Russia's slowing economic growth cuts demand for Chinese imports

Reuters

21-04-2025

April 21 (Reuters) - Slowing economic growth and reduced demand for large purchases like cars, electronics and household appliances have curtailed the volume of Russia's imports from China, first-quarter customs data showed, just as Beijing faces serious trade headwinds from U.S. tariffs.
Trade between Russia and China has soared since Western countries shunned Moscow over its February 2022 invasion of Ukraine, ballooning to a record 1.74 trillion yuan ($239 billion) last year, despite payment disruptions caused by western sanctions.
Russia's economy rebounded from contraction in 2022 following the imposition of sanctions over the war, thanks largely to soaring spending on the military, but high interest rates, labour shortages and limited production outside the defence sector are now squeezing Russia's economic growth potential.
Customs data published on Sunday showed that Russia spent $22.7 billion on imports from China in the first quarter of 2025, down 6.9% compared with the same period last year, according to Reuters calculations.
In February, Russia spent $5.8 billion on Chinese imports, the lowest monthly volume since June 2022, the data showed. In March, Russia's China imports increased by 1.9% to nearly $7.8 billion year on year.
China's Commerce Ministry and Russia's Industry and Trade Ministry did not respond to requests for comment.
Russia's cooling economy and saturation of markets that China dominates are partly behind the drop in demand, according to three analysts interviewed by Reuters.
This was particularly visible in the autos sector where Chinese carmakers now hold a more than 50% market share from under 10% before the war, said Vladislav Onishchenko, head of the Agency for Economic Transformation and Development, a Russian think tank.
The slowdown in auto imports comes partly as rumours swirl about the possible return of Western carmakers to Russia and as income growth slows.
The initial enthusiasm for Western brands returning also contributed to a drop in demand for other goods like electronics and household appliances, Onishchenko said.
Russia's economy is slowing across the board, with companies citing borrowing costs at 21% as reasons for slashing investment.
"There is potential (to increase imports from China), but the question is how fast," said Onishchenko. "(Russia) needs to pursue investment demand, but the money has to come from somewhere."
Industrial production growth has almost flatlined and both consumer and corporate lending growth have softened.
Alexei Podshchekoldin, president of the Association of Russian Automobile Dealers, said imports of heavy equipment like cranes, diggers and other machinery had been falling since November-December.
Although consumer activity continued expanding in February, the pace of retail sales growth fell to 2.2%, supported mainly by services, according to the central bank, while demand for the kinds of goods imported from China has fallen.
"The population's interest in large purchases of non-food products has decreased, including passenger cars, household appliances and electronics," the central bank said in a March report.
NO SUBSTITUTE FOR U.S.
Russia accounted for 3.2% of China's exports last year, up from 2.0% in 2021. The United States accounted for 14.7% in 2024, according to Chinese customs data.
China's trade with Russia is not large enough to compensate for any drop in exports to the United States due to President Donald Trump's tariffs, but those trade restrictions could further strengthen ties between Beijing and Moscow.
China last week said it plans to increase its imports of Russian liquefied natural gas this year. Beijing, which imported 5% of its LNG from the United States last year, imported no U.S. LNG in March, data from Kpler and LSEG show.
Payment restrictions and the threat of secondary sanctions on Chinese companies facilitating trade with Russia have also dampened trade flows in the last year. But Alexander Gabuev, director of the Carnegie Russia Eurasia Center, said sanctions enforcement is likely lower now because of the Trump administration's personnel cuts across government.
The U.S. Treasury did not respond to a request for comment.
Russia's cooling demand is a byproduct of an increasingly militarised economy but Chinese companies could be creative by reducing profit margins or offering discounts to try and dominate the market even more, Gabuev said.
"Russia definitely cannot substitute for the U.S., but it is a sizeable market and I think a lot of Chinese feel that they don't have much to lose," he said. "There will always be a way."
($1 = 7.2873 Chinese yuan renminbi)