Russia's economy has little to offer China, and their growth in trade is more modest than it appears, analyst says

Russian President Vladimir Putin shakes hands with Chinese President Xi Jinping at the Kremlin on March 21.

Sputnik/Sergei Karpukhin/Pool via Reuters

• Russia's economy has little to offer China, and their growth in trade is more modest than it appears.
• That's according to Agathe Demarais, global forecasting director at the Economist Intelligence Unit.
• "Russia's much-vaunted pivot toward China, in other words, is probably not as successful as Putin and Xi claim."

Despite talk of a "no limits" partnership between Moscow and Beijing, China is reluctant to increase trade with Russia, according to Agathe Demarais, global forecasting director at the Economist Intelligence Unit.

In an article in Foreign Affairs, she pointed to drawbacks about Russia's economy that limit deeper cooperation between the two allies, who have set a goal of $200 billion in trade this year.

"And contrary to conventional wisdom, Moscow does not have much to offer Beijing. China does not buy Russian oil and gas at a large discount, and it wants a diverse array of energy providers," she wrote . "Russia's much-vaunted pivot toward China, in other words, is probably not as successful as Putin and Xi claim."

Although China's exports to Russia rose by 12.8% in 2022, Demarais pointed out that's due in part to currency fluctuations and it lags trade growth with non-allies. For example, China's exports to Australia and India jumped by about 20% last year.

Trade with Russia actually accounts for only 2% of all Chinese shipments, and doesn't give Moscow supplies withheld by sanctions, such as needed semiconductors, she added.

Meanwhile, Russian exports to China are also less striking than they appear, Demarais said. While exports surged, that's due in part to a jump in commodity prices, such as oil. And the total volume of imports remains modest. Imports from Russia make up just 4% of Chinese trade, similar to volume from Malaysia.

Demarais listed reasons why the Russia isn't that attractive to Chinese companies. First, Russia's economy was in a recession last year and is expected to be stagnant at best this year. Chinese firms could also be disincentivized by the recent dismissal of intellectual property protections in Russia.

But the main reason for China's limited interest in the Russian market is fear of secondary US sanctions, Demarais wrote. It's a fear shared on the Russian side as well, according to recently leaked US documents.

"A look at Chinese customs data makes it clear that China retains the upper hand in its economic relationship with Russia and that Beijing appears in no rush to provide an economic lifeline to the Kremlin," she said. 

This is the latest dim view of the Russian economy, which is suffering a record workforce shortfall amid losses in Ukraine and a mass exodus.

Russia's economy is also becoming increasingly primitive as its war in Ukraine drags on, according to the Russian economist and University of Chicago professor Konstantin Sonin.

And an adviser to Finland's central bank said Russia is experiencing "reverse industrialization" as Western sanctions and its continued war on Ukraine weigh on long-term economic growth.

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