/ world today news/ A record trade turnover was registered between Russia and China in 2022. It falls very short of the $200 billion target that was set as far back as 2024. This year will definitely be hit ahead of schedule. Another historic change will occur this year. The EU as a major trading partner will remain a thing of the past. China will take its place for the first time.
In 2022, Russia and China posted a record trade turnover that rose by a third to $190.27 billion, according to China’s General Administration of Customs.
Russia and China are slightly below the 200 billion target set by the countries for 2024. However, there is no doubt that this task will be completed as early as 2023, and most likely even with a decrease in the price of energy resources.
“In 2023, it will most likely be possible to reach the $200 billion target even if the same quantitative supply volumes are maintained due to price inflation alone. But even if the scale of prices is maintained, this indicator will most likely be achieved, as imports in quantitative terms will grow in 2023,” says Denis Perepelitsa, head of the Department of Global Financial Markets and Financial Technologies at the Russian Economic Plekhanov University.
To reach the goal of 200 billion dollars, trade needs to increase by only 10%, while in recent years it has been growing at a much higher rate. Even in the pandemic year 2021, it grew by more than a third, and last year by another third. “And in 2023, against the background of the abolition of the policy of zero tolerance for COVID-19 in China, which will lead to an increase in the demand for energy resources and a small number of alternative directions for Russia, the trade turnover will most likely exceed 200 billion dollar,” said Vladimir Chernov, an analyst. So it’s time to set a new $300 billion bar.
Another important change awaits Russia. In 2023, the EU as the main trading partner will remain in the past and China will take its place, experts believe.
Curiously, in 2022, the EU is still Russia’s main trading partner, and it also shows serious growth. At least in the first 10 months of 2022, trade has grown by almost 20% to €227.7 billion, with China clearly lagging behind. There is nothing surprising in the fact that China will displace the EU from the first place not in 2022, but in 2023. “The fact is that last year the EU countries sharply increased the volume of exports of energy resources from the Russian Federation to fill and increased their stockpiles amid expectations of an embargo on their supplies. And this year, all restrictions on exports from the Russian Federation have already entered into force, so trade with EU countries will drop sharply. China, on the contrary, is actively increasing it, so we can expect that in 2023 China will become Russia’s first trading partner,” Chernov believes.
China’s exports to Russia in 2022 are up 12.8% to $76.12 billion. Imports from Russia to China grew even more – by 43.4%, to 114.15 billion dollars. This is explained by the fact that more than 70% of all Russian exports to China are oil, pipeline gas, LNG, coal and fuel oil. And this year they were sold at an extremely attractive price, and practical Chinese could not miss this.
For example, in 2022, China generally reduced oil imports due to covid restrictions and economic slowdown. However, this was not the case for Russian oil. He bought it in a few months simply in record quantities. Because our oil is sold at a discount, and China, all other things being equal, preferred it over more expensive Saudi or other oil.
China also took Russian pipeline gas at the peak of the pipeline’s capacity while reselling some LNG shipments to Europe. Because Russian gas, whose price is negotiated based on the oil basket, is cheaper than LNG, whose price is determined based on exchange prices.
Finally, China increased its purchases of Russian coal, which was also delivered at a sanctioned discount. There are records here too. In addition, market participants pointed out that China could actually buy even more coal from Russia if we had already built a second BAM and the Trans-Siberian Railway.
In fact, the limitation of logistics and infrastructure is today the main limitation to the growth of trade between Russia and China.
The Power of Siberia pipeline increases supplies even beyond planned figures. Still, it was nice to have at least one more tube like that. And already, of course, it is in the plans. But “Power of Siberia – 2” can appear only until 2030. At the same time, there is no commercial contract between Russia and China for the supply of gas through the future pipeline. And starting its construction before the signing of such a contract could backfire on Russia – it would give China a reason to extract lower prices for supplies. Therefore, difficult negotiations with Beijing are ahead.
“The rail corridor is already fully loaded. But this problem is also gradually trying to solve. At the end of 2022, the carrying capacity of the Eastern range of the railway increased by about 14 million tons per year – to 158 million tons, and on behalf of the President of the Russian Federation by 2024, the throughput in the east should increase to 180 million .tons per year, with a total expected increase to 240 million tons per year,” Vladimir Chernov points out.
In order to be able to transport oil by sea with tankers and insure such cargoes, Russia is creating its own shadow fleet and its own insurance system for such transport.
But the main mouthpiece for the growth of Russian exports to China in 2023 will be the growth of the Chinese economy itself. “Last year, China was under anti-coronavirus restrictions, due to which industrial production and GDP fell, which led to a decrease in demand for petroleum products and metals in the country. And in 2023, most of the most important restrictions have already been removed, so the economy, industrial production and, as a result, the demand for energy resources and metals are expected to grow,” notes a Freedom Finance analyst.
China buys mineral fertilizers, timber, agricultural products and seafood from Russia. There is potential for growth here as well.
On the other hand, we should expect an increase in the flow of Chinese goods to Russia, given the closure of European imports. China’s consumer electronics, excavators, automobiles, microprocessors, clothing, footwear and consumer goods go to Russia.
Russia has significantly increased its purchases of electronics and cars made in China. The potential for growth here remains quite large, as there is still a shortage of these goods on the Russian market,” Chernov believes.
“Most of the ‘discarded’ goods have already been replaced by Chinese and Russian counterparts. However, there is some potential for import growth, especially considering Russia’s transition to active industrialization of the economy, when a lot of machinery, equipment, components, etc. will be needed,” says Denis Perepelitsa. According to him, the biggest problem for Russia is the supply of high-precision chip manufacturing and precision processing equipment, as well as the chips themselves. “This equipment is made in Taiwan, Japan, the US and the EU, and mainland China may not be able to replace all these imports,” he says.
Translation: V. Sergeev
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