Special Report: Sino-Russia Bilateral Trade and Energy Ties
Russian reliance on fuel exports to China is growing
As attention increasingly turns to Chinese (and Indian) imports of Russian energy exports, The Report is featuring an updated trade and energy analysis article. This special report includes the latest available trade data from UN Comtrade and is an update from last year’s edition.
Other housekeeping notes: if you’re interested in Sino-Russia energy ties, you’re invited to join an Atlantic Council virtual event on Friday, July 8th at 12:30 PM ET. “China’s role in Russian energy: What’s changed since Feb 24th?” will feature Erica Downs of Columbia SIPA, Ed Chow of CSIS, Amy Myers Jaffe of The Fletcher School at Tufts, and Brian O’Toole of the Atlantic Council, while Ambassador John Herbst will moderate the discussion. Registration for the virtual event is free and can be completed at this website.
I work at the AC and helped to organize the discussion, which will be the first event in a series on Russian energy exports; I’ll post details in a future newsletter about a Friday, July 22nd event on the Indo-Russian geopolitical and energy relationship. Finally, I’ll publish another newsletter in the standard format tomorrow. Thank you for reading. - Joe
Dedollarization and some context around bilateral goods trade
Before diving into bilateral trade data, let’s discuss some of its limitations. While bilateral trade data is typically directionally accurate, it can be imprecise due to technical or political reasons. We also need to be aware that measuring trade in a third currency (such as USD) can raise analytical problems due to currency fluctuations. (Parenthetically, Russia has been busy dedollarizing its bilateral trade with China, although about 60% of Chinese exports to Russia were still dollar-denominated in 2020. Meanwhile, the renminbi’s share of Russia’s central bank foreign currency reserves rose to 13.1% in June 2021, up from 0.1% in June 2017.) Finally, this analysis will only consider bilateral trade in goods. Bilateral trade in services and bilateral investment flows/stocks, while important, suffer from data limitation issues present even in open systems. Still, despite these caveats and limitations, goods trade data gives us a fairly broad and accurate sense of bilateral economic interactions.
Bilateral trade totals
According to UN Comtrade (all trade data is from UN Comtrade) Sino-Russian goods trade* totaled nearly $150 billion USD in 2021 on higher energy prices (and overall inflation), the post-COVID economic rebound, and the Kremlin’s efforts to minimize trade with the West wherever possible.
Russian exports to China remain higher than Chinese exports to Russia both absolutely and relatively. Russian exports to China in 2021 reached nearly $79 billion USD, accounting for nearly 4.4% of Russia’s GDP, up from 1.7% in 2013. Conversely, Chinese exports to Russia, are significant but not large: Chinese exports in 2021 totaled $67.6 billion USD, accounting for about 0.4% of Chinese GDP, down from 0.5% in 2013. While Russia arguably plays an increasingly important role in the Chinese economy due to its role in supplying energy, the Russian market is not critical for most Chinese exporters.
Trade targets: fuzzy
Readers may recall that the Kremlin and Zhongnanhai apparently set vague and distinct trade targets at their Olympic Summit in early February 2022. Without specifying a timeline, the Kremlin claimed in an official readout that “The President of China mentioned the intention to increase bilateral trade to US$250 billion.” In the same readout of the meeting, however, the Kremlin also cited Xi as saying “As you have already noted, our bilateral trade has reached US$140 billion. We are moving steadily towards our goal, namely, reaching US$200 billion in mutual trade.” (The Report reported on this incongruity at the time). Neither side appears to have ever clarified their targets or discussed a firm timeline, although the Russian side has previously sought to achieve $200 billion in bilateral trade by 2024.
While bilateral trade will face pressures, particularly over the long-term, there is a non-zero probability that the two sides will reach $200 billion in bilateral trade by 2024. Much will depend on energy prices, the course of the war, and Beijing’s willingness to flaunt sanctions. While The Report has been skeptical about bilateral trade totals reaching $200 billion by 2024, skyrocketing energy prices are pushing Russian export prices higher (even after accounting for sanctions-related discounts), while West-Russia economic decoupling is pushing Russian exports to China. Total bilateral Sino-Russia trade stood at nearly $150 billion in 2021, before the war. Trade could conceivably rise to $200 billion – even by 2024 – if energy prices remain elevated and Chinese companies reverse course and begin defying Western sanctions.
Russian exports: crude, coal, and gas (and some other commodities)
Russian exports to China are highly concentrated in commodities, specifically crude and other fuel exports. In 2021, Russian fuel exports of crude, coal, liquefied natural gas, pipeline natural gas, and condensates stood at $53.2 billion USD, accounting for 67% of all Russian exports to China.
Russia’s earnings from crude exports are a function of price and quantity. While quantities of Russian crude imports actually fell by 4.7% in 2021 from prior year levels (at least according to UN Comtrade data), Brent crude prices rose by nearly 67%, while the value of Russia’s crude exports to China rose to $40.5 billion, up 46% from the prior year. (On a technical note, there is significant uncertainty around crude export volumes, while the Brent crude oil marker is an imperfect proxy for the actual level of realized export prices.)
The near-term trade outlook
Will Beijing continue to largely comply with sanctions, or will it be increasingly willing to support Putin in the months ahead? There is evidence for both views. There is substantial evidence that Beijing is treading carefully around Western sanctions, as Chinese exports to Russia have fallen 38% compared to the second half of 2021, according to an analysis by the Peterson Institute of International Economics. On the other hand, Chinese import volumes of Russian oil reached an all-time in May, according to the most recent customs data, while there are growing signs that Beijing is trying to weaken Western sanctions resolve. On a strategic level, Beijing’s structural interests suggest it will likely try to continue to preserve its economic ties with the West while offering support to Moscow where possible.
Short-term, tactical considerations, particularly surrounding the Chinese economy and Omicron-related developments, will likely shape Beijing’s sanctions posture and willingness to support Putin and undertake foreign policy risks. If large-scale breakouts of Omicron reemerge or if economic (or financial) difficulties manifest, Beijing’s enthusiasm for Putin’s invasion of Ukraine could diminish. On the other hand, Beijing recognizes the importance of the conflict in the struggle between autocracy and constitutional democracy. PRC military planners may also see an advantage in prolonging the war as long as possible, as the exhaustion of Western military supplies could have important implications for a potential contingency involving Taiwan.
Beijing is following the crisis very closely and will remain alert to potential dangers and opportunities. Zhongnanhai probably sees more costs than benefits from defying sanctions, but it might be contemplating more open support for the Kremlin. With the invasion’s outcome still in doubt, Beijing’s degree of support for Putin could have major implications for the future of Ukraine and, more broadly, the struggle between autocracy and constitutional democracy.
*For simplicity’s sake, this analysis does not distinguish between goods trade and total bilateral trade, which includes both goods and services. Bilateral trade in services is quite small compared to goods trade, however, while even economies like the US and the EU struggle to capture service imports and exports. This analysis consequently ignores bilateral trade in services and uses “goods trade” and “total bilateral trade” interchangeably, in order to improve readability.
Until next time,
Joe Webster
The China-Russia Report is an independent, nonpartisan newsletter covering political, economic, and security affairs within and between China and Russia. All articles, comments, op-eds, etc represent only the personal opinion of the author(s) and do not necessarily represent the position(s) of The China-Russia Report.