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Print Edition> World
UPDATED: December 12, 2011 NO. 50 DECEMBER 15, 2011
Debt Contagion
The European debt crisis will not badly hit China's economy
By MEI XINYU
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OPENING THE CHINESE MARKET: A Portuguese vintner introduces a wine to visitors during a tasting of premium Portuguese wines in Beijing in October (ZHAO WANWEI)

Meanwhile, euro depreciation will improve euro zone nations' export competitiveness. Exports from Germany and the Netherlands will benefit the most. Tourist industries of Italy, Spain and Portugal will share the benefits. Countries that peg their currencies to the euro will also show stronger competitiveness. Some countries outside the euro zone might choose competitive devaluation to encourage their exports, trying to boost their economies by taking a beggar-my-neighbor policy.

Currently, about 40 countries target the euro as the anchor of their currency systems, or include the euro in their basket of pegging currencies. Including overseas territories of France and mini European states like the Vatican and Andorra, there are more than 50 nations or regions whose currency systems are connected with the euro. Countries or regions that include the euro in their currency systems are mostly neighbors of EU members, or countries with arrangements with the EU or its members. Fortunately, there is not much competition between China's export industries and the export industries of these countries. The competitive devaluation therefore will not take a heavy toll on Chinese exporters.

Two-way investment

The crisis has created a dual influence as China absorbs direct investment form European countries. On the one hand, European investors might withdraw funds after their parent companies sink into crisis. On the other hand, other investors might enlarge investment in China to cash in on China's growing market when their countries' markets shrink. Judging from the current situation, the latter influence is greater.

The influences on Chinese investors in Europe are similar. The crisis could cause losses to Chinese enterprises in Europe, which may drag down their parent companies at home. As Chinese enterprises in Europe usually are of a small scale, the crisis in the euro zone is unlikely to infect companies at home and cause a domino effect. Chinese businesspeople in Europe, however, might suffer heavy blows. The Chinese Government should pay attention to them and help them to survive. The crisis will also provide opportunities for Chinese enterprises to make investments in Europe and increase their export profits. European governments' attitudes toward Chinese investors will become more welcoming.

Social impact

The crisis exposed the EU's inability to take quick action to address problems. This disunity, coupled with unemployment and its aging population, will lead to a decline in Europe's international status in the long term.

European governments must pay great attention to unemployment. Unemployment in the EU has been more serious than in the United States. The problem became worse after the outbreak of the global financial crisis in 2008. Unemployment in the euro zone reached 9.2 percent in April 2009, with 14.6 million people jobless, the highest since September 1999. In April 2009, the unemployment rate of 27 EU states was 8.6 percent, which means over 20 million couldn't find jobs. The situation deteriorated in 2011. According to statistics from Germany and the European Commission, the average unemployment rate for the 15 to 24 age group in 27 EU countries is 20.5 percent. More than 5 million youth cannot find jobs. In Greece, Spain, Portugal, Ireland and Italy, the unemployment rates have respectively reached 38.5 percent, 47 percent, 27 percent, 27 percent and 28 percent. Even in Germany unemployment has hit 9.1 percent.

Moreover, EU countries are cutting government budgets to cope with the sovereign debt crisis, which will increase unemployment as government workers lose their jobs. Europe needs to show great capability to step out of the dilemma. But what Europe lacks is the capability to act.

While causing the unemployment of young people, the crisis has had a profound impact on European society. During the past two years, protests and demonstrations have occurred around Europe. Riots broke out in British cities including London, which highlighted the social consequences of the crisis. The unemployed youth also include people with good educational backgrounds. The higher their education costs, the higher their career expectations are. So when they become jobless, their anger and frustration are stronger. Education also enables them to better utilize social media to spread their messages. Some European nations have extended the retirement age to deal with the aging problem, making it more difficult for young people to get ahead.

The author is an associate research fellow with the Chinese Academy of International Trade and Economic Cooperation

Key Figures

- China's exports to PIIGS countries as percentage of its total exports to the EU: 17.64 percent in 2009 and 18.6 percent in 2010

- Retail sales of consumer goods in China in 2010: 15.7 trillion yuan ($2.47 trillion)

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