China and Russia have record level of trade since war – 07/06/2023 – Market

The volume of China’s trade with Russia has reached the highest level since the start of the invasion of Ukraine. However, Chinese exports contracted in May, affected by the fragile recovery of the world’s second largest economy.

Historically a key indicator of the country’s growth, Chinese exports fell 7.5% compared to the same month last year, according to data released in dollars this Wednesday (7) by customs services.

In a context of global inflation, threat of world recession and low demand, imports from the Asian giant also fell by 4.5% in the same month.

However, contrary to the general trend, trade with Russia reached its highest level since the start of the Ukraine War in February 2022, a sign of Beijing’s attempt to support its ally battered by Western sanctions.

Trade between the two countries in May reached US$ 20.5 billion (R$ 103.7 billion at the exchange rate at the time), with a favorable balance for Russia, which exported US$ 11.3 billion (R$ 57.1 billion at the rate at the time), according to Customs.

Data released on Wednesday also showed a sharp 75.6% increase in Chinese exports to Russia in May, the biggest jump since the invasion of Ukraine.

China is Russia’s main trading partner, with a trade volume that reached a record US$190 billion in 2022 (R$991 billion at the time), according to customs data from the Asian giant.

During a summit in March, their respective presidents, Xi Jinping and Vladimir Putin, advocated increasing bilateral trade to US$200 billion (R$985 billion at current exchange rates) by 2023.

An important role in this push is played by Russia’s energy exports to China, which are expected to grow by 40% this year, Russian Deputy Prime Minister Alexander Novak said in May.

China presents itself as a neutral actor in the Ukraine War, but has been criticized by Western countries for not condemning the invasion and for its strategic alliance with Moscow.

drop in demand

The trade relationship with Russia is not representative of the difficulties that the Asian giant is currently facing.

Exports recorded a brief recovery in March and April after the end of the Covid zero restrictions policy in the world’s second largest economy.

For May, analysts surveyed by Bloomberg projected a more moderate contraction in exports, of 1.8%. But the threat of recession in the United States and Europe, combined with runaway inflation, has helped dampen international demand for Chinese goods.

“China depends in part on the health of European and American industry, which assembles its products in China,” said Guillaume Dejean, macroeconomic analyst at financial group Convera.

“High inflation and rising interest rates in these regions have seriously penalized demand,” he said.

With the exception of the months of March and April, China’s exports have evolved negatively since October 2022, when the anti-covid restrictions policy more severely penalized the country’s economy.

In December, the Asian giant lifted most of the measures and paved the way for a recovery in activity, which translated into 4.5% growth in the first quarter of 2023.

But the recovery is fragile in an economy weighed down by a leveraged real estate sector, consumer distrust and a global slowdown.

To support its economy, Beijing could come up with a “new real estate recovery plan” and enact a drop in interest rates, predicts Ken Cheung, an analyst at Japanese bank Mizuho.