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Ukraine Standoff: As Sanctions Start, Russia’s Trade Flow Shifts to China
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Ukraine Standoff: As Sanctions Start, Russia’s Trade Flow Shifts to China

Staff

After Russia invaded Ukraine earlier in the year, Western nations were quick to denounce its actions and swiftly enacted harsh sanctions against the country. The West hopes that the sanctions will punish Russia and act as a warning against other nations of the consequences of war. Although Russia has lost many friends in the West, it is still finding support from China.

Sanctions against Russia

The sanctions deny the Russian government and its companies’ access to U.S. dollar transactions and global markets for trade, energy exports, and financing. According to the White House, Russia makes 80 percent of its daily foreign exchange transactions and half its trade in dollars.

In 2014, the West sanctioned Russia for its annexation of Crimea. The sanctions may have worked because, according to the world bank, in 2013, Russia accounted for 2.8 percent of global trade; in 2020, it was down to 1.9 percent.

Russia’s Shift Toward China

Since 2014, Russia has shifted its trade away from the West toward China. For example, over a decade ago, the Netherlands was Russia's largest export destination due to oil; that role is now held by China. Trade with China accounted for 18 percent of Russia's total trade, or $147 billion.

China is also Russia's largest source of imports. Mobile phones, computers, telecommunications equipment, toys, textiles, clothing, and electronics parts are its most significant import categories.

EXIMA News

After the West banned Russia from the Swift international payment system, Chinese companies were forced to cut back business with Russia due to financing issues. The ban prompted Russia and China to tout their alternative payment systems, the System for Transfer of Financial Messages (STFM) and the Cross-Border Interbank Payment System (CIPS).

Can China Replace Russia’s Lost Trade?

China is a significant market for Russian oil, gas, and coal. It has been growing at 9 percent for the past five years, which, although fast, isn't fast enough. China is only half the size of the EU's demand for Russian oil.

The EU has agreed to cut reliance on Russian gas imports by two-thirds, and Germany (Russia's biggest gas customer) has halted plans for the Nord Stream 2 gas pipeline. The new pipeline between Russia and China (the Power of Siberia 2) will only have a fifth of the capacity of Nord Stream 2.

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