Dragon’s Embrace: China’s Trade Lifeline to Sanctioned Russia

The China-Russia trade relationship has transformed significantly since the Russia-Ukraine conflict began in February 2022.

Western sanctions on Russia have reshaped economic ties between the two nations, with China’s exports to Russia reaching new heights while imports decline due to payment complications.

Chinese companies have quickly filled gaps left by departing Western firms in the Russian market. In September 2024, China’s exports to Russia hit a record $11.25 billion, growing 16.6% year-on-year.

However, China’s imports from Russia fell by 9.2% in the same period, following a 1.1% decline in August. U.S. and EU sanctions have complicated Russia’s international settlements, even with non-sanctioning countries like China.

Russian banks’ exclusion from SWIFT has caused significant delays in cross-border payments. Chinese state-owned banks have become cautious, reportedly halting large-scale transactions with Russia.

These financial hurdles have forced businesses to adapt. Some Chinese exporters now require upfront payment before shipping goods to Russia.

Russian buyers report that transactions can take three months or more to complete. Both countries are exploring alternative payment methods, including digital assets and new cross-border payment systems.

Strengthening China-Russia Trade Amid Global Challenges

Despite challenges, China-Russia trade remains strong. In 2023, bilateral trade reached $240 billion, a 26.3% increase from the previous year.

The first eight months of 2024 saw a trade volume of $158.5 billion, up 1.9% year on year. The composition of trade has evolved. China now exports more high-value products to Russia, particularly automobiles.

China has also increased its imports of Russian energy, buying 45% of Russia’s coal exports and 47% of its crude oil exports between December 2022 and September 2024.

This shifting trade dynamic has broader implications. Western sanctions have inadvertently boosted the yuan’s international status.

It has become the principal settlement currency for Russia’s foreign trade and the sole reserve currency for Russia’s central bank.

In short, the evolving China-Russia trade relationship reflects the complex interplay of global economics and geopolitics.

As both countries navigate sanctions-related challenges, they continue to strengthen economic ties, underscoring the importance of adaptability in international trade.