Statistics indicate that the decline in supplies from China to Russia has been overcome

Exports of goods from China to Russia in the first half of 2024 in monetary terms amounted to 366.81 billion yuan, an increase of almost 2% compared to the same period in 2023. Such data was released on July 12 by the General Administration of Customs of China.

At the same time, in June, exports from China to Russia amounted to 70.23 billion yuan (in June 2023 it was 66.80 billion yuan, an increase of 5.1% year-on-year), according to data from the Chinese customs service. Supply growth in June accelerated compared to May, when Chinese exports to Russia in yuan terms increased by 1.8% year-on-year.

In dollar terms, however, China's exports of goods to Russia in the first half of 2024 decreased by 0.8%, to $51.66 billion. In June, China's dollar exports to Russia amounted to $9.88 billion, which is almost more than in June last year. by 4%. This was preceded by a reduction in the indicator by approximately 1% in May to May 2023.

For comparison: total exports of goods from China to all countries of the world in dollar terms increased by 8.6% in June, that is, supplies to Russia grew more slowly.

Growth after recession

The two-month increase in supplies from China to Russia followed a decline observed in March-April this year amid payment problems: then yuan exports to Russia fell by almost 11% in annual terms. This reduction in supplies from China was the first since 2022, Bloomberg attributed it to the refusal of Chinese banks to process payments due to the risk of secondary US sanctions .

In May 2024, Russian President Vladimir Putin visited the PRC . As Reuters reported , citing sources, the trip helped the two countries develop some alternatives to trade payments closed due to sanctions - with the involvement of small regional Chinese banks.

In June, the US Treasury updated the definition of the Russian “military industrial base” to include all companies and organizations and all individuals that were or will be subject to sanctions in accordance with the order of US President Joe Biden of April 15, 2021. This effectively expanded the mechanism of secondary sanctions against banks from third countries, introduced by the United States in December 2023. Foreign financial institutions risk being sanctioned “for conducting or facilitating significant transactions or any services involving any persons included in the sanctions list” under the 2021 decree, the US Treasury explained.

In addition, in June, the European Union added 19 Chinese companies to the sanctions list, which Brussels considers involved in supporting the Russian military-industrial complex.

Russian customs statistics are now closed at the level of specific partner countries.

Problems with payments

Operational data from Chinese customs can be interpreted as “indicating a decrease in the severity of the problem,” says leading researcher at RANEPA Alexander Firanchuk. However, he notes that the lack of detailed statistics does not make it possible to clearly indicate to what extent specific goods are subject to restrictions. “The purpose of the sanctions is not to limit imports as such, but to reduce the supply of some critical goods. Even a complete cessation of their supply may not have any impact on the total volume of imports,” Firanchuk emphasizes.

A comparison of Chinese customs statistics and Bank of Russia data on total import volumes in the first half of the year (total imports decreased by 9.1%) suggests that the dynamics of supplies from China are better than the dynamics of total import volumes. This means that the dependence of the Russian economy on one source of imports - China - is increasing, warns Firanchuk.

The trend for the growth of Chinese supplies to Russia after the decline in the first quarter was set back in May, and the June figures confirmed that the temporary decline in the import of goods from China has been overcome, states leading expert at the Center for Macroeconomic Analysis and Short-Term Forecasting Andrei Gnidchenko. “Apparently, counterparties are finding workarounds - payments through small banks or intermediaries. This does not contradict the fact that large Chinese banks may still be wary of accepting payments from Russia,” he argues. However, customs statistics reflecting the physical movement of goods “clearly indicate that the vast majority of importers are coping with the problems.” “Another question is the price of these solutions: the increased value of China’s exports to Russia may partly reflect higher prices for products,” says Gnidchenko.

Today, many manufacturers ship goods on credit, since the problem with payments has not been completely resolved, notes ATVIRA CEO Ekaterina Kizevich . “We have clients who continue to receive their products from China, but still cannot pay the manufacturer, and the creditor is stuck. This applies mainly to companies that have been cooperating with Chinese manufacturers for 10–15 years and have friendly relations with them,” she says. The persistence of problems with payments to China for small and medium-sized businesses is also confirmed by the representative of Opora Russia in China (Guangdong Province), Ilona Gorsheneva-Dolunts. “Based on the data of the entrepreneurs with whom I work, the situation has even worsened a little. Chinese banks are really wary of engaging in trade with Russia because of the risk of secondary sanctions,” she says.

The declaration published in May following the results of Russian-Chinese high-level negotiations spoke, in particular, of plans to increase mutual investment , bilateral trade and the share of national currencies in it, increase oil and gas supplies, and create new transit routes.

Deliveries in yuan and dollars

A more informative indicator is supply volumes in dollars rather than yuan, since dollar prices on the global market are more stable, Firanchuk points out. The difference in estimates of trade flows from China in dollars and yuan simply reflects some weakening of the yuan against the dollar that occurred in 2023-2024, he explains.

Traditionally, foreign trade is usually measured in dollars for comparability across countries and to exclude effects specific to partner countries, notes Gnidchenko. According to him, when considering the dynamics by last month, exchange rate differences are not so critical, but when analyzing the comparable period of last year, they can accumulate and reflect the peculiarities of the dynamics of the partner country in relation to the “benchmark of developed economies.” “So, in China, since last year there has been a depreciation of the yuan, associated with a slowdown in economic dynamics and a reduction in foreign investment, and these events will distort the perception of the dynamics of trade in yuan,” says the expert.

In fact, 95% of all trade transactions between Russia and China are carried out in rubles and yuan, said then First Deputy Prime Minister of Russia (now Minister of Defense) Andrei Belousov in November 2023.

Chinese imports from Russia amounted to 463.14 billion yuan in the first half of this year, an increase of almost 7% over the same period. In dollar terms, imports for the first half of the year increased by 3.9%, to $65.21 billion. The total trade turnover between Russia and China for the first half of the year increased by 4.6% in yuan and by 1.8% in dollars.

Import through third countries

Customs statistics of the PRC cover only direct deliveries to Russia. The risks of secondary US sanctions could lead to Russian importers increasingly being forced to rely on Central Asian countries to facilitate trade with China, Bloomberg Economics Russia economist Alexander Isakov suggested in April.

According to Gnidchenko, Russian business does not have strong motives for redirecting a significant part of supplies from China to CIS countries, since problems are primarily fixed in payments, and not in logistics. “Payment schemes through intermediaries in the CIS are possible, but this is unlikely to translate into a physical change in trade flows. And so far it does not seem that this is happening, since supplies to Russia, according to direct data from Chinese customs, increased significantly in June,” he emphasizes.

Firanchuk, in turn, notes the risk of using relatively small economies to import from China due to the scale of supplies. “For example, a number of EAEU countries have increased imports significantly since 2021. Few people question the true reasons for such a jump. Representatives of Western countries certainly note this and continue consultations with the EAEU countries,” he points out.