China’s Trade With Russia Is Hurting As A Result Of The Ukraine Conflict

Chinese exports to Russia have been hampered by the rouble’s fluctuating value, demonstrating the ripple impact of Western sanctions over Russia’s invasion of Ukraine in China, despite Beijing’s diplomatic support for its neighbour.

Smaller Chinese companies are particularly exposed to currency rate losses, with some telling the media that much of their Russian business is on pause while both sides wait out the volatility.

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

Russia accounted for almost 30 per cent of her 40 million yuan ($6.29 million) revenue last year.

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

Another Chinese trader, who only gave her surname Guo, said her company served as an intermediary between Russian and Chinese clients, but that the number of products such as bed sheets and kitchen equipment they typically handle had plummeted by a third.

According to customs figures, China is Russia’s largest supplier of imports, selling $12.6 billion in computers, vehicles, shoes, and toys in only January and February.

Fearing being caught off guard by the rouble’s wild swings, both Russian importers and Chinese exporters are deferring transactions.

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

He stated that a few more Russian customers were ready to pay for items in Chinese yuan, but not enough to make a significant impact, and that demand for his warehousing services in Russia had dropped by roughly a fifth since the Ukraine crisis began, affecting around 90 per cent of his members.

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

“Exporting to Russia becomes undoable.”

Since Russia initiated a “special operation” in Ukraine on February 24, the rouble has been extremely volatile versus both the US dollar and the Chinese yuan.

The battle caused the rouble’s value to plummet by more than 40 per cent versus the yuan, however the Russian currency has recovered about 70 per cent since its March 9 low.

The rouble plunged 44 per cent against the US dollar in just seven trading days after the invasion, but has subsequently risen about 90 per cent, trading at roughly 81 to the dollar in the interbank market.

China has refused to criticise Russia’s actions in Ukraine or term them an invasion, and it has frequently condemned what it considers to be illegitimate and unilateral sanctions.

Major Chinese firms such as Xiaomi and Great Wall Motor have been mainly mum on their plans for Russia.

But, according to reports published on March 25, China is concerned about its companies falling foul of sanctions and is pressuring them to be cautious with their investments there.

According to the sources, Sinopec Group has halted talks on a substantial petrochemical investment and a gas marketing cooperation in Russia.

Despite short-term hurdles such as currency fluctuation, Winnie Wang, president of the Shenzhen Cross-Border E-commerce Association, was positive about trade with Russia in the long run, saying she expected Chinese exports to rise in variety and volume.

Wang expressed the expectation that merchants would be able to transition away from using the US dollar as a settlement currency.

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

(Adapted from Latestly.com)



Categories: Economy & Finance, Entrepreneurship, Geopolitics, Regulations & Legal, Strategy, Sustainability

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