A recent report by insurer Atradius found that 45% of Asia Pacific exporters expect a drop in earnings of between 10% and 20% due to geopolitical uncertainties. At the same time, the US Federal Reserve interest rate hike is expected to lead to an increase in borrowing costs. Pressure to invest in technology continues to grow, adding to the general air of uncertainty.

However, trade continues to grow strongly around the region, buoyed by commodity prices and resilient consumer spending around the world. It’s a complex time to be exporting in Asia, which is at the heart of both trade and trade tensions. Finbarr Bermingham spoke to four people with different engagements with Asian exporting: a chamber of commerce chair in China, the head of India’s export credit agency, a Singapore-based commodity trader and processer, and a key figure in the world’s largest private metals trader.


Mats Harborn, president of the EU Chamber of Commerce in China (pictured, top left)

The EU Chamber of Commerce supports and represents the interests of companies from the EU operating in China.


GTR: What has been the reaction of European exporters in China to the ongoing trade tensions between the US and trade partners including the EU and China?

Harborn: In today’s globalised economy, raising tariffs on such a wide variety of products will doubtless impact many companies operating in China. We are still gathering information from members so it is not yet possible to gauge how many will be affected, or to what extent.

However, tariffs on almost any product will have adverse effects that go beyond the targeted country. As a large and responsible proponent of economic globalisation, the simplest way to avoid any further disputes that could further disrupt global trade is for China to implement the measures that it has loudly and repeatedly committed itself to since President Xi’s speech at Davos in 2017.

We believe that trade frictions are a complex issue, best dealt with through dialogue at a bilateral level and, failing that, through the multilateral setting of the World Trade Organisation. However, many of the concerns are common to European companies operating in China. These include a general lack of market access – specifically in high-tech sectors – a business environment that favours domestic firms, the continued existence of technology transfers as a pre-condition for market access, and the requirement to localise information [foreign companies in China are often required to store information pertaining to their operations there in China], and industrial and innovation facilities.

It is important to remember that these tariffs will not take effect for several months, so there is still time for China and its international trading partners to come together and resolve this situation. This presents a window of opportunity for China to take meaningful action and announce detailed timelines and roadmaps for its reform agenda to match the high-profile commitments to economic globalisation that it has continued to make since early 2017.


GTR: Are European companies in China excited about the Belt and Road Initiative (BRI)? What gains can be made from this programme?

Harborn: We believe that the success of the BRI will largely be predicated on open markets, balanced trade, transparency and reciprocity.

Asia, and the rest of the world, has a great need for sound infrastructure, and improved connectivity can be a major contributor to economic growth, so such an approach is in the interests of all participants in this ambitious project.

With the BRI now hopefully moving from a grand vision towards a well-considered action plan, we expect to see transparent public procurement processes put in place that will allow European and Chinese companies, and especially private companies, to compete on an even playing field, with projects going to the strongest bidders. Not doing so would likely result in funds being wasted and failed projects.

The current trade and investment imbalance between China and Europe also poses a risk to the sustainability of the project: Europe buys €1bn of goods from China per day, while China only buys half that amount from Europe. In 2016, China invested four times more in Europe than EU companies invested in China. The future of the BRI depends on trade and investment flowing equally in both directions, which will require China to open its markets.


GTR: What are the major reasons for optimism among EU companies in China?

Harborn: The chamber strongly supports the development of an ambitious EU-China Comprehensive Agreement on Investment (CAI). However, such an agreement will only be meaningful if it takes into account investment realities and aims to address market access concerns within all industry sectors.

It must also result in a more transparent and stable regulatory and business environment. We advocate for a clear and ambitious negative list which supersedes the current investment catalogue and any potential dual negative list system, which would still maintain a distinction between domestic and foreign investment.

We would also like to see the implementation of robust and transparent investment protection and investment dispute resolution mechanisms as part of the CAI. The Investment Court System proposed by the European Commission in November 2015 could usefully serve this purpose. In the long term, such developments will be of benefit to both Chinese and European companies.


Laurent Christophe, head of corporate finance, Trafigura (pictured, top right)

Trafigura is the world’s largest private metals trader and second-largest private oil trader.


GTR: Trafigura has been a regular visitor to the Asian debt markets and we’ve seen, with your inventory securitisation initiative last year and your panda bond, some real innovation. Are Asian banks more open to exploring new fundraising tools?

Christophe: Part of our strategy is to diversify our sources of funding across different geographies, maturities and instruments. Our success is linked to our continuous access to liquidity irrespective of the prevalent economic cycle. The Asia mindset understands trading very well, it’s part of the DNA of many countries in the region. Banks in Asia Pacific, which have accompanied Trafigura over the years, understand the principle of our business. Perhaps in other parts of the world, that understanding of the trading process – of sourcing, storing, blending and delivering commodities, while hedging them throughout the process – is not as developed and requires significant education efforts.

We believe that banks in Asia – particularly in Singapore and Japan – are very sophisticated in the products they offer. Trade finance has been a product offering for a long time, but they’ve now developed expertise in global capital markets, and areas beyond that. If you look at our inventory securitisation programme from November 2017, the majority of the participants were Asian banks. That seemed like a novelty, because five or 10 years ago, it probably would have been dominated by US and European banks. So the banks in Asia have developed a mindset of investing time and effort into looking at complex issues, as well as following their long-term partners in innovative transactions.


GTR: Your inventory securitisation programme was the first of its kind. Can you explain what is driving Trafigura to look for innovative funding methods such as this?

Christophe: I use the phrase: ‘Trees don’t grow to the sky.’ By that I mean there’s always a finite amount of liquidity in a specific market. The bank market is the bedrock of our funding strategy, but with over 120 banks providing capital to Trafigura, the growth of our banking pool is now slowing down. So in years to come, whilst the bank market will remain the dominant source of our funding, we have to find alternative sources of funding to continue to sustain our growth. We are therefore exploring alternatives to traditional sources of funding. We also believe that’s where our competitive edge lies.

The fixed income market is vast, but it doesn’t really understand the intricacies of commodity markets. However, if you offer them an asset-backed product that is able to mitigate the risks embedded in the ownership of commodities, and you translate that into a fixed income product, you suddenly have access to a very deep pool of liquidity – one which is almost untapped in our sector.

We have developed a strong relationship with capital markets investors. We are a programmatic issuer of bonds backed by trade receivables, through a programme we launched in 2004. This has given us a lot of experience with asset-backed investors. We felt there was demand for other types of asset-backed securities, this time not backed by receivables, but inventories.


GTR: Has Trafigura explored the fintech world? In Asia we’re seeing many new players emerging, lending money in the trade and commodities space. Is it something you’re looking at in Asia?

Christophe: We are definitely looking at that space, particularly the fintech platforms, which are providing additional liquidity to the market. Being one of the largest commodity traders, we are often approached by new players and we are open to having a discussion. We need to be vigilant to the disruption that is coming in this space. We try to understand what these companies are doing and have tested some of the platforms by feeding them with some receivables.

Disruption is coming everywhere – there are no sacred cows. It’s far from being an established market in the EU and the US, but once it’s established there, it will pick up in Asia. That’s the story of Asia, it has always been able to fine tune innovation that’s developed elsewhere. When they see something is working well, it will happen very quickly. Once the development phase is validated, Asia will scale it up, big time.



David Rasquinha, managing director, Export-Import Bank of India – India Exim (pictured, bottom left)

India Exim is the export credit agency of India. David Rasquinha became managing director in 2017, after more than 30 years working there.


GTR: What are the main challenges facing Indian exporters?

Rasquinha: Perhaps the greatest challenge is the change in mindset globally. From the days of Adam Smith, there’s been a general consensus among economists and more reluctantly politicians that trade is a good thing. There will be losers and gainers from free trade, but the number of losers and the number of lost jobs is far inferior to the number of winners and jobs added.

This has played out over the years, and we had the formation of the multilateral trading system to give effect to this consensus. Over the last several years, the multilateral consensus slowed down. We probably reached the limits of what the rich countries were willing to concede any longer, they wanted to protect their way of life, but it was a workable kind of stalemate.

What has happened after the new US president was elected is that the very basis of this consensus is being challenged. To my surprise, it’s not just a political challenge – that I could understand, politicians have certain imperatives around getting elected and keeping voters happy – but there does seem to be some cracks in the wall of the economic consensus as well. The end effect seems to be, whereas in previous years one didn’t have to defend trade as ‘good’, these days one does seem to have to make a case for it.


GTR: How does this filter down into Indian trade?

Rasquinha: I’d say it hasn’t really sunk in on Indian exporters yet – frankly we’re not the immediate target of this activity, we’re more collateral damage.

But we have challenges of our own, one of which is the slowdown in growth. If you look at the income elasticity of exports, it’s always been a positive sum game until the financial crisis. You had trade growing much faster than GDP. During the crisis it went negative, and in the last few years it has recovered, but not back to the elasticity of pre-crisis levels.

We’re seeing the impact on Indian exports, there was almost 10% growth in 2017-18. Some of it, but not all, was a price effect as commodity prices have stiffened. That’s definitely something positive.

On the not-so-positive side, India exports fine petroleum products, so a rise in oil prices helps our exports. But since we’re a net importer of crude petroleum, it means the import side of the equation goes up as well.


GTR: We touched on the trade war. How does India feel about China’s stance, given that India’s metals industries have been badly hit?

Rasquinha: This is part of an ongoing issue, countries at all points in history try to take advantage of certain trends. The Indian steel industry was heavily impacted by domestic and international developments. We had massive overcapacity in steel. Even after negotiations, the amount of excess steel capacity that was to be shut down by China exceeded the steel capacity of the next four countries put together. It was truly bizarre that an economy – one might wonder if you can call it a market economy – was able to skew the market to such an extent. So these are definitely worries from time to time, but they will keep happening. The world is not perfect and it will not become perfect.


GTR: Indian trade finance was rocked this year by the Punjab National Bank (PNB) fraud case. How much damage has that done to the sector?

Rasquinha: The noise level has been more than the reality. I don’t really need to add to the commentary, but the net impact was that letters of undertaking (LOUs), which were given by commercial banks in India, have been banned. They were being use to get longer buyer’s credit from the overseas seller by the Indian importer. It’s not as if that credit is now not available, it is available from Indian banks. The difference is a small increase in cost, but how much? After all, the LOU wasn’t free. For LOUs issued by Indian banks, there was a fee involved because it’s akin to a guarantee: there’s a commission level charged and in addition, the interest rate would be paid to an overseas bank.

Now, when you switch that to a domestic bank, the commission won’t apply. The rate of interest will be higher than what the international bank was offering, but this will be offset by the lack of commission. The net impact on the pricing would be 20 to 25 basis points, not what I would call earth-shaking.


GTR: Is the reputational risk not one of the more significant?

Rasquinha: I don’t see this as being out of the ordinary, you have frauds everywhere. No bank likes fraud, but human nature is human nature, and just as we have frauds in India, we have frauds in other countries.

Vishal Vijay, Head of business development, Agrocorp (pictured, bottom right)

Agrocorp is a dry agri commodity trading and processing company based in Singapore, with offices in 15 countries.


GTR: When you’re sourcing and exporting to and from so many different markets, what are the major challenges?

Vijay: The days of the trader sitting in a third-party country without having any presence on the ground are over. In the past, traders sitting in Europe were the puppet masters for global trade. You can’t do that anymore. You need presence on the ground and as many touchpoints as you can.

You’re competing on a very level playing field, with regard to information. For example, a farmer in the US can now sell his product directly to a buyer in India. Conversely, a farmer in Myanmar can sell his product directly to the US. Connectivity is so strong, you have to add value, you can’t just sit there being a middle man anymore.

Also, because the barriers to entry are as low as they are, farmers have more options for selling their product. We’re having to compete more with newer and less established players.

Another challenge is that customers want to know more and more about where we’re sourcing the product from. They want to know about farming and environmental practices. They want to know about what kind of chemicals are used in the production process. Five or 10 years ago it wasn’t something we necessarily cared about. Nowadays we have to find out this information to provide to our customers.


GTR: Commodity industries are at the mercy of geopolitics. Certain crops like sorghum and soybeans have been targeted in the trade skirmishes. Has this affected your business?

Vijay: It’s something we have to stay on top of. We don’t have big exposure on US-China flows, but I know other companies do, and have taken significant hits as a result. A few weeks ago five or six soybean vessels en route from the US to China had to turn around. There’s very little we can do to influence the governments making these calls – the issues at play are much larger than the space we’re in.

That being said, the onus is on us to beef up our risk management practices and market intelligence. Even in the pulses industry there’s been a lot of volatility in the market because of the largest importer, India, deciding to scale down the level of its imports. They did this by placing import barriers and high levels of import duties, which affected ships on the water.

We’ve tried to propose measures which would have less impact on shipments, but it’s not been the case as yet. The main thing is, if you’ve already shipped your goods and they’re on the water, they should be exempt. Any changes you make regarding import barriers or boosting import duties shouldn’t affect shipments that are already on the water.


GTR: Do you use trade finance products, and how do you assess the funding market in 2018?

Vijay: We use mostly plain vanilla trade finance products with a range of banks. Some of the larger players in the industry have been moving towards syndicated facilities with a group of banks, and we’re working towards that as well.

Something that’s of interest to us is that some players have been able to obtain discounted financing by making commitments to sustainable sourcing, ensuring practices comply with environmental standards. That’s something we’re looking to see if we can do ourselves. Over the last five years we’ve taken a conscientious approach to ensure our practices meet certain standards.


GTR: It seems a good time to be a borrower: liquidity is high and pricing is low. Is that something you have experienced?

Vijay: We’ve seen that over the last few years. The market is flushed with capital, so there are a few different avenues to get trade finance. We’ve started to see a lot of unconventional providers coming in with a slightly higher pricing but more flexibility and I think they’re getting quite a bit of traction. That being said, we’ve been in a rising interest rate environment for the past six to 12 months, so we’ve seen pricing rise. That’s something that will need to be reflected in the costing of trades as well.


GTR: Have you been engaging with alternative financiers?

Vijay: We’re always open to speaking to different providers – it would be silly not to. But at the end of the day it has to make good commercial sense. The good thing is we have good backing from our banks. Banks are also facing stiff competition from these guys, which is good. So we’ve had the discussions but, that being said, are fairly comfortable with our existing portfolio of lenders, which are primarily commercial banks in Singapore.

However, the flexibility of alternative financiers is definitely an attraction. While the cost of bank financing has been lower, the level of scrutiny has increased. The banking industry has experienced shocks since the crisis. They need to have more checks and balances – we understand that, but it is more challenging for us. That’s always the appeal of more flexible facilities that require less documentary proof.