China’s exports to Russia slump amid US threat of war sanctions

China’s exports to Russia slumped in March, the first year-on-year decline since mid-2022, amid growing US threats of reprisal against Beijing if goods aid Moscow’s invasion of Ukraine.

President Vladimir Putin may raise the need to bolster trade volumes at talks with Chinese leader Xi Jinping when he visits China next month, according to a person with knowledge of the matter, asking not to be identified discussing internal issues. Russia views the slowdown as temporary, the person said.

China’s exports to Russia fell almost 16% in March from a year earlier, according to Chinese customs data. That’s taking place as Russia faces deepening difficulties with international payments generally amid a heightened risk of US secondary sanctions for banks and businesses accused of aiding Moscow’s invasion of Ukraine.

Kremlin spokesman Dmitry Peskov didn’t respond to a request for comment.

Trade between Russia and China hit a record $240 billion last year, driven by Chinese imports of Russian oil and exports of cars, industrial equipment and electronics.

Turkey’s trade with Russia is also stuttering under the pressure of sanctions, hitting a key supply line for Moscow that the US and the European Union say fuels its war machine. 

Total Russian imports in March shrank 18% compared to the same period last year, Bank of Russia data show. 

Stronger US signaling of the risks of secondary sanctions linked to Russia “means that trade settlement takes longer and Russia’s importers increasingly have to rely on nations in central Asia to facilitate this trade,” Bloomberg Economics Russia economist Alexander Isakov said.

Moscow and Beijing have declared a “no limits” friendship that has so far helped Russia to weather unprecedented international sanctions since Putin ordered the February 2022 invasion. Russian Foreign Minister Sergei Lavrov said the two sides agreed to work on “double counteracting” the US and its allies at talks with his Chinese counterpart Wang Yi in Beijing last week.

US Treasury Secretary Janet Yellen was also in China last week and warned of “significant consequences” for Chinese banks and exporters if they bolster Russia’s military capacity, saying they’d “expose themselves to the risk of US sanctions” if they do.

That came days after US President Joe Biden raised concerns about China’s “support for Russia’s defense industrial base” in a phone call with Xi. 

In December, the Treasury Department announced it would impose secondary sanctions on banks that facilitate deals in which Russia procures semiconductors, ball bearings and other equipment necessary for its military — even if they’re unaware they’re doing so.

China’s state-owned banks tightened curbs on funding to Russian clients after the US authorized secondary sanctions, people familiar said in January.

“This is showing that some of the measures the US have taken are having a destructive effect but it’s too early to tell how durable they are,” said Alexander Gabuev, director of the Carnegie Russia Eurasia Center. “The most likely outcome is that the Chinese will be more cautious.”

Chinese banks in late March began blocking payments from Russian companies buying components for electronic assembly, Kommersant reported April 4, citing market participants in Russia. Problems in transferring funds to settle invoices started to affect importers of Chinese electronic goods in December, according to the newspaper.