Russian imports in the first half of the year decreased by approximately 9-10%, according to data from the balance of payments and the Customs Service. Such a decline appears abnormal against the background of stable exports and a growth in domestic output. Some economists estimate that imports are currently about 30% below the level at which they should be considering economic dynamics, dollar inflation and other factors.
The main reason for the decline in imports is difficulties in processing payments. Customs Service data indicates that the re-export of European goods through southern corridors: Turkey, Transcaucasia and Central Asia, has been primarily affected. Russia's main trading partner, China, did not compensate for this reduction.
To understand the dynamics of Chinese imports, one should focus not on the data from the first half of 2023, when the structural adjustment of Russian imports continued and the volumes of supplies from China were growing, and the second half of 2023, when they had reached a plateau.
The average monthly volumes of Chinese imports in the first half of 2024 are 14% lower than in the second half of last year. Shipments of machinery and equipment (one of the key categories) are down 10%, cars 17% and electronics 18%. Nevertheless, June data already indicates a likely recovery of imports to the levels seen during the second half of 2023. The main reason for this could be the transfer of payments to smaller banks that are not afraid of Western sanctions.
If this trend takes hold, it will be possible to say that the effect of secondary sanctions on Russian imports was temporary and limited. In each round of the sanctions confrontation, new restrictions first put pressure on the economy, then counterparties find ways to circumvent them, which, however, increase the economy's costs. This sanctions spiral may continue as long as high export revenues allow Russia to bear these costs.
Russian imports in January-June decreased by approximately 9%, as calculated by the Central Bank's statistics department: down to $138 billion from nearly $152 billion in the first half of 2023. The Federal Customs Service (FCS) recorded a similar result for the first five months, with a year-on-year decline of 10%. According to their data, from January to May 2023, Russia imported goods worth $117.8 billion, while from January to May 2024, it was $107.8 billion. The published customs statistics does not contain a breakdown by country – only by macro-regions. The most significant reduction was in imports from Europe, down by $5.5 billion (17%), from $34 billion to $28.5 billion. Imports from Asia decreased from $75 billion to $72 billion, from America – from $7 billion to $6 billion. Imports from Africa remained the same ($1.5 billion). Russia barely trades with Oceania. Imports of goods from China to Russia in the first half of the year decreased by 1.5%, from $52.5 billion to $51.7 billion, according to data from China's General Administration of Customs.
This decline in imports appears abnormal against the backdrop of stable export revenues and an increase in domestic output by more than 6%. The total volume of Russian imports is now approximately 30% below the level it should be, considering the growth rates of the Russian economy, dollar inflation, and other factors, according to analysts at SberCIB. Comparing the import situation in the first half of 2024 with the same period last year, it can be stated that the re-export flow of European goods to Russia through southern corridors – Turkey, the South Caucasus, and Central Asia – has significantly decreased. However, this reduction was not compensated by increased supplies from China. Meanwhile, the decline in non-Chinese imports led to China's share in Russian imports growing even further, reaching 39%.
Compared to the fourth quarter of 2023, imports also fell by 10% in the first quarter of this year. Although imports increased slightly in the second quarter, they are still 8% below the second quarter of 2023.
The main reason for the decline in imports is payment processing difficulties that began to emerge at the end of last year and became widespread at the beginning of this year (→ Re:Russia: Sanctions Compliance). Not only Western, but also Turkish and Chinese banks were forced to sever relations with a significant portion of their Russian clientele due to the threat of secondary sanctions from the US. In some cases, the collapse of imports was devastating. For example, the volume of goods imported from Turkey in the first quarter was only $2 billion compared to $3 billion the year before, according to Turkish customs data. Although volumes increased in April and May, they were still more than 15% lower than a year ago. The lag from last year decreased due to the resumption of payments for consumer goods, electronics, and machinery products.
Comparing the volumes of Chinese imports at the beginning of this year with the beginning of last year is somewhat misleading. In the first half of 2023, supplies from China were steadily increasing, reaching a new level, reflecting a shift in the geographic structure of Russian imports. Since mid-last year, the volumes of Chinese imports have plateaued, with an average monthly value of $10 billion. Starting January 2024, there was a decline, reaching a low in February-March ($7.5 billion per month – 25% below the average monthly level of 2023). However, this period was influenced by the seasonal effect of the Chinese New Year. Volumes began to rise afterward: in May they were $9.1 billion, and in June $9.9 billion, aligning with the average monthly levels of the second half of 2023. The average monthly value for the first half of 2024 was $8.62 billion – still 14% lower than the average monthly value for the second half of 2023. In physical terms, the dynamics of imports are likely even worse due to increased transaction costs related to circumventing restrictions, as noted by Raiffeisenbank analysts.
If we take a closer look at Chinese imports, 57% of these fall into three commodity groups: cars (21%), machinery and equipment (21%) and electronics (15%). Thus, almost a quarter of all Russian imports consist of Chinese cars, machinery, equipment, and electronics. The most notable change compared to pre-war times (besides the growth in average monthly volumes) is the increase in the share of cars in Chinese imports to Russia – from 8% to 20%. While before the war, cars from China were imported in the same volumes as, for example, textiles (about $500 million per month), they are now the largest import category.
In machinery and equipment, Russia's average monthly purchases from China in the first half of 2023 were $2.03 billion, increasing to $2.17 billion in the second half, but decreasing to $1.96 billion in the first five months of 2024, which is a 10% decline from the second half of 2023 levels. Car imports showed explosive growth in the first half of 2023, rising from $1 billion to $2 billion per month. In the second half of the year, they fluctuated around an average monthly value of $2.1 billion. In February-March 2024, they decreased by a third compared to these volumes, but by April-May, they had caught up ($2.3 billion per month). However, the average monthly value for January-May was still $1.75 billion, which is 17% below the levels of the second half of 2023. In electronics, average monthly purchases in the first half of 2023 were $1.27 billion, rising to $1.58 billion in the second half, but falling to $1.14 billion in the early months of 2024. This is an 18% decrease; however, in November–December 2023, ahead of the implementation of secondary sanctions, electronics purchases surged to $1.9 billion per month. Essentially, an additional $1 billion worth of products was purchased, and if this is factored into 2024, the decline in available Chinese electronics in the first half of 2024 should not be as significant.
Thus, first, Russian imports decreased at the beginning of 2024: missing European supplies were not replaced. Second, even accounting for seasonal and calendar factors (Russian and then Chinese New Year holidays), the decline in Chinese imports in the first half of 2024 appears quite significant compared not to the first half of 2023, when the scale of imports from China was growing but had not yet reached a new structural threshold, but to the second half of 2023, when purchases plateaued. The import shortfall is 14% or $8.3 billion ($51.7 billion vs. $60 billion). Physical imports likely decreased even more due to increased costs. The reduction in imports in the first half of 2024, amid economic growth, had a macroeconomic effect, intensifying inflationary pressure in the economy. However, June data indicates a probable recovery of imports to levels typical of the second half of 2023. If this trend consolidates in the coming months, it could be said that the effect of secondary sanctions was not as significant and temporary.
The recovery of imports may have been facilitated by shifting operations from large banks to smaller ones, which either do not work with the West (and thus do not fear sanctions) or are willing to take risks for high commissions. Measures to impact these banks were discussed at the recent G7 summit, according to Reuters. Additionally, the government's decision to reduce the share of foreign exchange earnings that major exporters are required to repatriate and sell could have played a positive role in the import recovery in June, suggests economist Dmitry Polevoy. This threshold was reduced in two stages from 80% to 40%. Retaining a larger share of foreign exchange earnings in the external circuit will allow importers to pay for goods without the involvement of Russian banks, the economist believes. Finally, some transactions must be conducted through intermediaries in Hong Kong, Kyrgyzstan, Kazakhstan, the UAE, and other countries. In the spring, they accounted for up to 50% of all payment volumes for Chinese imports, Reuters sources reported. However, without urgent necessity, importers try to avoid intermediaries due to high risks and costs (commissions reach 20%).
Nevertheless, according to Bloomberg sources, payment problems are not fully resolved. For instance, in June, car and car parts importers faced difficulties. A representative of the Russian Automobile Dealers Association told the agency that the situation is close to collapse. In July, Vedomosti reported that payments no longer pass through VTB's Chinese subsidiary, and the bank does not expect to be able to fix this issue. The fight over the sanctions regime continues and, as economist Alexander Libman predicted in an article for Re:Russia, it is taking place with mixed success: new sanctions obstacles lead to temporary problems for the Russian economy, and then to the search for workarounds, which are inevitably found, but result in new transaction costs. This spiral can continue to unwind only as long as Russia's export revenues remain sufficient. Should they fall, the inability to pay for imports will become one of the key factors of an economic crisis in Russia.