The Sino-Russian Dinner-Date Takeaway
This Friday morning at 08:00 (August 7, 2020) I walked to my neighborhood “farmers market” which I have written about in past articles. From time to time I bump into the ‘witch’ of whom I have also written. To be fair, I’ll name her – Irina Vitalievna (IV), although she still refers to me as ‘insostranets‘, or ‘foreigner’. This morning I ran into her and she delivered a series of observations for my benefit (no doubt), some of which am I dutifully passing on to you.
Several articles have been recently written about the month of August and how it fills the role of ‘the month of changes’ in Russia.
IV started by loudly praising the newly opened ‘Asian market’ (inside the farmers market) which she concluded sold very tasty items indeed. She went on to tell to me that thanks to her internet she is now studying Mandarin Chinese, and she didn’t giggle. I was wondering whether the two were connected somehow. Hoisting her bag she indicated that about 30% of her shopping today was from China (actually from countries along the new silky belt & road initiative), including frozen dim-sum. “We are shifting from west to east” she continued, “and it is less problematic and expensive”. “Besides, as I have been telling you, the dollar and ‘your people’ will be yesterdays news in a few years, such silly people, you better keep buying your St. George gold coins, Ethereum and Bitcoins like I do!”
In this anecdotal statement there is a truth, which can be seen in the below graph describing what Russia is sending lately to China agriculturally-speaking.
Russia was a $1.8 billion import market for China’s food exports four years ago. Looking at 2016’s statistics, there was a 17.5% rise in the value of goods sent to Russia for a total of $1.8 billion. Of this sum Fruits & vegetables (incl. non-processed produce) was $902 million, Foodstuffs (incl. processed fruits, vegetables, juices, sauces, seasonings, fish & meat) was $736 million, and animal products (incl. non-processed meat & fish) was $215 million. I think is more than safe to say that in 2020 (4 years later) the volume and sums are far greater.
What is perhaps more indicative of shifts in trade is the changing use of the US Dollar in settling Russia<>China commercial contracts. In fact, the dollars share in such trade settlements has fallen this year to below 50% for the first time ever.
The US Dollar so far in 2020 was used in 46% of settlements between the two countries, while the euro grew to 30%, and Yuan<>Rouble was 24%, a new high. Both Russia and China have steadily reduced use of the dollar. Back in 2015 it accounted for 90% of settlements, today less than 50%.
The dedollarization trend is not fading, if anything it is getting stronger. When the US sanctions craze became institutionalized in 2014 and 2015 with Crimea reverting back to Russia, it was Russia who clearly saw the need to de-link from the sanctions-mad, US-controlled dollar. With the Sino-Americas cold war getting chillier, China has also come around to see dedollarization as critically important, especially when being held as a reverse-hostage by owning so much US government debt.
Last year during President Xi Jinping’s visit to Russia, he struck a deal with President Putin to beging replacing the dollar with Rouble<>Yuan for international settlements between them. The arrangement also called for the two sides to develop alternatives to the U.S.-influenced SWIFT system.
Beyond trading in national currencies, Russia has been rapidly accumulating Yuan reserves at the expense of the dollar. The upshot is that today Russia has approximately one quarter of the world’s yuan reserves. The start of 2020 saw the Kremlin allowing Russia’s sovereign wealth fund to begin investing in the Yuan and Chinese government bonds.
Russia’s whirlwind debut onto global food markets has happened together with macroeconomic and geopolitical factors, which have been targetting and shaping once stable product flows while at the same time trade, tariffs, and sanctions made for increasingly uncertain business arenas. These risks are long-term in nature, and they must be taken into account in the export strategy and planning to sigificantly increase the supply of Russian products to China.
Because of the increasingly tit for tat American-Chinese trade war, there are openings in the Chinese domestic market which are now being filled by some Russian producers. Today Russia does not have a huge and diverse list of agri-food products that China is specially looking for. The main items taken up by China from Russia are for the most part unprocessed (fish and crustaceans, grain and oilseeds) and intermediate products with some processing (wheat flour, vegetable oils), as well as a limited range of finished products (confectionary goods, ice cream, beer). The planned increase in the volume of export of new commodities (pork, poultry, dairy products) is extensive, and should see strong growth over the coming 3 – 4 years.
Meanwhile, IV was chattering with her pensioner friends while passing around a plastic tub of soybean paste (Chinese). She bought it because the price was discounted, but none have any idea what to do with it. One octagenarian chirped “look on the internet, they will definitely have many recipes”! This must be the geopolitics of winning new market share, it is the security council of the stomach.
Moscow, August 7, 2020