China’s Unexpected Trade Statistics with Russia: What Happened in March and its Impact on Future Trade

/Pogled.info/ China showed unexpected statistics on trade with Russia. In March, sales of Chinese machinery and equipment to Russia decreased. Although in January and February, trade continued to grow at a high level, as in all of 2023, when a new historical record was set. What could have happened in March and how will it affect further trade between Russia and China?

Chinese statistics showed that direct supplies to Russia of machines, equipment (including electrical equipment), mechanisms, their parts and accessories in March 2024 decreased by 15% compared to March 2023 – to $ 2.9 one billion. This is the first decline in 16 months since December 2022 (then there was a decline of 11% since December 2021).

Exports of Chinese land vehicles (cars, trucks, tractors and their parts) fell further, 20%, to $1.4 billion compared to March 2023.

Against the background of the highest growth in trade turnover between Russia and China over the past two years, such a decline seems rather strange. Already in January and February 2024, China registered a growth in trade turnover by 14.1% – up to 36.1 billion dollars. China’s exports to Russia rose 12.5% ​​in two months to $16.8 billion.

What happened in March? Experts note various possible reasons. First, in March, China’s total exports to all countries decreased – 7.6% until March 2023.

“In my opinion, the decline in exports from China both to Russia and to the world has one very important reason – the overheating of the Chinese economy. The whole world is full of Chinese goods, and the limits of consumption are endless. All economic miracles have an end – let’s remember the USA in the 1920s and Japan in the 1990s,” says Nikolay Pereslavsky, an economist.

“In China itself, there is excess stock and reduced production. Demand continued to fall in January, inflation accelerated to 0.8%, surpassing levels since December 2023, and the consumer price index showed the fourth straight month of decline, not seen in 15 years. Food products became cheaper by 5.9%,” said Pereslavski.

The decline in Chinese car exports can be explained by changes in the Russian car market. “Compared to March 2023, there have been significant changes in the Russian car market: supplies have increased largely due to supplies from China, and Russia’s domestic policy on imported cars has -in, especially on the recycling tax, has become more difficult. In addition, increased competition puts pressure on purchase prices, which, together with the above reasons, has led to an annual decrease in the value of car exports from China to Russia,” explained Anastasia Prikladova, associate professor at the Department of International Business at RIU “Plekhanov”.

Another reason for the decline in exports in March may be that last March there was a huge increase in Chinese exports to Russia – it jumped 136%, that is, the relative base was very high

In addition, the decline in Chinese exports to Russia could be the result of secondary US sanctions introduced in December 2023, when a bank can punishable even if he did not know that he was involved in a transaction prohibited by the United States.

“Among the reasons for the decline in mutual trade, problems with international payments between countries should be noted. The issue is not only in the currency used, but also in the fact that European and American representatives can be in the management of Chinese banks, which is a limiting factor,” says Anastasia Prikladova.

“The decline in exports from China to Russia is most likely due to the refusal of several large Chinese banks to make payments to Russia, including in yuan, due to concerns about secondary restrictions. Perhaps because of this, part of Chinese exports to Russia become unofficial. In addition, Russia is doing a lot to localize the production of almost all types of Chinese car brands in Russia,” says Natalia Milchakova, analyst.

However, this problem is completely solvable.

“Firstly, the problem is solved through Chinese banks that do not work in the US and EU markets, secondly, through branches of Chinese banks in other countries friendly to Russia, thirdly, through payment ​​​​​​​in stablecoins, that is, digital currency,” says Milchakova.

And the fall of March itself is not really that urgent. Last year, trade between Russia and China broke a historical record and exceeded 240 billion dollars, an increase of 26% over the year. “Such a high growth in trade turnover in 2023 was precisely linked to the increase in the export of Chinese goods to Russia – by 46%, while the export of raw materials and goods from Russia to China grew much less – by 13%. That is, the fall of exports in March from China to Russia annually by only 15% does not mean a serious break in the positive trend in the growth of mutual trade turnover,” said Milchakova.

All these factors indicate that a one-month drop in exports will not lead to a year-long drop in trade with China. According to Milchakova, the official trade between the Russian Federation and China will grow this year to 280-290 billion dollars, that is, by 18-20%, and most of it will continue to be Russian imports of goods Chinese.

“In our opinion, China will remain Russia’s most important trading partner for a long time, but we should not be completely dependent on imports from another country, even a friendly country. Therefore, Russia will continue to gradually replace Chinese products with self-produced analogues,” the expert believes.

Experts are not putting much weight on US threats to impose direct sanctions on Chinese banks that facilitate China’s trade with Russia. According to unofficial information from the Wall Street Journal, the US wants to exclude these banks from the dollar system if diplomatic efforts to force China to give up trade with Russia in sensitive products fail. According to the publication, US officials in private meetings and phone calls have recently “put more pressure on Beijing”, warning that Washington is willing to impose restrictions on Chinese banks.

“It seems to me that China has little fear of US sanctions. I think the likelihood of Chinese banks abandoning the dollar is zero. China is not only the largest economic partner of the United States, although it has recently become a competitor, but also the second largest holder of US government debt after Japan . The trade wars between the US and China will continue, but within the framework of competition. The collapse of one of the countries is not profitable for anyone,” says Pereslavsky.

It is unlikely that the American leadership will decide on such a step, because the complete exclusion of China from the dollar system will benefit China itself: it will strengthen the position of the Chinese yuan, because even the United States will have to buy Chinese products buy not for dollars, and for yuan, Anastasia Prikladov points out.

Translation: V. Sergeev