Changes in China’s Trade with the U.S., Europe, and Russia: Implications and Significances
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In 2022, as the Russia-Ukraine conflict erupted, sanctions were imposed by the Western alliance led by the United States against Russia in finance, economy, technology, culture, art, sports, and other aspects. Russia has been cut off from multiple connections with the West, including investments, trade, technology, and personnel exchanges. In this unique situation, Russia chose to implement an eastward strategy. Its most crucial aspect is strengthening economic cooperation with China, particularly in oil exports to China, natural gas exports, non-energy commodity trade, mutual investments, and others.
The strengthening of economic cooperation between Russia and China is evident in the trade sector. According to data from China’s General Administration of Customs, the total trade volume between the two nations reached USD 218.176 billion from January to November 2023, exceeding USD 200 billion for the first time in history and growing by 26.7% year-on-year. China’s exports to Russia were USD 100.336 billion, a year-on-year increase of 50.2%, while the imports were USD 117.84 billion, growing by 11.8% year-on-year. The goal set by the leaders of both countries to achieve a trade volume of USD 200 billion in 2024 has already been realized. The largest category of products exported from China to Russia is machinery, electronics, and consumer goods, accounting for a high percentage of 40%, with a significant surge in car exports. Data shows that from January to October, among the top ten countries in Chinese car exports, Russia ranked first. The market share of Chinese brand cars in the Russian market, which was only 9% at the beginning of 2022, rapidly increased to 26% in September of the same year and reached 53% by the end of September 2023.
Energy plays a prominent role in the economic and trade cooperation of these two countries. In 2023, Russia maintained its position as China’s largest source of energy imports. According to Chinese customs data, in November 2023, Russia was China’s largest supplier of crude oil, with China importing approximately 2.2 million barrels of Russian oil per day. From January to November 2023, the volume of oil imported from Russia to China surged by 22.2% compared to the same period last year. According to Russian data, Russia supplied about 70 million tons of oil to India and around 100 million tons to China this year. Taking natural gas as an example, on December 2, the China-Russia East Gas Pipeline has been in operation for four years, with the cumulative gas transmission exceeding 50 billion cubic meters, and it has already reached a historic high with over 20 billion cubic meters transmitted in 2023.
While Russia-China trade has experienced a significant increase, China’s trade with the European Union (EU) and the U.S. has begun to slow down and even decline. Since 2019, the trade volume of goods between China and the Association of Southeast Asian Nations (ASEAN) has exceeded that between China and the U.S., with the latter falling to China’s third-largest trading partner. Starting in 2020, ASEAN surpassed the EU to become China’s largest trading partner, with the EU ranking as China’s second-largest trading partner. According to China’s customs data from January to November 2023, the goods trade volume between China and the U.S. was USD 607.014 billion, a year-on-year decrease of 12.2%. This includes exports to the U.S. amounting to USD 457.7 billion, down by 13.8% year-on-year, and imports from the U.S. reaching USD 149.258 billion, a 7% year-on-year decrease. Due to the decline in exports to the U.S., China has dropped to the third-largest importing country for the U.S., with Mexico and Canada ranking as the first and second largest importing countries from the U.S., respectively. In the first eleven months of 2023, China’s trade volume with the EU reached USD 716.3 billion, with exports to the EU amounting to USD 458.5 billion and imports from the EU totaling USD 257.8 billion. Compared to the same period last year, China’s exports to the EU have decreased by 11%.
Figure: Goods Trade Volume (in 1100 Million USD) between China and Its Major Trading Partners
The change in China’s trade position with major trading partners is already a clear fact. Regarding the reasons for changes in trading partners, there have been many analyses on this, generally related to factors such as intensified anti-globalization, escalating geopolitical frictions, supply chain restructuring, and the transfer of transnational investments. However, researchers at ANBOUND noticed that certain official analyses quoted by some Chinese media consider the changes in China’s trade with major partners with a celebratory perspective. On the one hand, they emphasize the significance of the substantial increase in Russian-China trade, while on the other hand, they imply that the decline in China’s trade growth with the U.S. and the EU is inconsequential, as the trade with Russia can quickly become an alternative to what is lacking in the U.S.-China and EU-Chin trades.
From the standpoint of professional analysis, such a perspective lacks an understanding of China’s trade structure and the relevance of the Chinese economy to the world economy, and this can negatively affect the formulation of China’s foreign economic policies during geopolitically sensitive periods. It should be clear that the Chinese economy is entirely different from Russia’s, as Russia can adopt a closed policy during geopolitical deterioration, but such is not the case for China. Touted as the “world’s factory”, the Chinese economy has a strong dependence on globalization. After successfully joining the WTO in 2001, China was able to deeply participate in the process of globalization, leading to what is known as the “golden decade” in its economic development.
In recent years, traditional globalization has been fragmenting. This is driven by geopolitical shifts and anti-globalization sentiments, leading to significant structural adjustments in the world economy. For China, one of the biggest beneficiaries of the globalization era, this has been a profoundly impactful change. It should be pointed out that even as the traditional globalization model collapses, China still needs to maintain as much cooperation as possible with the developed world like the U.S. and Europe. The growth in China’s trade with Russia can only address a portion of the issues, such as its energy demand, but it can never replace the economic cooperation with developed countries. If China develops excessive trade dependency on Russia in certain areas, it may even impact its economic relations with Europe and the U.S. due to geopolitical factors.
It must also be recognized that China’s trade relationships with the EU and the U.S. differ significantly in terms of quantity and quality from its trade relationship with Russia. In recent years, the global supply chain has undergone systematic adjustments, with companies from Europe and the U.S. being the first to withdraw from the Russian market. Subsequently, citing the reduction of supply chain risks, they began shifting the supply chain from mainland China to countries and regions such as Southeast Asia, India, and Mexico. Nevertheless, in the first 11 months of 2023, China’s total exports to Europe still maintained a scale of USD 650 billion, slightly lower than the total exports to the U.S. at USD 457.8 billion. During the same period, even though China’s exports to Russia surged by 50.2%, the total export volume to Russia was only USD 100.3 billion. In addition to trade volume, when considering the technological level and quality of traded goods, China’s trade with Europe and the U.S. is far from comparable to its trade with Russia. In the past, China participated in globalization within the core systems dominated by developed countries in supply and industrial chains. As a developing country, China needs to maintain economic cooperation relationships that bring technological progress, industrial upgrading, and managerial improvements, rather than simply buying oil and minerals.
In recent years, China’s trade with Russia has continued to grow at a high speed, but there is still a significant gap between this and its trade relations with Europe and the U.S. As China’s exports to the latter two are currently experiencing a noticeable decline, relying on the growth of its trade with Russia to fill the gap is not a viable solution.
Final analysis conclusion:
Taking advantage of Russia’s difficulties to strengthen its energy exports to China, selling more products to Russia, and increasing a portion of export earnings is certainly a positive development from China’s perspective. However, in terms of policy, it is essential for the Chinese authorities not to misjudge the situation. All in all, maintaining multilateral economic and trade relationships remains crucial for China, and it should not overlook the potential risks brought about by the recent development.
