Category Archives: China

Russian (Border) Trade Agreements Are Nothing New

So why is everyone fretting about the $20 Billion Oil Deal between Iran and Russia? Yes, it delivers another blow to the US-based petro-dollar, but is it really any worse than China and it’s efforts to not only reign in the value of the western dollar but control the valuation of its yen at the same time? We should not forget that the GDP of China is more than FOUR times that of Russia and that Russia and Iran used to be neighbours. Even though Russia is now two countries away from Iran border-wise — as it now borders Kazakhstan which borders Turkmenistan which borders Iran — it wasn’t always this way. The Russian Empire began to expand into what is present day Kazakhstan back in 1813 and essentially all of present day Kazakhstan was annexed by 1907. Similarly, Turkmenistan was annexed by the Russian Empire in 1881 and became a constituent republic of the Soviet Union in 1924, only regaining its independence upon the dissolution of the Soviet Union in 1991.

And Russia has a long history of either conquering, annexing, trading, or negotiating with its neighbours. For example, 691 years ago today, the Treaty of Noteborg was signed between Sweden and Novgorod (present day Russia, more or less), and for the first time the border between the two countries was regulated. The conclusion of the Swedish-Novgorodian Wars, the treaty awarded three Karelian parishes to Sweden who, in return, would stay out of the conflict between Novgorod and Narva (present day Estonia, more or less). In addition, both sides would refrain from building castles on the new border. So it should be no surprise that, given the opportunity to reclaim Crimea — and to do so relatively peacefully — that Russia took it or that they took the opportunity to trade with Iran on local terms.

But it’s not worth fretting about. One has to look at the bigger picture. When it comes to the BRIC, Russia is essentially the weakest player. India has considerably more population and a long-term outlook of becoming a top 5 GDP player. Brazil has a larger GDP (by as much as 20%) and very bright prospects as the new near-shoring destination for North America. And China has 4 times the GDP, 9 times the population, and a heck of a lot more clout when it comes to global trade!

So don’t fret about a 20 Billion Oil deal, the return of what is essentially a small province to Russia, or the fact that Russia has agreed to pay China in domestic currency. It’s a drop in the bucket. The real shocks to global trade will come from China and the new Silk Road they are building.

Don’t get caught up in the meaningless media frenzy focused on Russia. Just because the media has forgotten that the cold war is over doesn’t mean we should.

Why Is This Poor Little LOLCat Begging You?

As per our post on April 26, this poor little LOLCat is Begging You to Stop Harper.

Why is this poor little LOLCat begging you to Stop Harper? Because when even the leading academics of China call your prime minister “Canada’s George W. Bush” and a leader who has overseen a sullying of the country’s international reputation, you know things are bad. (This quote is from Nathan Vanderklippe’s article in the Friday, May 16 edition of
The Globe and Mail print edition, page A9, in the article headlined Canada’s image in decline, say Chinese.

You have to admit, they do look very much alike in this picture!

The New Silk Road Might Be the Biggest Boon to Supply Chain Finance This Year

In yesterday’s post, we asked what impact will the new silk road have on global trade. Specifically, what impact will the new Russia, China, and Germany trade partnership have on global trade — besides simplifying and building Eurasian trade relationships.

One thing it will do is strengthen the resolve of these countries to not only de-couple their currency from the dollar and launch a new reserve currency backed by their union, but to trade in local currencies as well. As trading in local currencies becomes more and more common, banks will become more and more inclined, and even comfortable, to lend in foreign currency denominated debt as well as local currency. Private lending institutions will not only follow, but begin to lead the way.

This will be a great boon to foreign companies which, until now, have been limited to either borrowing from local lenders, at high interest rates, but in the local currency, or a handful of global lenders, at slightly lower interest rates, in a foreign currency, that could cause their debt to skyrocket if their currency weakens with respect to the foreign currency.

The whole point of Supply Chain Finance is to help the cash-strapped supplier. Early payment or dynamic discounting doesn’t help the supplier if the discounts are too high. Arranging for third party lenders to lend using your credit score, and not the suppliers, doesn’t help if the supplier has to take a risk in a foreign currency. And factoring isn’t a solution at all! (Since a third party will only buy your suppliers’ receivables if it can make money off of them — loan sharks at their finest.) Arranging for lending in your suppliers’ local currencies on your credit score when you can’t pay early is safest for your supplier and probably the best supply chain finance solution we’re going to see for a while.


What Impact Will The New Silk Road Have on Global Trade?

Russia is decoupling its trade from the dollar, decoupling its hydrocarbon trade from the petro-dollar, and working with China to re-open the old Silk Road between China, Germany, and Russia. Powered by the Eurasian Land Bridge that is a rail transport route for moving freight and passengers overland from Pacific seaports in the Russian Far East and China to seaports in Europe using a transcontinental railroad and rail land bridge (by way of the Trans-Siberian Railway and the New Eurasian Land Bridge through China and Kazakhstan), the New Silk Road will increase Eurasian trade, most likely at the expense of North America.

The immediate consequences of Russia’s actions will amount to the BICS, and BICS partner countries, following Russia’s lead and decoupling their trade from the dollar, especially in hydrocarbons (which is a Trillion dollars a year in Russia alone), to local currencies and trading partner currencies. Furthermore, China has been in the process of decoupling from the dollar for months and is focussed on the yuan’s ascendancy.

The follow-on to this, as described in this recent article over on on Russia and China announce decoupling trade from Dollar – the End for the USA is nigh, is that the BRICS are preparing to launch a new currency — backed by a basket of their local currencies — to be used for international trading, as well as a new reserve currency. As a follow on, a new international payment settlement system, replacing SWIFT and IBAN, is expected, which will bust up the effective monopoly held by the Bank for International Settlement (BIS) in Basle, Switzerland. Currently, China has two small operations in London and Frankfurt to process trading cash flows directly between Euros and Yuan, but that is expected to grow.

But the new economic Silk Road, which is going to use Duisburg, the world’s largest inland harbour (and a historic transportation hub in Europe), and link Russia and China through the world’s fourth largest economy, as well as with Kazakhstan, Belarus, and Poland, has the potential to overshadow all of this from a trade perspective. The effect of decoupling from the dollar just means that some currencies rise at the expense of others that fall. It doesn’t alter trading volumes substantially. Some countries, not having to buy an overpriced dollar, might be able to buy a little more, or some, for which the dollar was relatively weak to their currency, might have to settle for a little less, but overall, the change will likely be limited and controlled.

But a new trading route, which can get things from China to Duisburg in 18 days or less, could significantly shift the global balance of trade, see less trading between the West and the East, and even increase trading on the Eurasian continents. It’s hard to say what will happen, but chances are some ocean carriers will lose considerably, as more goods will be moving over land, and carriers servicing the ports along the New Silk Road will gain, as trade shifts to minimize the amount of time cargo needs to spend on the ocean (as time is money). It’s a situation to be aware of at least.

One Hundred Years Ago Today, China Made Global Trade Easier

One hundred and forty years ago this October 9, a precursor to the United Nations formed the Union Postale Universelle (UPU), a specialized agency that coordinated postal policies among member nations. Prior to the UPU formation, each country had to prepare a separate postal treaty with other nations it wished to carry international mail to or from, which resulted in the US calling for an International Postal Congress in 1863. Thus led to the formation of the General Postal Union as a result of the Treaty of Bern on October 9. Four years later, the name was changed to the Universal Postal Union. The UPU established that:

  1. There should be a uniform flat rate to mail a letter anywhere in the world,
  2. Postal authorities should give equal treatment to foreign and domestic mail,
  3. Each country should retain all money it has collected for international postage and

Furthermore, as a result of the treaty, it ceased to be necessary to affix the stamps of any country though which one’s letter or package would pass in transit. Stamps of the member nations were now accepted for the entire international route.

Even though the UPU now has 192 members, in the beginning there were only 20: the German Empire, Austria-Hungary, Belgium, Denmark, Egypt, Spain, the United States, France, the United Kingdom, Greece, Italy, Luxembourg, the Netherlands, Portugal, Romania, the Russian Empire, Serbia, the United Kingdoms of Sweden and Norway, Switzerland, and the Ottoman Empire.

But over the years, that number increased and one hundred years ago, China joined the UPU. And trade with China became a little easier …