Trade between China and Russia is affected by the war in Ukraine

The flags of China and Russia are shown in this illustration photo taken March 24, 2022. REUTERS/Florence Lo/Illustration

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SHANGHAI, April 1 (Reuters) – Chinese exports to Russia are slowing as the value of the ruble fluctuates, clear evidence of the ripple effect Western sanctions over Russia’s invasion of Ukraine are having in China, even as she diplomatically sticks to her neighbor.

Chinese multinationals stayed in Russia while their Western rivals fled, but it is China’s smaller companies that are most vulnerable to exchange rate losses, with several telling Reuters that much of their Russian activities were suspended as both sides awaited volatility.

“The products I was supposed to send to Russia are in my warehouse,” said Deng Jinling, whose factory in eastern China makes vacuum flasks.

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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 her surname Guo, said her business mediated between Russian and Chinese customers, but the volume of products such as linens and kitchen equipment they usually handled had dropped by a third.

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

Russian importers and Chinese exporters are suspending their activities for fear of being caught up in the ruble roller coaster.

“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 goods, but not enough to make a big difference, and demand for his warehousing services in Russia had fallen by around a fifth since the start. of the war in Ukraine and about 90% of its members had been affected.

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

“Exporting to Russia becomes unfeasible.”

LONG-TERM OPTIMISM

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

The dispute sparked a more than 40% drop in the value of the ruble against the yuan, although the Russian currency has rebounded around 70% since the 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 (1810.HK), Great Wall Motor (601633.SS) have remained largely silent on their plans in Russia.

But behind the scenes, China is wary of its sanctions-busting companies and is urging them to be cautious about investing there, Reuters reported on March 25. read more

State-owned group 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, expressed optimism about trade with Russia in the long term, saying she expects Chinese exports to increase in variety and volume, despite short-term challenges, including currency volatility.

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

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

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Reporting by Samuel Shen, Sophie Yu and Brenda Goh; Editing by Robert Birsel

Our standards: The Thomson Reuters Trust Principles.

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