Norway-China trade is back on line

After years without political contact between Norway and China, bilateral relations are back on track opening up for a resumption of free trade discussions and increased cooperation in many other fields. “Bilateral trade has always existed between China and Norway, but we do recognise that the relationship on a political level has normalised as of late, which will leverage to a higher degree the trade between the countries, primarily on goods and services” says Corrado Lillelund Forcellati, General Manager, Nordea Bank Singapore.

One of the trade areas that was hit hardest was the export of salmon. According to data from the Norwegian government and DNB Markets, Norway was the leading exporter of salmon to China in 2010, but exports had shrivelled so much that in 2015, even the Faroe Islands were exporting more salmon to China.

In May 2017, however, there were clear signs that Norway’s seafood exports were back on China’s radar. A recent delegation to China ratified a new seafood trade agreement, comprised of USD 1.45 billion worth of salmon exports to China by 2025, as reported by Quartz. The agreement was signed shortly after Norwegian Prime Minister Erna Solberg’s visit to e-commerce giant Alibaba in April 2017. The following month, Taobao and Juhuansuan, two of Alibaba’s e-commerce platforms, hosted promotional events for Norwegian salmon.

A spokesperson for the ministry told Quartz that as part of Prime Minister Solberg’s April visit, Norway and China agreed to conduct regular discussions on a range of topics, including human rights. According to this spokesperson, the “normalisation of relations” would “create major business opportunities for both countries,” with discussions on a free trade agreement to resume.

“Norway and China have agreed to establish a consultation mechanism at a political level between our foreign ministries, where we can discuss all matters of common interest, both bilateral and multilateral, including issues relating to the UN, human rights, and trade policy,” the spokesperson added.

For Norway, the seafood industry is a heritage one that has traditionally been supported by domestic banks, and some of the companies and their clients involved in this new trade agreement will be able to seek support from back home when it comes to trade settling.

“One of the considerations for everyone involved is what this trade is going to look like in payment terms and settlement, and Nordea Singapore has been building up capabilities to have a better understanding of those flows, and thereby be in a position to better support our customers – also in the seafood industry. When settling trades, it will be important to take into account both FX- and cash- and trade management aspects. For example, we may be exposed to currencies that might be different from what Norwegian companies may be used to – here I’m thinking Chinese Yuan (CNY) invoicing and its impact on trade and bargaining power, but also how it will influence the overall relationships between the parties,” says Mr Forcellati.

A key area where Nordea Singapore has been developing its capabilities is in how to manage the flow of cross-border Chinese Yuan since most Norwegian exporters to China lack a direct presence there. This means that the Chinese Yuan generated from these deals will have to be sent abroad, and it becomes incredibly valuable to have a bank with expertise in this area, addressing the needs for settlement, liquidity and risk mitigation.

“There are a number of things a Norwegian exporter needs to take into consideration when increasing trade to China. For example, there is increased ambiguity when it comes to cross-border payments and settlements due to Chinese restrictions, especially on capital flows. You need to have a solid grasp of the regulatory environment, and the bank should provide regular insights into it in order for you to safely navigate through those sometimes ambiguous and unpredictable Chinese waters.”

According to Mr Forcellati, one of the main risks is currency exposure, and his advice is to hedge Chinese Yuan outside of China because banks like Nordea have a much wider array of hedging solutions available offshore, rather than on. Volatility is something that needs to be taken into account and he recommends proactive management, even when negotiating trade agreements with Chinese counterparts. He notes that if the exporter is able to meet the buyer’s terms – for example invoicing in Chinese Yuan – this usually results in a better price overall.

He also says that exporters need to be aware of the liquidity side. If the flow of goods is one way, say from Norway to China, then the risk is not so high, but if it goes both ways then there are extra regulations that will need to be complied with, and again, this is where a bank that understands the regulatory framework becomes invaluable.
“Importing fish to China is definitely one of the areas that will definitely be picking up under the new agreement, but I’m also excited about the increased ability for Norwegian companies to enter and bid on state-owned projects.”

And it goes both ways. One of the more impressive collaboration projects is the Norwegian state-promoted pilot project “Ocean Farm 1 awarded to SalMar, the first aquaculture company in Norway to be granted such a development license.” It is the world’s first deep-sea fish farm operated off the Norwegian coast and much like the shipping industry, it is built in China, by the China Shipbuilding Industry Corporation (CSIS) in Qingdao, and based on robust technology and principles used for submersible offshore installations. This innovative farm incorporates some of the most advanced and sustainable fish breeding technologies. The mega- structure was delivered to Norwegian fish-farming giant SalMar in late August.

Beyond seafood, China’s Ministry of Commerce revealed that China and Norway held the ninth round of the China-Norway Free Trade Agreement in Beijing in August, with both sides negotiating on issues including trade in goods and services, investment, intellectual property, environment, competition policy, e-commerce, government procurement and law.

“The economies of Norway and China are in many ways complementary. The resumption of the FTA negotiation will benefit the people of the two countries and push the Sino-Norwegian economic and trade relations to a new level,” said China’s Ministry of Commerce in an address to the media.

For Mr Forcellati, what will be interesting to follow is the e-commerce space as there are several Norwegian retailers that want to access the Chinese end consumer by teaming up with some of the large players such as Alibaba in a B2C model.

“Moving forward, we will likely witness an exponential growth in Norwegian goods and services exported to China, in areas such as oil & gas, seafood, retail, as well as trade based on high-end technologies,” Mr Forcellati concludes.

This article was first published in Norway-Asia Business Review, 2017

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