Who wins the commodity war?

Commodity war is defined as denial of resources to an enemy in conflict whereby the supply side of economics is targeted. It is akin to Anti-Access/Area Denial (A2/AD) in military strategy controlling access by opponent to an area of vital importance. China fears mostly about this scenario breaking out in South China Sea.

Let’s begin with what is commodity. In simple terms it is a basic good that is used as input for converting into finished item. In sum, it is simply raw material as accountants call it. China imports the largest quantum of commodity in the world today. Most of China's imports consist of machinery, equipment, semiconductors, chemicals, gas and fuels sourced from countries far and wide

Commodity in whatever form has to be physical. You can print money but you can’t print commodity so goes the maxim in geoeconomics. Therefore, commodity has to be made and exported by a country to China in physical form. That is where the geoeconomics risk glaring at China. Being the largest populous country of 1,437 million people, she has to create employment opportunities to at-least 500 million or so to survive as a nation. Hence, China understands that the one who has sufficient commodity to last for several months win any commodity war. Here are the preparations:

1. China possesses 44% of rare earth at globally. This stock is meticulously used and judiciously exported. As geoeconomics tool China uses this limited export quantum to influence economic policy of importing country. Japan has been put in place in few occasions when she tried to be funny.

2.  To protect China’s global manufacturing output that stand currently at 30% she has contracted for gas & fuel lasting for decades. For example China recently inked a deal with Qatar for 27 year supplying of natural gas. Saudi Arabia was corralled in for signing first of her oil storage agreement in China, where Aramco is provided with 3 million cubic meters (about 18.6 million barrels) of storage space in east China port Zhoushan. Moreover, Saudi exports of crude oil to China is in the region of 1.77 million barrels per day. Under the Russo-China “no limit partnership”, Russia alone accounts for about 25% of oil imports by China that too in discounted price.

In countering any geoeconomics battle, China cannot rely solely on her currency Yuan or her reserves of foreign currency held in unfriendly counties. The only solution is to stack up the gold reserves in safe houses within China and in friendly countries like Russia. Today China is the largest buyer of gold traded in international exchange at 244 t for a period of 2 months in 2023 alone. Approximately declared reserve gold is 2,068 t up-to-date. But unofficial figure must be more than this. Ostensibly, China gets more gold from Russia now than ever.

Let me go back to the captioned title of who wins the commodity war. Heavily stocked China has the highest probability to survive geoeconomics war and turn out to be a winner!

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist