Joint Guest post : Barter & Geo-politics

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My dear friend Sideshow Bob sent me a short note which I think deserves some attention. It opens up the discussion on one of the most ancient forms of trading, dating from the days money did not exist. It seems we have a kind of barter revival on our hands. But let’s have Sideshow Bob kicking off the discussion :

The Chinese Normal

When I opened today’s Financial Times it said “Ukraine agrees $3bn loan-for-corn deal”. It was a striking resemblance with the book “Winner Take All” I have recently read from Dambisa Moyo. She describes the world from a commodity perspective, with a specific focus on China and its quest for resources. I have been intrigued by commodities and emerging markets for a long time, but this single article made me realize that the advocates of a new normal might be right.

Why you might wonder? Well Ms. Moyo quotes statistics rather frequently in her book and this article is one that woke me up. When countries are engaging more and more in bilateral deals, globalization and the way financial markets behave are not progressing, but go back in time. China agrees to extend loans to Ukraine, the Ukraine supplies corn to China. China agrees to fund a highway in Angola in return it receives oil. Similar deals have been struck with Latin American countries and so on. When this happens, who needs an exchange? This is pure barter! China originally bought these soft commodities from international traders, the article said, like Glencore and Louis Dreyfus, but is more active in made face-to-face deals.

It is not because the Chinese want to get the best price in the market by securing the supply. No, they want to safeguard supply in general. Its people are demanding healthier and more nutritious meals, because of their increase in welfare. They need soft commodities for keeping its population fed and calm. When people get hungry, social unrest is evident and this is what China wants to prevent at all times.

When international traders are bypassed by one of the most powerful economies in the world; what does this tell us about the future of our current trading system? Just a brief selection of similar deals:

http://in.reuters.com/article/2012/06/26/argentina-china-idINL2E8HP8XW20120626

http://www.bloomberg.com/news/2012-02-15/china-to-buy-4-3-billion-of-soybeans-in-deals-with-u-s-exporters-in-iowa.html

http://www.farmersguardian.com/home/business/china-trade-deal-huge-opportunity-for-uk-pig-producers/47029.article

http://blogs.ft.com/beyond-brics/2012/03/07/ecuadors-1-7bn-mining-deal-with-china/

http://latino.foxnews.com/latino/news/2012/07/29/bolivia-pursues-hydro-power-deal-with-china/

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There are indeed a lot of stories circulating and it is not restricted to trade “goods for goods” but also “goods for services” : China builds hospitals, harbor infrastructure and railroads in Afric…



Econopolis

This article was written by Econopolis

on 26 September, 2012 in Russia about China, US & Canada