China's currency plans may shift center of global seafood trade to Beijing

Published on
May 31, 2016

Future pricing of global seafood trade will be decided by China’s currency plans a decade from now, much of the world’s seafood trade will be settled in China’s currency, the renminbi, or yuan, as it’s also known. That’s the wish of China’s government, which wants more control over the value of the currency the country uses as its economy and global trade grow.

It’s widely accepted that on current growth projections, China will displace the United States in 2020 or 2025 as the world’s largest economy, measured in absolute GDP output (the International Monetary Fund claims China surpassed the U.S. in 2014 measured in purchasing power parity). And thus within five to 10 years (estimates vary between government and economists), China plans to be using its own currency rather than the dollar to settle international trade.

Up to now Chinese buyers pay for overseas seafood purchases in dollars. That’s put them at the mercy of the fluctuations in the U.S. currency, as set by Washington institutions. The use of the renminbi should be good news for overseas suppliers if China’s plan works out. Whereas numerous U.S. (and some European Union) politicians have criticized China for keeping the value of the yuan low compared to the dollar to boost exports and undercut rivals, it’s now clear that China is seeking to maintain a strong currency. This would ensure China’s buying power increases alongside increases in average per -capita incomes.

The appetite of Chinese consumers for consumer goods and luxuries like salmon and oysters have risen thanks to growth in economy and per-capita GDP. China's GDP per capita is USD 8,000 (EUR 7,200) nominal and USD 14,000 (EUR 12,600) on a PPP basis – higher than the world average, and high by developing-country standards in Asia. And China is expected to almost catch up with Japan by 2050, at which point the average Chinese consumer will have 50 percent of the spending power of their American counterpart.

That suggests China will be the top buyer of seafood. Yet as its economy matures, future consumption of commodities like seafood depends on the strength of the country’s currency, which is entangled with the fate of the economy. China is very keen to internationalize its currency but it’s not clear how much the renminbi will be worth after the very tricky process of opening up the country’s currency regime.

Making the currently un-convertible renminbi an international currency became an urgent priority for China (which parks a considerable amount of its foreign currency reserves in U.S. Treasury bills) – a process that China fast-tracked following the devaluation of the U.S. dollar during the financial crisis and America’s use of quantitative easing to dig itself out of the crisis. Hence, Beijing has since been trying to open up its currency through pilot trade settlement and bond sales programs in Hong Kong and by gradually liberalizing the way bank interest rates are set.

If all goes to plan then the renminbi will be a strong currency and China will have serious buying power for luxury commodities like seafood. But if China’s economy tanks, imports will fall and that will drag down the currency as investors pull out. At that point, the country’s ability to buy foreign fish and shrimp will evaporate.

Seafood traders need to watch this space. Unfortunately, the current outlook is very uncertain. Investors have been spooked by how Beijing has been manoeuvring; an unexpected modest devaluation of the renminbi last summer sparked a sell-off and stock market slump. Investors aren’t convinced that government can or will let the market decide the value of the renminbi because Beijing has spent huge sums propping up its value in recent months.

Chinese officials have been trying to stop outflows of the renminbi by keeping its value strong, as Beijing wants a strong currency to meet various policy goals such as increasing consumer spending and retaining the value of local real estate on which a good portion of the economy still depends for growth.

But a lot of the biggest and most lucrative monopolies in the Chinese economy have done well from the current status quo. If China has a fully convertible currency, that means China’s state-owned companies will lose their favorable position, as banks won’t be protected by state-set interest rates and artificial currency walls that keep foreign investors at bay through limited access to renminbi. There are vested interests in the way but if China follows its plan and its goal for a strong, international currency is realized, then at some point in the not-too-distant future, those pulling the strings when it comes to international seafood trade pricing will reside in Beijing.

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