The Russia-China Business Forum in Shanghai: Trade & Development Overview

80 bilateral working groups set up and new bilateral agreements signed as Russia-China trade jumps 25% in 2023 

By Chris Devonshire-Ellis

The Russia-China Business Forum has been taking place in Shanghai this week, with a flurry of additional diplomatic meetings: Russian Prime Minister Mikhail Mishustin also held talks with Chinese President Xi Jinping and Chinese Prime Minister Li Qiang in Beijing.

In terms of the trade picture, Mishustin said at the plenary session of the Shanghai Business Forum that Russia-China bilateral trade had further expanded and has increased by 25% since the start of the year to reach approximately US$52 billion in Q1 this year.

According to Mishustin, the overall bilateral trade growth has been accompanied by other qualitative changes, first and foremost of which is the declining dependency on the dollar and other Western currencies.

75% of Russia-China trade was now conducted in their respective currencies now, he said, up from just 25% two years ago. He also stated that the two countries will continue to work on enhancing the independence of their financial interactions, helping to underpin their mutual economic sovereignty away from potential Western interference. Clearly, both countries feel exposure to sanctions are an inevitable part of contemporary trade life.

Indeed, Mishustin arrived with a large delegation that included a number of Russian tycoons subject to Western sanctions, including from the key fertiliser, steel and mining sectors. Russian exports of oil, gas and raw materials to China have soared since sanctions were imposed over a year ago.

The two countries are also looking to improve logistics connections and boost financial and industrial cooperation. Known bottlenecks such as the currently high transport costs between the two countries and the inefficiencies and inability for Russian and Chinese drivers to be utilized across each other’s borders are being worked on.

For example, the distance between Changbaishan in Jilin and Vladivostok in Russia is a little over 350km yet available routes are far from direct and hugely cost prohibitive. There is a certain amount of price gouging taking place between shipping and haulage companies.

Chinese Premier Li Qiang also emphasized the importance of enhancing logistics infrastructure during the plenary meeting, as did Mishustin, who said “Russia and China share a long land border. And its infrastructure needs to be improved,” the prime minister said. To do this, according to him, it will be necessary to increase the capacity of transport arteries, modernise checkpoints, expand air traffic and unlock the potential of the Northern Sea Route as the shortest route from Asia to Europe. Working groups between the two countries are now very active in seeking solutions.

Should these issues be resolved, the general opinion at the forum was that attendees see significant potential for Russia and China to establish joint manufacturing projects in the Russian Far East, as well as projects in infrastructure, agriculture, and energy.

Specific work is underway to expand mutual access to agricultural markets. “Last year, agricultural trade increased 42% to US$7 billion. In the first quarter of this year, exports to the Chinese market grew by another 91% (from last year) to US$2.4 billion,” the Russia’s Ministry of Economics said ahead of Mishustin’s trip to China. Russia is one of the world’s largest agricultural producers and the largest global grain supplier.

New Bilateral Agreements

The Russia’s Ministry of Economic Development and China’s Ministry of Commerce of China signed a memorandum on deepening co-operation in the services trade sector, while another five documents were signed in the field of trade, medicine, sports, and intellectual property, according to a Russian government statement.

There has been talk of Russian footballers and athletes, currently banned from European competition, entering Asian affiliations instead. There may be some pushback, as Russian sports athletes are globally strong and their participation may come at the expense of other Asian athletes. However, 2/3 of the Russian land mass is in Asia.

In terms of agricultural support, Russia’s agricultural watchdog Rosselkhoznadzor and China’s National Customs Administration secured the agreements with protocols on phytosanitary requirements for grain and plant materials exported from Russia for the medical region of China.

Government to Government

The Prime Ministers of Russia and China will hold another meeting at the end of this year to compare notes and “synchronise their watches,” Mishustin said during a meeting with Chinese President Xi. “We have agreed to activate the logistical work and mechanisms for holding regular meetings of the heads of government of Russia and China. It encompasses five intergovernmental commissions at the deputy prime ministerial level and more than 80 sector-specific working groups. We will compare notes at the next regular meeting of Prime Ministers, which will take place at the end of this year,” Mishustin said.

Xi said that “China is ready to continue interacting with Russia based on firm mutual support and taking into account each other’s key interests.”

According to Xi, Beijing intends to strengthen coordination with Moscow by interacting on such important international platforms as the Shanghai Cooperation Organization (SCO), BRICS and the G20. Meetings between the SCO, BRICS, and EAEU have been concurrently taking place in Moscow this week and concentrating on enhancing collaboration and integration between them. Simultaneous events such as these do not happen as coincidence.

Mishustin also met with his counterpart, Chinese Prime Minister Li Qiang, to discuss progress in trade and economic cooperation, while looking at opening up new trade areas in order to take the Russian-Chinese relationship to a new level by 2030, implying that a specific Russia-China trade plan is being developed to see the trade relationship be given Government support on both sides for the coming seven years.

If so, a document can be expected by the year end.

There have also been discussions concerning adding specific tariff reductions to the China-Eurasian Economic Union (EAEU) Free Trade Agreement, which was signed off in 2018 but has thus far remained non-preferential. Senior officials including Prime Ministers and/or Finance Ministers of the EAEU nations (Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia) have also been meeting in Moscow this week – again – no coincidence. Attempts to tie together a far-reaching economic and trade bloc continue apace.

In related news, Russian President Putin is expected to be present at the 3^rd International Belt & Road Initiative Forum to be held in Beijing this year, possibly as soon as September.

This intense flurry of activity, which also included the China-Central Asia Forum in Xi’an last week, can be expected to continue as China, Russia and other emerging nations prepare to confront the G7 as a ruling global bloc. A likely future diplomatic battleground will be played out at the United Nations while emerging economies gather themselves under the BRI China-Russia umbrella. Interesting times lie ahead.

Dezan Shira & Associates assist Russian companies into China and otehr Asian markets. With over 30 years of China experience, and thirteen China offices, we can assist with your market intelligence, legal, tax and advisory needs. For assistance please contact Maria Kotova at china@dezshira.com

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