Nordea’s Cor­rado Lil­lelund For­cel­lati re­flects on the fresh be­gin­nings be­tween Nor­way and China.

Norway-Asia Business Review - - Contents -

HENRI VIIRALTAfteryears 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 ecom­merce 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 cross­bor­der 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 sta­te­owned 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, ecom­merce, 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 ecom­merce 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.

PHOTO: IS­TOCK­PHOTO

Po­lit­i­cal ten­sions ease, ush­er­ing in new op­por­tu­ni­ties for trade be­tween China and Nor­way

PHOTO: SALMAR ASA

Nor­we­gian state-pro­moted pi­lot project Ocean Farm 1, the world’s first deep-sea fish farm op­er­ated off the Nor­we­gian coast by Salmar ASA. It is built by the China Ship­build­ing In­dus­try Cor­po­ra­tion (CSIS) in Qing­dao, China.

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