As Western firms exited, Russia business market grows with China trade

By Al Mayadeen English
Source: Agencies
13 Mar 2024 19:16

Reuters reports that Russian companies are flourishing due to expanded trade with Chinese firms as a substitute for Western businesses that exited Russia's market.

Russian, left, and Chinese flags sit on a table before a signing ceremony at the Great Hall of the People in Beijing, China on June 8, 2018 (AP)

Companies in Russia are growing and their profits are rising despite unprecedented Western sanctions on the country after the start of the war in Ukraine two years ago, Reuters reported on Wednesday.

The strong performance of the firms underscores the growing economic partnership between Moscow and Beijing. China is purchasing more Russian oil, which is the main pillar of Russia's economy, and supplying it with goods, particularly cars and machinery.

Between 2022 and 2023, Chinese car exports to Russia grew by sevenfold, with supply volume reaching $10 billion.

Meanwhile, the total trade between the two neighbors soared to $240 billion during the same period - a whopping 64% uptick.

"This is a systematic, mutually beneficial development of trade and economic cooperation," Kremlin Spokesperson Dmitry Peskov said in a press conference earlier this week. "Hopefully this is not the peak yet and we will continue to develop."

"The surge in Russia-China trade illustrates simply that sanctions lose their bite over time, as non-participating countries take advantage of the economic opportunities left when Western firms retreat," said Zach Meyers, assistant director of the Centre for European Reform think tank.

China's car manufacturers have significantly benefited from Western companies exiting the Russian market, with many carmakers selling assets and factories at low prices, leading to China's share of the Russian market jumping from 10 to 50 percent.

Sovereign relations

Dealerships in the country that were once selling Western-made vehicles such as Volkswagen or Renault have shifted toward Chinese brands, including the popular Geely.

"There's no alternative," said a manager of a dealership selling Changan cars near Moscow, as cited by Reuters. "It has become profitable ... the Chinese are adapting very quickly. The attitude of buyers (towards the Chinese) is definitely changing. People look at these brands differently, people trust them."

Changan sales in Russia experienced a significant increase, rising from 2,550 in 2022 to almost 47,800 in 2023, according to the Autostat analytical agency. The Chinese state-owned vehicle was the fifth best-selling car brand in Russia last year. Additionally, data from February 2024 indicate that eight of the top 10 best-selling car brands in Russia were Chinese.

According to Meyers, risks driven by the bolstering economic ties between the two countries remain pressing.

"There is a significant risk for Russia ... (which) is now far more dependent on China than China is dependent on Russia. China is a 'partner' who Russia deeply distrusts," Meyers said. "The West remains a far bigger trading partner for China than Russia is, and China has a lot to lose if Western sanctions start to hit a significant number of Chinese firms."

But this was not what Peskov believed. He recalled last year's extensive discussions between Russian and Chinese top officials, highlighted by talks between President Vladimir Putin and President Xi Jinping, which were described as historical.

Beijing has repeatedly affirmed that its relations with Moscow will not be influenced by foreign pressures, warning the United States and its allies from intervening in ties between the two sovereign countries.

"No, we do not see economic and political threats in this... both President Putin and President Xi set the goal of boosting the volume of trade and economic relations, taking them beyond $200 billion even before the start of the special military operation," Peskov said.

'Market created us'

Directly following the start of the war in Ukraine, Western countries imposed a complete ban on supplying the Russian market with almost all commercial technological hardware, claiming that chips inside the equipment could be used in military applications.

However, the expansion of the Russian-Chinese trade has helped fill the gap significantly.

In 2021, car sales in Russia were at 1.52 million. This number dropped to nearly 630,000 in 2022, before leaping to 1.06 million - an impressive 85 percent surge.

"Prospects in terms of European brands are still hazy, but business must live, and it will live on Chinese brands," said the Changan car dealer.

At the border between Russia and China lies Eurasia Logistics Group, a Russian company owned by Nikita Minenkov that doubled its turnover between 2022 and 2023.

"At the beginning of 2023 there was staggering demand when everything was bought up," he told Reuters. "This was the panic effect when people feared that China may suddenly close."

The group's main two firms saw their revenue skyrocket by 290% in 2022 reaching $10.70 million, according to Russia's SPARK Interfax.

This year, Russia intends to raise its spending to enhance railroad capacity for transporting goods to the Far East to $4.03 billion, marking an increase of approximately 40% year-on-year.

Railroad capacity, including on routes such as the BAM and the Trans-Siberian, is anticipated to increase to 210 million tonnes per year by 2030, up from 173 million tonnes in 2023. This expansion is aimed at facilitating increased trade with China and other Asian nations, particularly in coal, oil, and other minerals.

Yevgeny Gudkov, the sales head at KST, a Moscow importer of Chinese diggers and forklift trucks, said according to Reuters that supplies from China were almost nonexistent two years ago.

"We used to deal with spare parts," he said. "But the company pivoted as the European market closed to Russia and demand for equipment from China jumped.

"Demand generates supply," he said. "We did not create the market, the market created (us)."