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This month, Putin told visiting Chinese President Xi Jinping at the Kremlin that Moscow was ready to help Chinese companies replace Western companies that had left Russia due to the conflict in Ukraine. “I am sure that our multifaceted cooperation will continue to develop to the benefit of our two peoples,” Putin said in his speech to Xi, adding that Russia was a “strategic supplier” of oil, gas and coal to China. In addition to the current strategic coordination between China and Russia to jointly deal with the challenges of the United States, another obvious progress is the rapid momentum of Sino-Russian trade docking.
Putin told Xi that Russia wanted Chinese companies to replace Western companies, Reuters reported earlier. On the second day of Xi’s state visit to Moscow, Putin also said the two leaders discussed the proposed Siberia Power 2 pipeline, which would transport Russian gas to China. In reality, China is currently Russia’s most important trading partner. During the war, Sino-Russian trade exceeded 100 billion U.S. dollars. This volume enabled Russia to obtain a huge amount of U.S. dollar foreign exchange, which objectively supported the war. The overall trade volume between China and Russia will reach a record US$190 billion in 2022, a year-on-year increase of 30%. Russia’s imports from China increased by 13% to $76 billion, and its exports to China increased by 43% to $114 billion, putting it in a surplus. With Russia’s trade with the West plummeting in 2022, China has largely become Russia’s most important trading partner in the world, and China is the only UN permanent member that does not impose explicit sanctions on Russia.
According to TASS news agency, the Russian Consulate General in Harbin issued an announcement on February 4 this year that in January this year, the volume of cargo transit at the largest port on the Russia-China border hit a record. According to the announcement, in January, about 1.5 million tons of goods were transported into Russia through the “Transbaikalsk-Manzhouli” railway port, an increase of 82.9% over the same period last year. The “Zaibaikalsk-Manzhouli” port is the largest logistics center and transport corridor on the land border between Russia and China. In 2022, the volume of goods transported through the port will exceed 15 million tons. Heilongjiang, the province with the longest Sino-Russian border, has continuously achieved growth in import and export trade, border tourism, foreign economic and technological cooperation projects, and the number of dispatched personnel.
The ruble plummeted to around 140 to the dollar after the war sparked sanctions, before recovering after interest rates were raised to 20 percent and capital controls were imposed, according to Bloomberg data. But by early March, the Russian ruble had fallen to its lowest level in 10 months, having lost about 20 percent of its value since early December. With Western sanctions, Moscow’s dwindling energy revenues and high military spending put fresh pressure on the ruble. With capital controls in place and foreign trading of the currency largely at a standstill, analysts say the currency’s value no longer reflects a forward-looking assessment of economic conditions and more about short-term conditions. “Trade flows have become the main factor behind the movement of the ruble,” said Natalia Lavrova, chief economist at BCS Global Markets. The ruble is currently trading at around 75 rubles to the dollar – having hit a dollar at the end of July last year It peaked at 50 rubles — about the same level as it was a year ago before Russia invaded Ukraine.
There are large variables in Russia’s trade. To boost a country’s economy in the short term, it must rely on foreign capital. At present, all parts of Russia hope to have direct investment from China. For example, Xiang Bo, Consul General in Kazan, said in an interview with Russian TV about Sino-Russian relations and local cooperation, “According to statistics, in 2022, China will be the country with the largest increase in investment in Tatarstan. From January to September 2022, Tatarstan will Stein’s trade volume with China has reached 1 billion US dollars, and the annual trade volume will reach a new high. The two sides have maintained good cooperation in the fields of home appliance production, automobile assembly, equipment and spare parts trade, agricultural products, etc., and cultural, educational and other humanities exchanges have also continued Advance, and welcome Chinese enterprises to invest.” Russia has a vast territory and poor infrastructure in some areas, which limits its economic development and investment potential. Infrastructure is a hot spot for Chinese companies investing in Russia. The Russian government has a large demand for infrastructure investment, especially for the construction of infrastructure such as ports, bridges, and electric power in the Far East, as well as the construction of high-speed railways, subways, and highways in other regions, but these projects are difficult for ordinary private enterprises to undertake invest.
In fact, due to the war, Russia has a huge demand for Chinese arms, dual-use products, daily commodities, automobiles, and infrastructure construction. However, due to Russia’s political instability and investment risks, it may even face escalated sanctions from the United States and its allies. The specific economic and trade measures against Russia must be negotiated by the two governments. Existence of government background and endorsement for “insurance”). Because ordinary private enterprises cannot resist political risks, currency depreciation, tax increases and other factors that must be faced when investing in Russia, among which the most difficult to overcome is the depreciation of the ruble.
Taking the automobile industry as an example, with the tense geopolitical relations, more and more European, American, Japanese and other multinational automobile companies have chosen to leave the Russian market. This has also changed the pattern of Russia, the world‘s top ten auto consumer market. Taking Great Wall Motors as an example, some media reported in March 2021 that Great Wall Motors’ factory in Russia is still producing normally, but due to exchange rate fluctuations, it has stopped sending new cars to dealers, and the Russian market currently only sells stock cars. According to Great Wall Motor’s 2021 semi-annual report, if the ruble depreciates by 5% against RMB, the company’s total profit will decrease by 25.4 million yuan. In the past, despite the repeated depreciation of the ruble, in 2019-2020, Russia was the country with the highest overseas income of Great Wall Motors. From 2019 to the first half of 2021, the revenue contributed by Russia to Great Wall Motors has increased rapidly, and its proportion in the company’s total revenue has also continued to rise. Especially in the first half of 2021, it has shown a doubling growth trend, which also makes Great Wall Motors a beneficiary The Chinese automaker most affected by the Russia-Ukraine conflict. Due to the huge market of Great Wall and the unprecedentedly close relationship between China and Russia, sales have further strengthened. In terms of sales, according to AEB data, as of November 2021, Great Wall Motors has sold 4,909 new cars in the Russian market, a year-on-year increase of 202%, ranking TOP3 in the SUV market. 134%. In 2022, Great Wall Motors’ sales will still grow, and the company’s profits will rise further, but the main risk still lies in the currency. However, Great Wall Motor completed its green field investment in Russia before 2022 (the investment amount exceeded US$3.5 billion). Under today’s environment, this case cannot be replicated.
External factors are mainly US sanctions. One case that can be referred to is Belarus, Russia’s neighbor. The Chinese and Belarusian governments invested in a landmark China-Belarus Industrial Park. It was acceptable to attract investment before the war, but at present, except for state-owned enterprises like China Merchants, most other All private enterprises have chosen to withdraw. At present, the China-Belarus Industrial Park is generally deserted. The background of this series of events is that the United States has imposed sanctions on Belarus due to its support for Putin’s war.
For commodities such as oil, China and Russia adopt mixed settlements in rubles and renminbi in order to maintain the stability of transactions. Objectively speaking, there are business opportunities in the Russian market. For example, small and medium-sized enterprises in Zhejiang and other provinces have seized the opportunities to increase exports to Russia in border trade and entrepot trade, and have made a lot of profits. But direct investment is completely different from trade. Once a multinational company has injected capital and established a factory in the host country, it can only passively obey the policies of the host country to a large extent, and may become a “hostage” in extreme cases. Although Chinese companies in Russia may have become the leading companies in Russia in the past and have a relatively broad market, they also have to bear political risks, high taxes, Russian domestic bureaucratic corruption and extortion, exchange rate risks, etc., and even in extreme times, companies have to face Russia. The possibility of the government implementing “nationalization” is, after all, under the condition that China’s political influence radiating to Russia’s traditional geopolitical space has become a reality, and investment in Russia should be more cautious.
Therefore, as Putin said, according to the strength, Chinese public and private enterprises can occupy the market vacuum left by the withdrawal of Western multinational companies in a relatively short period of time, which is not difficult. But at present, the best economic interaction with Russia is trade, especially large-scale trade for Russian oil and energy assets, which is settled in US dollars. And high-quality agricultural products are purchased back home through commercial channels on a large scale, attracting strategically valuable Russian companies to invest in China, and realizing China’s active influence on them, rather than Chinese companies taking huge political risks to invest in Russia. After all, any cross-border overseas investment is a strategic decision for the company, and it must be very cautious.
(Note: Wang Yingliang, Chief Writer of China Development International Affairs (NEIA) Research Workshop, mainly researches industrial investment and national competition, WeChat account porsche910114. This article only represents the author’s personal opinion. Editor’s email [email protected])