Category Archives: China

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 sott.net 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 …

Think China Trade is New? Think Again!

The first ship to trade with China, the Empress of China, set sail from New York 230 years ago today, transporting the first official representatives of the American government to Canton.

The outsourcing craze to China may be relatively recent, but American trade with China began a mere 8 years after they declared independence and within a year of Great Britain accepting that the United States was an independent nation.

Top 12 Challenges Facing India in the Decades Ahead – 10 – China

China is currently everything India is not. While India is the land of contradictions, China is the land of conformity. While India is an infrastructure nightmare, China, which is already decades ahead of India in infrastructure, is investing heavily, building rapidly, and getting even further ahead. While India is in a perpetual state of energy crisis, the energy sector in China, where the government can effectively control the 11 companies that used to compose the State Power Corporation (SPC), is stable and increasing energy production year over year to meet the needs of its population which make it the world’s second largest electricity consumer after the United States. (In 2011, annual power generation was 4693 TWh, which was over five times the power generation in India that peaked at about 877 MWh.)

But it’s not just infrastructure and energy that China has the lead on. It’s just about everything else too. As per a recent NYT (New York Times) article on Why India Trails China, India has an even bigger problem. In particular, it’s the ever-increasing gap between India and China in the provision of essential public services. And while inequality is high in China (as the 1% control 70% of the country’s wealth, compared to the US where the 1% only control 35% of the country’s wealth), China has done far more than India to raise life expectancy, expand general education, and secure basic health care for its people. Plus, literacy in China significantly exceeds literacy in India at 95% vs 74% in India. While India has elite schools of varying degrees of excellence for the privileged, among all Indians 7 or older, nearly one in every five males and one in every three females are illiterate. And while China devotes 2.7% of its GDP to government spending on health care, India allots a mere 1.2%. (That’s probably why China has a much lower child mortality rate that is less than one third of India’s. See A View from the East.)

In terms of business, China is ahead of India in many respects. China exports goods almost twice as fast, registers property more than twice as fast, and business start-up times are almost 33% faster! (See: IndianEconomy.org) Despite being a democracy, India is less politically stable and more corrupt. (See: Interlink India) And the proof is in the GDP pudding. In 1995, when India represented only 3% of world GDP, China represented 6% of world GDP, and in 2010 when India was still only at 5% of world GDP, China was at 14%. (See: The India Site) And while India is expected to increase its GDP by a mere 4.4% next year, China is still on track to increase its GDP by 7%.

Infrastructure. Public Well Being. GDP. While just a few measures of global influence, they are a few important measures and China is leading on every single one. That’s why China is projected to have almost a quarter of the Global GDP in 2025 (by The Conference Board), more than triple what it had in 2000, while India is projected to have a mere 8%, only double what it had in 2000. If India wants to achieve its destiny of being the second most prosperous and influential country on the planet, it will have to at least keep up with China instead of losing ground every day.

Why are Your Inland Shipping Costs in China so High?

As this recent article over on South China Morning Post on Last Mile Transport’s Heavy Load for Truckers implies, it’s probably poor planning on your part.

Specifically, it’s expecting that China carriers can move your product from A to B as fast as North American carriers can get your product from C to D, where the distance from A to B equals the distance from C to D. Although China’s transportation infrastructure is much better than India’s transportation infrastructure, it’s still not on par with the US which gets a 4.14 ranking (out of 5) compared to China’s 3.61 (as per the World Bank’s Logistics Performance Index).

Not only is transportation infrastructure insufficient in some parts of mainland China, or overcrowded in many of the big urban areas, but there is also the restriction that trucks can’t be on the highways after midnight. (In the US, the worst you have to deal with is speed limits that drop 10 mph at night. As long as the driver hasn’t reached his daily driving limit, that truck can drive all night long.)

As a result, when you insist on unrealistic schedules, with penalties for late delivery, you end up costing the logistics company needed revenue that it needs to cover the highway and first-tier road fees, as 95% of the country’s highways and 61% of it’s first-tier roads are toll roads (and the company has to use these roads to ensure reasonable delivery times as the free roads are typically dirt roads not suitable for transport trucks). As a result, knowing that it’s going to be late on a significant number of deliveries unless it illegally drives on the highway at night (which will result in harsh fines), and, as a result, get hit with a large number of penalties, the logistics company has to increase its base rates to absorb the expected losses to stay in business.

Thus, if you acknowledged the reality of the transportation situation that Chinese logistics companies have to deal with, accepted slightly longer delivery times, and planned accordingly, you could reduce your mainland China logistics costs — especially if, instead of using one of the almost 10,000 small or mid-sized companies that can’t take advantage of economies of scale and end up absorbing a lot of empty miles, you use one of the few large companies that have enough trucks, and warehouses, to minimize empty miles and use their scale to their advantage. (Plus, shifting more to the bigger carriers will allow them to become financially stable enough to acquire some of the smaller carriers where their footprint is weak, and this should further decrease costs in the future. Furthermore, when the market sees consolidation working, some of the mid-sized carriers will likely merge to offer more cost-effective options. China is big enough that it can support dozens of major carriers, not just a handful like some of the smaller global marketplaces. As a result, even with significant consolidation, there should still be ample competition to keep prices low.)