Chinese Ambassador – Russia-China Trade Set To Double To US$200 Billion By 2024

Russia increasingly investing in Asia as US & EU trade uncertainty remains

Op/Ed by Chris Devonshire-Ellis

The new Chinese Ambassador to Russia, Zhang Hanhui has told reporters that he expects Russia-Chinese bilateral trade to increase to US$200 billion by 2024. That is close to double the current trade volume. Ambassador Zhang had previously been based in Kazakhstan.

“We have already set another target of reaching US$200 billion worth of trade turnover by 2024. I believe that goal may be accomplished as from now on the (Russian-Chinese) trade and economic cooperation will be expanding even more rapidly. The whole potential has been revealed. Almost all barriers hindering the development of trade and economic cooperation have been removed. Certain problems that do exist will be resolved.” Zhang stated.

According to the figures provided by China’s General Administration of Customs, trade turnover between Russia and China increased by 4.7% in January-July period of 2019 year-on-year to US$61.13 billion, suggesting a turnover in excess of this years target of US$100 billion will be achieved.

This new growth trend emerged in 2016 when Russia-China trade turnover gained 2.2% in annual terms to US$69.52 billion, spurred by the sanctions imposed on Russia by the United States and European Union. In 2017, it surged by 20.8% year-on-year to US$84.07 billion, when I commented at the time that China-Russia bilateral trade was the worlds fastest growing trade corridor.

By then, and well aware of this, Dezan Shira & Associates has established relationships with professional firms in Russia and had begun looking to the Russian corporate market for investors into Asia. Today we are one of the leading firms in this field. Last year, Russia-China bilateral trade grew at 27.1% to reach US$107 billion. Our Russia Briefing website is now one the of top ten English language business websites dealing with Russian international trade.

The problems Ambassador Zhang referred to include the ability for Russian businesses to establish banking and transaction facilities in China as US sanctions inhibit Chinese banks from handling rubles. This is being dealt with on a G2G basis, primarily energy supplies by agreeing contracts in each others respective currencies, however still impacts on other Russian private business sectors. Other areas include the negotiations concerning products and services to be included within the China-EAEU free trade agreement, which has been signed off but isn’t yet product or service specific. However it is known that trade negotiators from both sides are working on a deal. Zhang’s comments on a doubling of trade suggests he expects this will reach a conclusion. That also looks rather more solid than in the past as recent meetings between the EAEU members themselves suggest they will soon be in an inter-bloc agreement over tariffs, making it far easier to agree deals with third party states such as China. As and when the China-EAEU FTA is fully operational, it will include rather more than the standard ‘energy’ sticker analysts tend to place on Russia-China bilateral trade, and for the reasons I mentioned above – Russia needs to reduce dependency on the EU due to the sanctions issue while China wants to do the same with the US due to tariff disputes. That leaves far more room for growth in non-energy products and services and will filter down into daily commodities, consumer goods, light manufacturing, electronics and IT.

Other motivating factors as to why Russia-China trade can be expected to double are the US-China trade war, which has seen China move away from purchasing products from the United States and establish new supply chains within ASEAN and the Belt & Road Initiative countries. Russia is very much part of that and this trend is likely to continue.

Russia has a similar problem with the European Union, who continue to impose sanctions. Although Russia is recovering from this, while the sanctions remain in place it too is looking for alternative supplies. China fits the bill, along with increased trade volumes already occurring between Russia and India, Thailand and Turkey amongst others. Getting all these into position replaces the EU as a pertinent trade partner for many Russian businesses. Privately owned businesses within the EU are unlikely to recover any of the Russian trade once Russia’s supply chains move to Asia. That process is now well underway.