China is increasingly ordering the Asian economy in a manner which will have a large impact on the global seafood trade. And widespread predictions of a cheaper, depreciated yuan will serve to exacerbate this trend.
It’s been a year since China’s currency was included in the International Monetary Fund’s basket of lending currencies. Beijing expected (and hoped) this would trigger a surge in purchases of the yuan by central banks around the world. But this hasn’t happened.
That’s because the relative strength of the U.S. dollar and the prospect of further interest rate hikes in the United States is encouraging investors to pull money out of developing markets such as those in China and Southeast Asia in the search for better returns. This withdrawal is resulting in economic consensus that there will be depreciation in the value of the yuan, or renminbi (RMB) as it’s also known. In addition, historically low interest rates in China – an attempt by the government to spur economic growth – as well as surges in government spending have eroded investors and central banks’ appetite to acquire a currency they think will weaken.
These expectations are going to ultimately mean cheaper seafood from Asia.
A cheaper Chinese currency makes it easier for Chinese firms to increase exports, but also makes it less economically feasible to import premium products like seafood for domestic consumption. That’s not good news for Western seafood exporters.
A weaker Chinese currency is also causing a reordering of the pecking order of Asian markets, as other Asian nations seek to manoeuver their currencies in line with China’s currency regime to make themselves more competitive. Southeast Asian nations supplying China – for many, their primary trading partner – with seafood will feel forced to lower their lower currencies to defend market share as well as their competitiveness in markets where they compete with China.
Indonesia and Vietnam, both with fast-developing economies, have sought to maintain an edge while responding to weaker Chinese demand as China’s economic growth slows. But Indonesia is also seeking to replace Chinese production in species like shrimp and tilapia for export to Western markets, as well as China’s.
Eventually, China’s dominance of Asia may be consolidated by the internationalization of the yuan. China’s government had promised this would be complete by 2020, but the currency is not yet convertible for trade. If and when that happens, it would ensure trades are settled in RMB rather than USD, giving Beijing more power in price-setting.
Currency moves aside, China is also integrating Asia’s economy in other ways to ensure that regional seafood production comes its way. It’s been three years since China rolled out its “One Belt, One Road” trade policy blueprint, which aims to recreate the Silk Road by improving infrastructure on land and at sea in an effort to speed up the transit of Chinese goods to market. The plan calls for establishing connections to ports in South Asia, rail links to Europe and better roads and train links into Southeast Asia.
So far, China has launched and begun promoting Asia-Europe railway freight lines, with the goal of carrying more chilled cargo and perishable goods. Several railway lines now run from China’s east coast to cities in Germany, Poland and Spain, with scheduled departures several times a week. The railway ministry has been advertising the advantages Sino-European train freight, touting a journey time of about 12 days – faster than marine transport – and costs much lower than air transport.
All this is part of China’s investment in infrastructure to boost its trade links. But while China has been keen to integrate the broader Asian region through improved infrastructure, it also has plans to dictate trade terms in its neighborhood. It plans a regional free-trade pact designed to compete with the U.S.-backed Trans-Pacific Partnership, which seeks to create an Asian trade nexus that excludes China.
If approved, China’s alternative free-trade compact could prove costly for the E.U. and other trading partners, such as the United States. China’s free-trade zone will certainly incorporate Bangladesh, Myanmar, Cambodia, Sri Lanka and Pakistan – all of them long-time allies of China and important producers of seafood. Russia, India and other countries in Southeast Asia could also join, forming a decidedly anti-Western bloc.
Improved infrastructure is giving China options, leading to gradual greater Chinese dominance of Asian seafood production. Chinese consumption of shrimp has doubled between 2005 and 2015 and this trend is likely to continue even as growth in Chinese aquaculture production continues to slow down.
