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Chinese exporters ditch wounded euro for dollars

Chinese exporters ditch wounded euro for dollars

Write: Amadi [2011-05-20]

BEIJING: Chinese exporters who made a big push only a year ago to bill in euros are increasingly turning their backs on the wounded European currency and demanding dollars instead.

By contrast, Beijing last week said a report saying it was reviewing the euro portion in its foreign exchange reserves was groundless and it calmed markets by saying that Europe remained a key investment market.

But Chinese exporters and the local governments that oversee them are less confident. They are trying to keep a wider berth from the euro, at least for now.

Hangzhou Natutex Apparel Corp, a producer of special fabric for outdoor use, ships nearly all of its 10 million yuan ($1.5 million) in annual exports to Europe.

Last year, when the European economy looked to be on solid footing, it settled 50 percent of sales in the euro. It has cut that back to just 5 percent this year.

"The reason is obvious. You have to be alert about exchange rates in the foreign trade business," Yu Yueping, Natutex chairman, said. "It would be too bad if your hard-earned profits were eroded by exchange rate changes."

The euro has tumbled 17 percent against the yuan in 2010 as the Chinese currency has been locked in place against a strengthening dollar.

Short-term contracts

Local governments are also telling exporters to be cautious about settling trade in the European currency.

Trade officials in Jiangsu, a prosperous manufacturing province, told exporters to sign short-term contracts when dealing with European clients and to cut back on euro-based settlements, the Jiangsu Business News reported.

"Considering the euro's uncertain future, exports to European countries should be settled in yuan if possible. If the buyers do not agree on yuan settlement, then use the dollar," it said.

More than 80 percent of total Chinese exports are paid for in dollars, according to local reports.