Stymied by West, Russia’s top trade partners include mainland China, Hong Kong

beijingwalker · Feb 4, 2023

Stymied by West, Russia’s top trade partners include mainland China, Hong Kong
With one-year anniversary of Ukraine invasion three weeks away, a US trade group says ‘China and Hong Kong have successfully replaced other countries as chip suppliers’
China accounted for more than 36 per cent of Russia’s overall imports and 20 per cent of its exports in 2022, Institute of International Finance says

Published: 9:00pm, 3 Feb, 2023

Russia boosted its trade with mainland China and Hong Kong last year as Moscow made a tactical pivot to the two markets for chip imports while diversifying away from allies of the United States amid sanctions following the invasion of Ukraine, according to a US-based trade group for the global financial services industry.
China, Hong Kong and Turkey have supplanted countries in the European Union as Russia’s top trading partners, the Institute of International Finance (IIF) said on Wednesday.
As the war in Ukraine approaches the one-year mark, the resulting shock waves continue to ripple through global markets for commodities, energy and food, and the world’s supply chain has seen a drastic realignment.
Washington and its allies have responded to Russia’s aggression by imposing sweeping restrictions to block its access to advanced semiconductors, aerospace products and luxury goods since last year.

We believe [Washington’s] objective is to prevent Russia from accessing chips, particularly advanced technologies or those suitable for military useInstitute of International Finance

“Russian authorities countered sanctions with swift macroeconomic measures preventing a financial sector collapse, increasing government spending and limiting access to statistics, including trade,” the IIF said. “Importantly, Russia focused on rebuilding value chains severed by sanctions.”

Despite export controls, Russia has increased imports of semiconductors and electronic circuits, with purchases totalling US$2.45 billion between January and September 2022 – up from US$1.8 billion a year earlier, the IIF said.
Mainland China and Hong Kong collectively supplied around 40 per cent of Russia’s total chips, the institute added.

“It is still unclear whether all chips are prohibited by the US for exports to Russia. However, given the Bureau of Industry and Security’s rule on September 15, we believe the objective is to prevent Russia from accessing chips, particularly advanced technologies or those suitable for military use,” the IIF said.

“However, we find that China and Hong Kong have successfully replaced other countries as chip suppliers, as countries such as Germany, the Netherlands and South Korea have reduced their shipments to Russia.”

China accounted for more than 36 per cent of Russia’s overall imports and 20 per cent of its exports in 2022, the IIF said.

China’s total exports to Russia grew to US$76.12 billion in 2022 from US$67.57 billion a year earlier, while its imports from Russia grew to US$114.15 billion in 2022 from US$79.32 billion in 2021, according to Chinese customs data.

The data also showed that China exported a total of US$312.93 million worth of semiconductors and integrated circuits to Russia last year, up from US$231.97 million in 2021, or a year-on-year increase of 34.9 per cent.

Hong Kong’s export data, however, does not contain the final destinations of re-exports, including those from mainland China, according to an officer with the city’s Census and Statistics Department. This means that official statistics may not have included all re-exports from mainland China to Russia.

Beijing has refrained from publicly condemning Russia’s military aggression and has rejected calls from the West to impose sanctions on Moscow, which Beijing regards as a strategic partner.

Washington has also warned the Chinese government there would be consequences if it provided military support to Russia against Ukraine, while Beijing has consistently said it has not done so.

The Bureau of Industry and Security, which falls under the US Department of Commerce, said in its September rule that the widening of existing sanctions against Russia and Belarus showed “that the US and our international partners will continue to stand with Ukraine and clamp down on Russia’s access to technologies and items that may be used to support military capabilities”.

Russia’s economy has performed better than expected despite a barrage of sanctions from the US and its allies. Last year, its current account surplus reached an “unprecedented” US$227 billion, more than double the previous record, the IIF said, noting that this was mainly driven by soaring exports in oil, gas and other commodities, while its imports also recovered strongly.

The International Monetary Fund expects Russia’s economy to grow by 0.3 per cent in 2023, up from a contraction of 2.2 per cent in 2022.
It also expects Russia’s economy to perform better than that of Germany and the UK, whose gross domestic products are projected to grow by 0.1 per cent and shrink by 0.6 per cent, respectively, in 2023.