The idea of ‘friendship and cooperation without borders’, which was outlined in a joint statement by Vladimir Putin and Xi Jinping during the Chinese President's visit to Moscow, is largely a construct of the Kremlin’s propaganda. It will ultimately end up being costly for Russia. Trade between the two countries grew by 36% in 2022, and Chinese exports to Russia increased in value by about 13%. The Kremlin likes to present this as a significant accomplishment and proof of an expanding strategic partnership. However, a closer examination of trade statistics and trends in the economic cooperation between Russia and China reveals that this cooperation will not be strategic but rather will increase Russia's economic and political dependence on China.
On the surface, the growth in trade between the two countries may indeed seem like good news. However, in an article for Foreign Affairs, Agathe Demarais, the Global Forecasting Director of the Economist Intelligence Unit (EIU), which is a part of the same group as The Economist, argues that this growth is not actually the result of an expanded partnership. China is intensifying trade with countries that are not within its closest circle of allies even more actively than it is doing with Russia. For instance, exports to Australia and India, with whom China does not have a particularly close relationship, increased by almost 20% over the past year. As a result, Australia overtook Russia as one of China's largest trading partners. Mexico also recorded a 15% year-on-year increase in trade. In contrast, Russia's share of Chinese exports remains at just 2%, which is the same share held by Thailand, a country with an economy four times smaller than Russia's.
It seemed as though the departure of Western companies from the Russian market in 2022 would have created many opportunities for Chinese companies to fill the gaps they left behind. This raises the question: why have competitors from China not been eager to seize these opportunities?
First of all, according to Demarais, the Russian market is weak. The economy shrank in 2022, and even if it does grow in 2023, any increase will likely fall within the margin of error. In fact, since 2014, when the Russian economy began to stagnate, the nominal volume of Chinese exports to Russia grew by only 40% over seven years. By comparison, Chinese exports to India, Vietnam, and Singapore have increased by more than 200% during the same period. The Russian market simply does not offer a lot of potential for growth. To add to this, Demarais believes that Russia's reluctance to comply with international intellectual property protection standards could be part of the problem.
Ultimately however, according to Demarais, the main issue limiting China’s activity in the Russian market is the potential threat of American sanctions. While China does export microchips worth hundreds of millions of dollars to Russia, these transactions occur through complex schemes involving fly-by-night firms. If sanctions were to be expanded into other sectors of the economy, any benefits China would gain from its expansion into the Russian market (which is relatively small compared to global standards), may fail to offset its losses from other export markets. Consequently, any investments made to enter or expand into the Russian market would have to be written off. Thus, Demarais concludes that, when forced to choose between the US and Russia, Chinese companies will always choose the US.
Although Russian exports to China rose by 43% in 2022, reaching $114 billion, these figures pale into insignificance when compared to imports into China from other countries. For example, Malaysia, whose economy is six times smaller than Russia’s, exported the same amount of goods into China. Additionally, the majority of Russia’s exports to China consist of oil, gas, and coal, the prices of which were extremely high last year and are expected to yield lower returns this year.
The scale of possible economic cooperation between Russia and China and its significance for China should not be exaggerated given the relative weakness of the Russian economy and the risks that the war has created for this cooperation. At the same time, Russia’s economic dependence on China is growing and will continue to do so.
Re:Russia estimates that China's share of Russian exports in 2022 did not grow as significantly as had been expected, with a modest increase from 16% to 19%. However, China's share of total Russian imports rose more markedly over the year, from 23% to 29%. Thanks to high oil prices, Russia received a trade surplus of $38 billion. Nevertheless, the situation is expected to deteriorate in the future. According to Chinese customs data, in the first quarter of 2023, Russia’s exports to China increased by 33% (compared to the first quarter of 2022), reaching $29.8 billion. This growth rate is lower than the increase of 43% seen in 2022. On the other hand, Chinese imports to Russia grew rapidly, reaching $24.7 billion in the first three months of 2023. This is roughly one and a half times more than last year (47%). If this trend continues, China’s share in all of Russia’s imports is projected to reach 35% by the end of 2023. In other words, at least one-third of all imports to Russia will be Chinese or come from China. Additionally, the trade surplus that Russia currently benefits from in its trade with China will be halved.
Ultimately, on the one hand, economic cooperation with Russia is by no means a priority for China, and Beijing will seek to ensure that it does not damage its other trade interests. On the other hand, while Russia will occupy a peripheral position in China’s imports, Chinese imports will become critical for Russia in the face of continuing sanctions. China holds the key to preventing a Western sanctions-induced import blockade for the Russian economy — this will inevitably increase Russia's dependence on China.