Trade

China’s trade with Russia feels the effects of the war in Ukraine

Chinese multinationals have remained in Russia as their Western rivals fled, but it is China’s smaller companies that are the most vulnerable to exchange rate losses, with several telling Reuters that much of their business in Russia is on hold, with both sides waiting for volatility.

“The products I had to send to Russia are sleeping in my warehouse,” said Deng Jinling, whose factory in eastern China manufactures vacuum flasks.

Last year, about 30% of its 40 million yuan ($6.29 million) revenue came from Russia.

“Our customers are all waiting to see if the exchange rate can improve a bit. Their costs are too high with the current exchange rate,” she said.

Another Chinese trader, who gave only his surname Guo, said his company acts as a middleman between Russian and Chinese customers, but the volume of products such as bed sheets and amenities food they usually deal with had dropped by a third.

China is Russia’s top source of imports and sold $12.6 billion worth of goods to Russia in January and February alone – mostly computers, cars, shoes and toys, the data shows. customs.

Both Russian importers and Chinese exporters are postponing their business for fear of being caught up by the ruble’s ups and downs.

“The depreciation of the ruble means you lose money every time there is a sale,” said Shen Muhui, who heads a trade group representing more than 20,000 small Chinese exporters to Russia.

He said a few more Russian customers were willing to use Chinese yuan to pay for their goods, but not enough to make much of a difference, and demand for his warehousing services in Russia has fallen by about a fifth since then. the beginning of the war in Ukraine and about 90% of its members were affected.

“You can’t raise the prices because the Russians can’t afford it…. So you suffer a loss when you convert your revenue into yuan,” Shen said.

“Exporting to Russia becomes impossible.”

LONG-TERM OPTIMISM

The ruble has seen enormous volatility against the US dollar and the Chinese yuan since Russia launched what it calls a “special operation” in Ukraine on February 24.

The dispute has triggered a more than 40% drop in the value of the ruble against the yuan, although the Russian currency has rebounded around 70% since its March 9 low.

China has refused to condemn Russia’s action in Ukraine or call it an invasion and has repeatedly criticized what it calls illegal and unilateral sanctions.

Major Chinese companies such as Xiaomi, Great Wall Motor have remained largely silent on their plans in Russia.

But behind the scenes, China fears its companies will run into sanctions and is urging them to be cautious about investing in Russia, Reuters reported on March 25.

State-owned Sinopec has suspended talks on a major petrochemical investment and gas marketing venture in Russia, the sources said.

Winnie Wang, president of the Shenzhen Cross-Border E-commerce Association, was optimistic about trade with Russia in the long term, saying she expected Chinese exports to grow in variety and volume, despite short-term challenges, including currency volatility.

Ms. Wang said she hopes traders can wean themselves off US dollar settlements.

“The two countries should work together to design a new payment framework for trade,” she said.

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