Chapter 2422: Trade Adjustment Memorandum (II)

And the Merchants Bureau's profits still had to be shared with the Jiangnan gentry of the Ming. Calculated this way, the Senate's direct profits were even less.

The reduction in profits not only affected the Senate's finances but also involved another issue—it was indirectly strengthening potential opponents' power.

Honestly speaking, what Wang Kai worried about least was the silver flowing into Ming gentry's hands. At most that could only be called "temporary safekeeping." What about the smuggling merchants? Actually no big deal either, since smuggling merchants had strong adventurous spirits, and most earned funds would re-enter the trade cycle. Moreover, as the Senate's power on the mainland grew stronger, this portion of money could be considered "meat rotting within the pot."

In his view, the greatest danger was that this money was strengthening the VOC, whose development momentum was more vigorous than in the old timeline.

Because the Senate had long been troubled by shipping capacity issues, most goods sold to Europeans were waiting for others to come buy. The directly operated routes were mainly the two-way trade between Lingao, Guangzhou, and Jiangnan, and the Jiangnan-Nagasaki Japan trade through the Merchants Bureau channel.

The private maritime merchants' Asian intra-trade was gradually being incorporated into the Dutch Asian intra-trade system. In comparison, the Europeans' business, represented by the Dutch, could be described as smooth sailing. They had full choice and initiative in trade. The Dutch could even carry away ten-fold profits with pitifully small capital.

The VOC not only gained profits from the entire trade process but also obtained abundant working capital thereby. Wang Kai reached this conclusion after studying relevant models.

Of course, the VOC was currently their partner, and relations between both sides could be called "harmonious." But both sides always harbored wariness—whether the Senate or the Dutch.

"...Our status relationship with Westerners is equal. We organize mainland commodities for them. The routes where they originally had to come with empty ships—the grain they bring doesn't have price increases. Considering our willingness to sell commodities is greater than various mainland powers in the old timeline, we can hardly use 'organizing commodity procurement' to demand extra things from them. But we do need to demand some extra things from them. Also, our efforts for this Eurasian trade are actually much greater than theirs, yet the lion's share of profits is in their hands. Why do I say this? We provide maritime security for the entire East Asia and South China Sea. We have commodity organization capability and payment methods that transcend this timeline. We have a navy claimed to be the strongest in the world. What is our status? Using old timeline countries as comparison, we're equivalent to having U.S. military strength with one-sixth of Saudi Arabia's trade status. At most add another one-sixth of Italy. Is this good? This is not good. It must change!"

After reading this conclusion of his, Wang Kai felt it was about right. He revised some words and phrases, put the memorandum into a folder, and called in his secretary.

"How's that appointment I had you arrange?"

"The Chief of Staff Office just called back: you can go there on time."

It's become this difficult to see the Chief of Staff now. Wang Kai silently grumbled. Power really does separate you from the people around you without you realizing it.

The appointment time was 10 AM. Taking a rickshaw from the Colonial Trade Department, plus security check time, would take about half an hour. Wang Kai looked at his watch—it was not yet 9:20. To be safe, he'd better go earlier.

At 10 AM, Fatty Wang was brought into Xiao Zishan's office by the female secretary.

Xiao Zishan smiled as usual and gave a "comrade and brother" style handshake, plus "warm hospitality" pleasantries. After the secretary served tea and withdrew, Wang Kai knew he could now discuss business.

"Director Xiao, I've come today to report some thoughts and situations regarding foreign trade. Especially regarding some matters about the recent Japan trade adjustment."

Xiao Zishan continued smiling and nodding: "Sure, sure. But foreign trade isn't under my jurisdiction."

"I personally just want to express my thoughts as a foreign trade professional to you. I have no other meaning." Fatty Wang unconsciously used honorific language.

"Since that's the case, I'm all ears—regarding trade, I'm an outsider."

"I'll try to explain clearly."

Wang Kai first gave a general explanation of the memorandum materials, then said:

"The main commodities on the China-Japan trade route are raw silk and sugar. Sugar is currently completely under our control. Raw silk, thanks to the efforts of the Hangzhou Station, is also fairly well controlled. There will be some smuggling—they're utilizing the safe environment we provide and cooperation from the Japanese side. But we can also provide 'insecurity.' The surrendered pirates we control have already started working on this. In terms of shipping capacity, only ten H800 ship trips per year are needed. We can always squeeze that out."

"I have some doubts. We have very obvious advantages in bulk commodities and industrial products. Under such circumstances, wouldn't trade prosperity and freedom be more beneficial to us?"

"What you say would be correct in the 21st century. Countries with advantages in produce and products naturally feel the freer the trade the better. But the 17th century is different. The degree of trade exchange is very shallow, scale is also limited, production output and shipping capacity are both restricted, and competition is insufficient. At this time, we cannot achieve freedom but must choose the most profitable portions to pursue. Speaking practically, specifically for our Great Song, our current total trade income is far from reaching 5.9 million Aussie Dollars. Where can we recover it from?"

Fatty Wang paused for a moment to let the listener digest, and took a sip of water.

"Besides shipping grain and basic materials, what else do we need them to do?" Director Xiao was a practical person and was more interested in this question.

"For example, we hope trade in Sanya can prosper. We hope they vigorously promote our new products, such as bone china and the like. But because they have many choices, they only need to give us friendly responses without actual action."

"I understand the Sanya matter. What's going on with bone china—can you elaborate?" Director Xiao followed up.

"Dr. Qi's bone china is several grades higher in quality than traditional white porcelain and blue-and-white porcelain, and the yield rate is higher, so the materials are actually cheaper. Of course, the high yield rate is because he uses 'steam-powered mechanized continuous tunnel kilns with thermocouple temperature control'—hearing this name, you should know his equipment costs, or rather construction costs, are relatively high. This means we need Westerners to vigorously promote bone china, quickly drive down equipment and construction costs, and give a higher price for roughly the first 5,000 cases—about twice that of traditional ceramics. Although bone china quality is more than twice as good as traditional ceramics, Westerners still only promote it on a small scale in Asia. The largest market, Europe—they won't sell our new products there."

"Why is this?" Fatty Wang paused briefly, and Xiao Zishan immediately followed up. It seemed he had caught his attention.

"Let's assume traditional ceramics sell from us at 1 Aussie Dollar/piece, bone china at 2 Aussie Dollars/piece. Westerners ship them to other Asian regions and sell at 2 Aussie Dollars/piece and 4 Aussie Dollars/piece respectively. If they ship to Europe, prices are 10 Aussie Dollars/piece and 20 Aussie Dollars/piece respectively. Everyone may have noticed—someone who can spend 2 Aussie Dollars on ceramics in Asia can grit their teeth and buy at 4 dollars too. But in Europe, the absolute value of this difference becomes 10 dollars—not so easy to sell. Westerners, represented by the Dutch, have limited capital—er, not counting the Spaniards. To ensure profit rate on every dollar, they'll prefer traditional ceramics."

"Ah, I understand now. So do we currently have means to directly make demands?" Director Xiao asked.

"We've made demands, but with limited effect. Our means don't yet have decisive influence. This is what I mentioned before—they can very conveniently obtain large amounts of silver in Japan. Even if we use diplomatic or administrative means to forcibly require them to purchase certain products, the significance is limited. There will be many such products, and we're in a passive state." Fatty Wang breathed a sigh of relief. He'd finally explained half the matter clearly.

"Even if the Dutch earn a lot of silver in Japan, wouldn't they spend it with us?"

"No, quite the opposite. The more profit they make in Japan, the lower our sales volume. This requires explanation in two parts—one is Japan's price exception, and one is the Dutch trade model. Don't mind me being long-winded..." Fatty Wang tried his best to make his explanation engaging.

"Won't mind. This actually sounds quite interesting."

"Let's use sugar as an example. This time we won't hypothesize—we'll use actual prices. To correspond with Japanese silver units, I'll temporarily not use Aussie Dollars. Our cost of purchasing sugar domestically is 1 tael/dan; selling to the Dutch at our own ports is 2 taels/dan. At Japanese ports, sugar can sell for 6 taels/dan. In Amsterdam, sugar prices fluctuate at 10-13 taels/dan. There's also one premise: our production volume is insufficient to simultaneously fill the Dutch demand for European shipping and Japanese demand. If you were Dutch, what would you do?"

"Don't the Dutch also have other suppliers?"

"Yes, they can also purchase from the Indian region, where local production is even higher than ours."

Xiao Zishan nodded thoughtfully: "I understand the problem you're describing. Japanese prices are 3 times higher than our local prices. What if we raise prices? Raise to 6 taels."

"Then we lose the European market. Don't forget there's still the Americas as a variable. If Asian sugar prices exceed a certain limit, Europe will inevitably increase sugar industry investment in the Americas. The Dutch principle for purchasing Asian sugar is: when prices are equal, try to purchase China-produced sugar. Price is still primary."

"What if we lower prices in Japan? Would that increase Japanese demand?"

(End of Chapter)