China-Russia trade friendship may not be what it seems (FT)

Trade relations between the two powers appear rather to be recovering from an abnormally low starting level.

Trade relations between Russia and China look great on paper: the volume of bilateral trade reached 240 billion dollars in 2023, an explosion of 26.3% in just one year. Moscow and Beijing can only congratulate themselves, as such a flattering statistic confirms the hypothesis that these two capitals enjoy a friendship “without limits”. But if we scrutinize a bit the spoiling of the data on Sino-Russian trade, we discover a more nuanced picture.

Impressive growth of Sino-Russian trade in 2023

It is by no means a surprise that the world’s second economy (China) trades with the eighth (Russia). Nor is it surprising that these trade relations are strengthening as sanctions force Russia to reorient its trade from Europe to Asia. But it would be more interesting to see if Chinese companies have established unusual relationships with Russian ones.

First, let’s see if the volume of bilateral trade is unusually high. Russia’s nominal GDP is between Brazil’s and Australia’s. As it turns out, China’s trade volume with Russia, Brazil and Australia is about the same in all cases. Which is not enough to conclude that the Sino-Russian trade relationship is anything but special, but it does at least indicate that the rhetoric about their special relationship rests on a shaky foundation.

China’s imports from Russia increased by 12.7% in 2023. However, such high growth rates are not at all unusual in China’s trade statistics. In 2022, for example, Chinese imports from Canada increased by 39%, but few observers would be inclined to say that this denotes a special relationship between Beijing and Ottawa.

Perhaps it is more useful to see how much China imports from Russia if we want to know whether Chinese firms are disproportionately relying on Russian goods. But this picture may not please the Kremlin: Russia continues to be only a small supplier for Chinese companies. At 129 billion last year, Chinese imports from Russia represent only 5% of the total. Moreover, increasing Russian exports to China could well become a double-edged sword: if Russian exporters become increasingly dependent on the Chinese market, this situation gives Beijing leverage over Moscow.

Contradictory realities of commercial dependence

But maybe this borderless friendship is based on the fact that China’s exports to Russia are unusually high? They certainly increased in 2023 by 46.9%, the highest rate compared to other trading partners in that year. But still, again, if we also look at the trade data in absolute terms we will see a different picture: Chinese companies export to Russia about as much as they export to the Netherlands, a country with an economy almost 2.5 times smaller and without a huge shared border with China. At $111 billion, China’s exports to Russia are even smaller than those to Vietnam.

Of course, quality also matters, and Chinese exports of tools that will help Russia produce military equipment are of crucial importance to Moscow. And yet, looking at things as a whole, Russian companies are not big customers of Chinese ones, which shows how unbalanced their bilateral trade relationship is.

Rather than flourishing, Sino-Russian trade relations now appear to be recovering after starting from an abnormally low baseline. Bilateral trade was actually underdeveloped before Russia’s invasion of Ukraine in February 2022. And with sanctions now isolating Russia from Europe, Moscow had no choice but to reorient to Beijing, fueling growth that is actually a recovery.

The Uncertain Future of Sino-Russian Trade Relations

If this recovery theory is indeed correct, then Sino-Russian trade may soon plateau. There are recent events that support this hypothesis. Negotiations regarding the Power of Siberia 2 gas pipeline have stalled. Moreover, only a handful of Chinese refineries are capable of processing Russian crude because it is high in sulfur. Both factors suggest that Russian energy exports to China may soon stabilize.

On the other hand, Chinese banks in March stopped processing payments related to exports of IT equipment to Russia, probably thus stopping the growth of Chinese exports to Russia, since IT products make up the bulk of them. In the first quarter of this year, China’s exports to Russia remained largely at the same level.

Chinese banks appear increasingly wary of doing business with Russian firms, illustrating growing concern in China over secondary US sanctions. And as Washington has now moved to more strictly implement those sanctions, those fears could grow even greater in the coming months. So the explosion in the rate of Sino-Russian trade may soon become just a memory. Moscow and Beijing can still brag all they want about their boundless friendship, but that rapprochement doesn’t seem to extend to the commercial sphere.

Article by Agathe Demarais (European Council on Foreign Relations), in The Financial Times/ Translation: Rador Radio Romania