China's trade with Russia won't be enough to offset sanctions, U.S. says

BEIJING — China’s trade with Russia isn’t enough to offset the impact of U.S. and European sanctions on Moscow, according to the White House.

In the hours after Russia invaded Ukraine on Thursday, the U.S., U.K. and European Union announced new sanctions aimed at isolating Moscow from the global economy. The sweeping measures did not include restrictions on purchases of Russian oil and gas — a significant driver of the local economy.

In Beijing, China’s foreign ministry said Thursday the country’s trade with Russia and Ukraine would remain “normal” and refused to call the attack an “invasion.” Meanwhile, the customs agency approved wheat imports from Russia.

China and Russia’s share of the global economy is far less than that of the Group of Seven countries — which includes the U.S. and Germany. That means China “cannot cover” the impact of the sanctions, U.S. press secretary Jen Psaki told reporters late Thursday in Washington.

China accounted for 17.3% of global GDP in 2020, versus Russia’s 1.7% and the G-7’s 45.8%, according to World Bank data.

China is the largest trade partner for Russia and Ukraine. Both countries are part of the Belt and Road Initiative — a regional infrastructure development plan widely seen as Beijing’s effort to increase global influence.

Trade between China and Russia reached a record high of $146.9 billion in 2021, up 35.8% year-on-year, according to China’s customs agency. China’s imports from Russia exceeded exports by more than $10 billion.

From current levels of imports and exports, trade would need to grow by an additional 37% to reach Moscow and Beijing’s goal of $200 billion by 2024.

China’s trade with Ukraine rose by 29.7% last year to $19.31 billion, also a record high, and split fairly evenly between imports and exports, according to customs data.

“China and Russia are comprehensive strategic partners. China and Ukraine are friendly partners,” Assistant Foreign Minister Hua Chunying said Thursday in Mandarin, according to a CNBC translation.

“Thus China will conduct normal trade cooperation, on the basis of [China’s] Five Principles of Peaceful Coexistence [for international relations] and the basis of friendly relationship with both countries,” she said. “This of course includes cooperation on energy.”

Just under two-thirds of China’s imports from Russia were energy products in 2021, according to Chinese customs data. Russia is China’s largest source of electricity and second-largest source of crude oil, the agency said.

“China’s lifting of restrictions on Russian wheat and barley imports are clearly intended to offset the impact of sanctions, but it remains to be seen if this will primarily be a symbolic gesture or if it will have meaningful economic impact,” said Stephen Olson, senior research fellow at the Hinrich Foundation, a nonprofit organization focused on trade issues.

“China’s ability to offset the impact of Western sanctions will be determined by the scale and scope of sanctions ultimately agreed to by the U.S. and its partners,” Olson said. “At this point, the West has not yet put all its cards on the table, leaving open the option of tightening the screws later, if need be.”

The Russian ruble plunged to record lows against the U.S. dollar on Thursday as the invasion began.

Western sanctions on Russia have stopped short of cutting the Kremlin off from SWIFT, the international payments network. As of January, the Chinese yuan was the fourth most-used currency for global payments, up from sixth place two years ago, according to SWIFT.

China’s Hua on Thursday criticized the U.S. for providing military assistance to Ukraine and said Russia does not need such support from Beijing or others.

Ties between Russian President Vladimir Putin and Chinese President Xi Jinping strengthened earlier this month with a high-profile meeting of the leaders in Beijing just before the Winter Olympics in the city.

In an official readout, the Chinese side said the two countries need to “strengthen their strategic partnership on energy” and “advance cooperation on scientific and technological innovation.”

On the same day, Russian energy giants Gazprom and Rosneft signed deals with the China National Petroleum Corporation to supply oil and natural gas to China.

“As long as China continues to implement its trading relationship, those measures would already be very helpful to Russia,” said Tong Zhao, a senior fellow in the nuclear policy program at the Carnegie Endowment for International Peace, based in Beijing.

Zhao, who emphasized he is not an expert on economic issues, said that if China took additional measures to support Russia, “it is likely to do those measures in a very low-profile manner in order to mitigate the provocations seen from European and other countries.”