We need to talk about Kyrgyzstan

Bishkek is overseeing huge amounts of indirect China-to-Russia trade

Western countries need to strongly consider placing significant restrictions on trade with Bishkek. I elaborate on this argument in The Telegraph’s Ukraine: The Latest podcast, where I discussed some analysis conducted in a recent article on Sino-Russian trade for The Atlantic Council.

I’ve included my high-level talking points for the podcast below but suggest consulting the Atlantic Council or Lowy Institute articles on Central Asia/Kyrgyzstan for more in-depth analysis/data visualizations, or the Telegraph podcast if you’re more of an auditory learner. Thanks for reading - Joe

Five broad points:

1.       Chinese exports to Russia, whether shipped directly or via cutouts, are critical for the Kremlin’s war effort. These direct and indirect exports to Russia have surged since the full-scale invasion began in February 2022.

2.       Chinese firms are not unconditionally committed to Russia. They have been cautious about violating Western sanctions and have scaled back ties with Russia twice due to sanctions fears, first at the beginning on the full-scale invasion and again in early 2024.

3.       Sanctions are something like a game of whack-a-mole and lead only to temporary disruptions. But they’re still important, as they can disrupt the Kremlin’s war machine for weeks or even months.

4.       With Ukraine likely facing its darkest winter of the war, Kyiv needs all the help it can get. Western policymakers should look closely at further disrupting the Kremlin’s indirect imports from China. Accordingly, Western countries should also consider applying tougher sanctions to Kyrgyzstan, which has been a huge violator of sanctions. This approach is not without risks but would disrupt the Russian war machine for several weeks or even months.

5.       There are at least two ways to slow indirect China-to-Russia trade. First, Western countries should consider blanket bans on exports to Kyrgyzstan. Second, many Western firms with operations in China are notionally exporting to Kyrgyzstan, but with the understanding that these goods will ultimately arrive in Russia. The status quo allows them to trade with Russia with a fig leaf of deniability. By placing Russia-like sanctions on Kyrgyzstan, Washington and Brussels can significantly disrupt China-to-Russia trade via the indirect route.

The role of Chinese exports to Russia in shaping the conflict

Russia very likely could have lost the war already without access to Chinese imports. According to estimates from Alex Isakov and Gerard DiPippo of Bloomberg Intelligence, China’s share of all Russian imports jumped from 25 percent before the full-scale invasion of Ukraine to 56 percent in 2023, after accounting for transshipments via Central Asia. China’s provision of commercial goods prevents shortages, limits inflation, keeps the elites and public tolerant, and ensures that the Russian economy continues to operate.

But It’s not just the volume of trade that’s significant. China is supplying Russia with critical technologies and equipment that have battlefield implications. While Russian trade data is opaque, our best estimates suggest that Russia obtained nearly 90 percent of its semi-conductors imports from China in 2023, according to Chris Miller’s AEI report that features C4ADS data. Those chips can be purposed for military items such as missiles, drones, and communications and intelligence systems.

China has also stepped in to provide the Russian defense industrial base with key inputs. As we discussed on the podcast back in September 2023, Chinese-made equipment helped Russian forces dig the Surovikin Line in late 2022 and early 2023. You can see that by looking at Chinese exports to Russia of excavators, which dig dirt out of the ground, and front-end shovel loaders, which move it along the surface. Chinese exports of these items surged from September 2022 through June 2023 and then declined sharply. Those shipments correspond with when Russian forces dug trenches amid the September 2022 Kharkiv counteroffensive, as well as the broader Ukrainian counteroffensive begun in June 2023. A lot of Ukrainians are dead today because Russian forces used Chinese exports to build defensive fortifications.

Direct and indirect trade

When we talk about Chinese exports to Russia, it’s important to distinguish between direct trade, which is conducted between China and Russia, and indirect trade, which is transshipped via third countries. Chinese direct exports to Russia have generally risen throughout Russia’s full-scale invasion of Ukraine. Chinese 3-month rolling averages of exports to Russia stood at about $6 billion USD per month in November 2021 and rose to about $10 billion USD per month by January 2024.  

Indirect trade figures have also risen sharply. China’s 3-month rolling average exports to Central Asia have roughly doubled from before the war and now stand at nearly $6 billion USD per month. Many of those shipments are of course bound for Russia.

Chinese firms are not unconditionally committed to Russia/ Sanctions whack-a-mole

Chinese direct exports have only fallen in two different periods. In the initial days of the war, Chinese exporters were very cautious about running afoul of Western sanctions, and so pulled back from the Russian market. With the US emplacing secondary sanctions on Russian firms in December 2023, you again see Chinese exporters acting cautiously. According to official Chinese trade statistics, Chinese direct exports to Russia through May are actually down about 2 percent year-to-date, the first time since the early days of COVID.

Even more importantly, China’s direct exports to Russia of sanctioned goods on the G7’s Common High Priority List fell by nearly 20 percent year-to-date.

So we see evidence that sanctions are constraining direct bilateral trade, for now, although it’s possible that China and Russia may be disguising this trade.

But China-to-Russia trade will likely rebound. When General Secretary Xi Jinping and Vladimir Putin met in Beijing in mid-May, pledging a “new era” of partnership, the two sides’ top priority was to restore trade ties. The Chinese side will likely support bilateral trade via second and third-tier banks, which often have little-to-no exposure to international markets. Additionally, Beijing and Moscow might attempt to route a greater number of bilateral shipments via Central Asia.

Indeed, Chinese shipments of Common High Priority List sanctioned goods to Central Asia and Belarus have fallen in recent months but are still up 20 percent year-to-date from 2023 levels.

Any disruptions to bilateral trade will likely only prove temporary. Still, temporary trade disruptions can have significant battlefield impacts, both directly and indirectly. Wars are won or lost on the margins. Ukraine’s future may be on the knife’s edge this winter due to severe power constraints and concerns potential turmoil amid a North American election.

Kyrgyzstan has knowingly or unwittingly played a malign role in the conflict

Finally, we need to talk about Kyrgyzstan. The Central Asian country has traditionally been a bastion for corruption, owing to a lack of state capacity. It’s also been the most significant vector for indirect trade between China and Russia since the beginning of the full-scale invasion.

You can see this through micro and macro-level trade data. Kyrgyzstan historically underreports imports, due to pervasive corruption, but all countries report that their total exports to Kyrgyzstan doubled from 2021 to 2023, rising from $13 billion to about $26 billion USD last year.

Chinese exports to Kyrgyzstan rose from $7.5 billion in 2021 to nearly $20 billion USD in 2023.

To put that in context, Kyrgyzstan imports nearly as many Chinese goods as Kazakhstan, even though the latter country’s economy is 20 times larger, at current prices.

Some of Kyrgyzstan’s imports from China are in militarily significant products. For instance, and as we discussed in a September podcast, Kyrgyzstan has dramatically increased its imports from China of ball bearings. That’s important because ball bearings are used for railcars and, more importantly, tank production. Kyrgyzstan’s imports of Chinese ball bearings rose 1,562 percent in 2023 from 2021 levels, something that isn’t explained by Kyrgyzstan’s domestic economy. Kyrgyzstan is almost certainly re-exporting these products to Russia, where they are used to build tanks and rail cars.

Kyrgyzstan has also dramatically increased its imports of vehicle spare parts, which are, again, almost certainly re-exported to Russia. In November 2021, Kyrgyz imports of vehicle spare parts began surging. The timing is significant because Russia began stockpiling other items, like semiconductors, around the same time. Kyrgyzstan’s imports of spare parts for vehicles quintupled from 2021 to 2023, reaching about $500 million last year.

Over the same period, world exports to Russia of spare parts, as reported by UN Comtrade, declined sharply from $2.2 billion USD in 2021 to under $0.6 billion in 2023. So, again, we see very strong evidence that Kyrgyzstan’s imports are helping backfill Russian markets.

It’s important to note that the West can do a lot to stop trade via Kyrgyzstan. Some Western companies with production in China may be preserving plausible deniability by exporting to Russia indirectly, via Kyrgyzstan and other Central Asian countries. Additionally, Western firms’ shipments to Kyrgyzstan have skyrocketed since the full-scale invasion. For instance, German, Italian, and French exports to Kyrgyzstan stood at $1.2 billion in 2023, up from about $100 million at the beginning of the conflict.

Accordingly, the West should consider stronger sanctions against Kyrgyzstan, as many shipments notionally bound for the Central Asian country are in fact headed to Russia.   

Significantly, stronger sanctions against Kyrgyzstan don’t require legislative approval in most key G7 countries, while trade with Kyrgyzstan is a rounding error for the West.

Counterarguments against stronger sanctions on Kyrgyzstan

Other countries in the region won’t like the use of sanctions on Bishkek, and Central Asia is admittedly a very difficult neighborhood to live in. So Kyrgyzstan faces some admittedly difficult constraints.

Sanctions could also carry risk due to Western interests vis-à-vis Kazakhstan. There’s a significant probability that Russia will attempt to blockade Kazakhstan’s exports of the Caspian Pipeline Consortium from Novorossiysk. Moscow wants to raise oil prices ahead of the November 2024 U.S. Presidential election and blockaded Kazakhstani exports several times in 2022. Moscow will likely interfere in Kazakhstan’s oil production again in the next few months. The West needs to be sensitive to the interests of Astana.

Does China benefit economically from the war?

Sometimes you’ll hear analysts say that China has benefitted economically from the war. That doesn’t align with the facts.

China is the world’s largest commodity importer

China receives a discount on Russian crude oil imports – but it could get an even larger discount by purchasing under the price cap.  

Also, the global rise in oil prices swamped any discount China received on Russian oil.

The war has also impacted China’s exports.

2023 exports to EU (~$500 billion USD); 2023 exports to US (~$430 billion)

In April 2024, China’s 12-month rolling average of exports to the US stood at its lowest level since 2012, excluding COVID. And that’s in nominal terms (i.e. before inflation).

Beijing’s facilitation of the war effort is also degrading its ability to access Western technology.

In 2023, China exported about $110 billion directly to Russia

China probably exported around $30 billion USD indirectly to Russia via Central Asia and Belarus in the same year.

Western sanctions on Russia and Kyrgyzstan

December 2023 – financial sector sanctions

June 2024 – the US widens sanctions, leading the Moscow Exchange to announce it will stop transacting in dollars and euros

The Bank of Kunlun and other regional banks have traditionally facilitated China’s trade with sanctioned entities, such as Iran or North Korea

There are at least two ways to slow indirect China-to-Russia trade. First, Western countries should consider blanket bans on exports to Kyrgyzstan. Second, many Western firms with operations in China are notionally exporting to Kyrgyzstan, but with the understanding that these goods will ultimately arrive in Russia. By placing Russia-like sanctions on Kyrgyzstan, Washington and Brussels can temporarily – but significantly – disrupt China-to-Russia indirect trade.

Joe Webster is a senior fellow at the Atlantic Council and editor of the China-Russia Report. This article represents his own personal opinion.

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.