billion. It exported $57.78 billion to PIIGS countries, 18.6 percent of its exports to the EU, and 3.7 percent of its total export volume.
As long as big EU economies like Italy, Germany, France and Britain don't collapse, the sovereign debt crisis will not greatly decrease the EU's demand for Chinese exports. Besides, the crisis will not affect re-exportation in countries such as Greece and Italy and tourist consumption in Spain and Portugal.
Demand in non-crisis countries, which have allocated funds to rescue their partners in trouble, may also drop. But as long as these nations keep themselves out of crisis, their demand will not decrease too much.
Moreover, there are other elements that will help China avoid being devastated by the euro zone sovereign debt crisis.
China's huge domestic market can compensate possible losses. In recent years, the ratio of China's domestic retail sales of consumer goods to exports has been on the rise. In 2009, retail sales of consumer goods in China reached 12.53 trillion yuan ($1.97 trillion), 1.28 times its exports that year. In 2010, the number increased 14.8 percent over 2009 when allowing for price rises, reaching 15.7 trillion yuan ($2.47 trillion).
In China, many companies producing export products can easily turn to different kinds of products for the domestic market, changing their manufacturing orientation quickly to fit enlarged domestic demand. In this way, many companies have successfully avoided external impacts by exploring the domestic market.
Risks posed by euro depreciation are reflected by shrinking external assets, especially foreign exchange reserves, and a decreased export income for Chinese exporters.
Euro depreciation will diminish the value of China's euro reserves. But losses become real only if the currency is exchanged. Considering the large scale of its foreign exchange reserves, China cannot possibly sell its euro-denominated assets. Instead, it will simply wait and hope for better conditions in the future.
For export enterprises that settle accounts with the euro, euro depreciation will reduce their export income. But euro zone nations do not usually settle their external trade in euros. In fact, euro settlement happens often between euro zone nations and their neighbors, or countries that have established arrangements with the EU and its member states, especially former colonies of euro zone nations. Therefore, euro zone nations prefer to settle their imports from China in U.S. dollars rather than euros. Statistics from China also show that 80 percent of China's foreign trade during the past years has been settled in U.S. dollars, including its exports to the euro zone.