Russia has found ways to diversify trade with China

By Rhod Mackenzie

According to the Russian Foreign Minister Sergei Lavrov, Russia's primary objective in global trade is to establish a long term partnership with China. Lavrov believes that the 75-year relationship between Russia and China is currently at its best level in history.

Alexander Bakhtin, an investment strategist at BCS World of Investments, stated that Russian-Chinese trade flows have increased 20-fold in the 20 years since 2003 when trade turnover was about $11.5 billion. Bakhtin also mentioned that they do not rule out reaching $300 billion in trade turnover with China this year.

Over the past 23 years, trade relations between Russia and China have rapidly developed. The growth rate was above 30% per year from 2000 to 2004, except for 2002. In 2004, the volume of foreign trade between China and Russia reached $21.2 billion, which was more than a third increase. In 2005, the heads of both states agreed to increase trade turnover to $60 billion by 2010. However, the global economic crisis of 2009 led to its failure. In 2010, they managed to trade for $55 billion, an increase of 41%. The plan was exceeded in 2011, with trade turnover between the countries increasing to $80 billion. Trade volumes continued to increase, albeit at a slower pace due to the high base effect, by 5-10% until 2015," notes Vladimir Chernov, an analyst at Freedom Finance Global.
Between 2015 and 2020, the growth rate of trade turnover fluctuated, with some years experiencing negative indicators due to external pressures on the Russian economy and the Covid-19 pandemic. However, in 2021, trade volumes surged by almost 40% to $146 billion, setting further all-time records in 2022 and 2023.

In 2022, Russia became one of China's top ten largest foreign trade partners, with trade turnover increasing by a third to $190 billion.

In 2023, trade turnover with China reached a record $240 billion, according to data from the General Administration of Customs of the People's Republic of China. This figure does not include the services market.

The original plan was to reach $200 billion by the end of 2024, but this was exceeded by a large margin in the previous year.

Both countries export similar volumes in monetary terms. In 2023, Chinese exports to Russia increased by almost 50% to $111 billion, while Russian exports to China rose by 13% to nearly $130 billion. As of December 2023, each country supplies approximately $11 billion worth of goods to the other per month.

It is worth noting that the majority of Russia's exports in terms of value are energy resources such as oil, natural gas, and coal. Other significant exports from Russia to China include copper and copper ore, timber, fuel, and seafood.
In turn, China exports a wide range of products to Russia, including smartphones, industrial and specialized equipment, toys, shoes, vehicles, air conditioners, and computers. The Chinese auto industry is rapidly gaining ground in the Russian automobile market. According to Bakhtin, the most noticeable items in the oncoming flow of goods are cars and spare parts, which have increased fivefold compared to 2022, as well as trucks, tractors, bulldozers, electronics, and household appliances.

Experts are confident that trade between the two countries will continue to grow, with Russian food exports being an important point of growth.

According to the Russian Export Center, Russian agricultural exports to China reached $6.8 billion at the end of 11 months in 2023, a 60% increase from the previous year. The total trade turnover approached $9 billion, a 40% increase from the previous year.

Russia also secured the largest contract for the supply of grain crops to China last year. Furthermore, Beijing lifted a 15-year ban on the purchase of Russian pork. As the world leader in pork imports, this presents a significant opportunity for Russia. Russian pork exports to China are expected to commence in the second or third quarter of this year. This marks a significant milestone in entering a new and highly lucrative sales market.

The export of chemical products and fertilizers to China has consistently grown at a double-digit rate. Additionally, Russian pulp and cardboard supplies have increased by over 20% in physical terms, accounting for more than 15% of total Chinese imports of these products. The Russian Export Center made note of these developments.

Chernov predicts that the structure of trade turnover in 2024 will change slightly, with the food sector experiencing the greatest changes. Due to the high base effect of previous years, the growth rate of trade turnover between countries will slow down to 15-20%. Therefore, it is unlikely that trade turnover will reach $300 billion in 2024, but rather $275-288 billion. However, this will still be a new record figure, exceeding the planned amount from several years ago by $75-88 billion.
New opportunities for trade are emerging, particularly with regards to accessing the Chinese market for a range of agricultural products and food from Russia. These include pork, feed for unproductive animals, millet, wild aquatic products, and medicinal raw materials for Chinese medicine. Additionally, in 2023, an agreement was signed to allow for the supply of rice and corn from all regions of Russia. The Russian Export Center notes that work is currently underway to regulate all procedures that should facilitate physical deliveries.
Chernov expects that, following the full recovery of the Chinese economy, there will be opportunities to increase exports of metals, including rare earths, in addition to energy resources and food, as demand for electric vehicles begins to recover.

According to the expert, Russia can increase imports of high-tech products, electronics, microcircuits, household appliances, and cars from China. This is particularly important since Western countries have imposed sanctions on these products.

Additionally, there is potential for cooperation in shipbuilding, including the construction of icebreakers, and projects with Rosatom. According to Ekaterina Novikova, Associate Professor of the Department of Economic Theory at the Russian Economic University Plekhanov, Russia excels in these areas, and China has a unique opportunity to obtain the products it needs at a high discount, considering the current global situation.

Chernov highlights the expansion of transport routes as one of the key aspects of trade development. By 2024, navigation along the NSR will be year-round, and there are plans to expand both the BAM and the Trans-Siberian Railway.

The logistics infrastructure is currently being improved, with the opening of the Nizhneleninskoye-Tongjiang railway bridge and the Blagoveshchensk-Heihe road bridge. The Russian Export Center notes that the reconstruction of several existing border crossings is underway, and the expansion of the border warehouse infrastructure is next.

Business exchanges, trips, and participation of companies from both countries in exhibitions have also resumed. This means that more and more businessmen are finding new partners. As part of the 'Made in Russia' festival-fair in Liaoning province, 150 domestic manufacturers from over 40 regions of Russia presented approximately 1,500 items for retail and e-commerce.