Russia Exports to China Booming After Sanctions

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Op-Ed by Chris Devonshire-Ellis

russia-exports-to-china-2016Bilateral trade between Russia and China significantly improved during 2016 as China began to step into place as an alternative supplier to the European Union as sanctions continued to bite. President Putin has used the opportunity wisely and in fact lessened Russian dependence on EU imports. He has also paid down Russia’s debt  at the same time.  The damage caused by sanctions have impacted instead rather more on the EU. New public transport infrastructure in Moscow and St.Petersburg such as buses and trains for example are now sporting Korean and Chinese manufacturer logos instead of European. GDP growth is returning in 2017, with the World Bank anticipating a 1.5% growth this year, coincidentally the same growth rate as can be expected in the EU. In fact the Russian economy is now expanding, while the EU’s is contracting. The sanctions have also been a boom for Sino-Russian trade, which has significantly picked up over 2016.

As can be seen in the attached graph, Russian trade and exports plummeted following the introduction of sanctions, but is now recovering to pre-sanctions levels. The EU’s loss has been China’s gain.

It is also worth recalling that the World’s Premier, and wealthiest sporting event will take place in Russia next year – the 2018 World Cup Soccer Finals. Russia is spending USD15 billion to host them, and I would expect sanctions to be lifted well before then.

Russia also has commodities that China wants – oil, gas and vast tracts of agricultural land – all areas in which it can out-compete with the United States and EU for generating China trade and investment. 2017 may well usher in a period of increased Russian trade and investment with China, with simple options for Russian companies, such as establishing “Foreign Invested Commercial Enterprises” (FICE) requiring limited investment capital, yet being eligible for Import-Export licenses between Russia and China now being increasingly sought after.

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