China and Russia: What do they buy from and sell to each other?

By Rhod Mackenzie

During a meeting with the Chinese Premier Li Qiang on December 19, Russian Prime Minister Mikhail Mishustin stated that the use of national currencies for payment of goods and services between Russia and China has increased. What is the the potential trade turnover between the two countries in 2024 and what are the most promising sectors for cooperation?.

The ruble and yuan turnover between China and Russia has increased.
In just three years, Russia and China have almost completely eliminated the use of third-country currencies in their mutual settlements. Today, almost all payments are made in rubles or yuan, compared to 20% in 2020. According to Mikhail Mishustin, this trend is continuing.

The Russian Prime Minister visited Beijing on December 18 for a working visit to strengthen economic ties. In addition to negotiating with Li Qiang, he is expected to meet with Chinese President Xi Jinping. A number of agreements will be signed following the visit.

Business contacts between Russia and China continue to intensify. In May, the Shanghai Business Forum was held, with representatives from 1.5 thousand companies from both countries participating. Periodic exhibitions are organized, such as “Expo” in Moscow and “Innoprom” in Yekaterinburg.
According to analysts interviewed by the newspaper Izvestia, China is a valuable ally with whom friendly relations are both desirable and generally possible.

Alexander Shneiderman,the head of the sales and customer support department at Alfa-Forex, is confident that building a strong relationship with China is the right approach in the current conditions.

Meanwhile, EU countries continue to tighten sanctions against Russia. One of the recent decisions is to transfer a portion of the earnings from the frozen assets of the Central Bank of Russia to Ukraine. According to the analyst, China is currently the only significant partner for Russian foreign trade.

What is the extent of China's purchases from Russia and Russia's sales to China?

Following the breakdown of cooperation with the West, the EU's share in Russia's foreign trade turnover decreased from 37% to 14%. The volume of Russian exports to the EU decreased threefold, from $16 billion to $6 billion per month, and imports from Europe decreased by more than half, from $9 billion to $4 billion. These figures were provided by Finam FG analyst Alexander Potavin.
According to the analyst, China quickly filled the EU's vacant position and has become Russia's primary trading partner, accounting for one-third of both exports and imports.

Total Russian assets in the four largest banks of the People's Republic of China have quadrupled since the end of 2021. According to the publication's source, interbank balance sheets now almost match the assets of Western banks that had long-standing business relationships with Russian companies.

As noted by Vladimir Putin, in 2021, 87% of foreign currency was used to service Russian exports, primarily in dollars and euros. Payments in rubles accounted for approximately 11-13%, while the yuan accounted for about 0.5%.

In September 2023, the proportion of export payments made in rubles rose to 40%, while payments made in yuan accounted for approximately 33%. Meanwhile, the combined usage of the dollar and euro decreased to 24%.

This shift can be attributed to internal prohibitions, which have significantly reduced the use of payments in dollars and euros. Additionally, payments made in pounds, francs, and yen have been completely phased out. Alexander Potavin explained that due to the limited number of Russian banks able to make payments using the SWIFT system, businesses have shifted their focus to settlements in other currencies.
Mikhail Nikolaev, director of the group of sovereign and regional ratings at ACRA, suggests that for the yuan to fully replace the dollar, the Russian yuan market needs further development, increased liquidity, and more available instruments.

Statements by officials suggesting a complete transition to national currency payments can benefit economies, but analysts have mixed opinions on this.

Alexander Potavin believes that the more Moscow uses national currencies for payments, the less hard foreign currency enters Russia.

This can lead to a weaker ruble due to importers' requests being typically satisfied in dollars and euros.

According to a majority of surveyed analysts, if the current growth dynamics persist, trade turnover between Russia and China may exceed $250-300 billion next year.

It is worth noting that rubles and yuan will continue to dominate in mutual settlements. Boris Pivovar, senior lecturer at the Department of Business Process Management, Faculty of Market Technologies, IOM RANEPA, emphasizes this point.
It may not be possible to completely avoid using third-party currencies, as re-exported goods must be taken into account. However, in industries where mutual interests exist, trade will be conducted in rubles and yuan. The expert is confident that this will be the case.

In the autumn of 2023, settlements in national currencies between Russia and China exceeded 90%. Initially, Russia and China used the ruble and yuan equally to pay for gas.

The Economist and Director of Communications at BitRiver, Andrei Loboda, notes that the growth of mutual settlements in national currencies will occur as the yuan strengthens as the third most important national currency and the Chinese share in the US national debt decreases.

Loboda also predicts that the ruble will be less volatile next year, with the dollar trading in the range of 85-95 rubles.
Russia and China trade in energy, cars, and household goods.
Promising industries on the Russian side include energy resources, while on the Chinese side, it's automobiles and household goods. Boris Pivovar believes that these areas will continue to develop.

China is already actively present in all major sectors of the Russian economy and will continue to increase its share of presence. He comments that if Russia expands production in the defense industry, it will be able to increase supplies of goods from this industry to China.
Economist Andrei Loboda forecasts a 20-25% growth in mutual settlements next year.

China is increasingly interested in the Russian energy sector, energy-intensive blockchain computing industry, logistics, tourism, agriculture and food, and high-tech manufacturing. The economist also explains that cooperation with Russia significantly contributes to the growth of the Chinese economy.

ACRA Director Mikhail Nikolaev believes that issuing government bonds in yuan is a promising step.

This will establish a benchmark for the market and reduce the cost of yuan bonds for companies that are already actively placing them.

The expert also emphasized the need to increase the export of Russian non-energy goods to China for Russian rubles.

The rate of growth in China's economy is decreasing, which suggests a decrease in its demand for energy products.
   According to Alexander Potavin, trade cooperation with China has been simplistic thus far: China imports energy resources and raw materials, while Russia imports everything else. Potavin suggests that this system is overly simplistic.
China is not eager to deepen cooperation with Russia quickly, as it is reluctant to simply hand over its technologies. According to an analyst, a few months ago, Sergei Sobyanin stated that Asian countries do not share advancements in mechanical engineering, aircraft manufacturing, or microelectronics.

Therefore, the analyst concludes that Russia is being offered a pre-existing Chinese product for purchase. However, investing in the development of one's own mechanical engineering comes at a premium.

The analysts suggests that Russia and China may have already reached their maximum potential in simple commodity exchange.