Russia and China seek stronger rapprochement

Europe is still Russia’s most important trading partner, but in recent years the Russians have shifted their focus more to the east. As a result, China is taking away an ever-increasing share of the EU’s market share. Since 2002, China’s share of Russia’s total imports has increased from 3% to 21%. By comparison, over the same period EU market share fell from 53% to 40%.

China not only exports more goods to Russia, but also more high-quality products. Think of cars, machinery, electronics and metal parts, products that Russia in the past mainly imported from the EU. And that is not the only thing, because the trade sanctions also mean that European agricultural products are no longer welcome on the Russian market. Other countries, including China, are taking advantage of this.

Russia focuses attention on China

Russia and China have become important partners in recent years. Russian President Vladimir Putin and his Chinese counterpart Xi Jinping have met dozens of times. Cooperation between these countries is not limited to trade, but also covers energy policy, defense and international policy.

It is no coincidence that these emerging economies are seeking rapprochement. China became involved in a trade war with the US, while the relationship between Russia and Europe is under pressure from the situation in Ukraine. The sanctions policy that has been in place since 2014 is hampering trade, which is why Russia is seeking rapprochement with China.

According to the economic think tank Bruegel, EU countries invest more than three times as much in Russia as China. But this trend also seems to be changing in recent years. European countries invest less because of the economic sanctions, while the Chinese invest more in Russian energy and infrastructure.

Russia dumps dollars

Russia is not only seeking more and more rapprochement with China, it is also trying to become less dependent on the US dollar. The Deputy Minister of Finance, Vladimir Kolychev, confirmed this week that the Russian state fund wants to review its currency positions.

“Geopolitical risk is one of the factors that determines the structure of the state fund. I can say with certainty that the share of the US dollar is decreasing. We are considering different currencies, including the yuan.”

Next year, the state fund will convert some of its dollar positions into other currencies, including the euro and the Chinese yuan. According to Reuters’ calculations, the Russian state fund consists of 36% dollars.

According to Kolychev, the Russian state fund wants to align its currency position with that of the central bank, which exchanged part of its dollars for euros and yuan last year. As a result, the euro has now become Russia’s most important currency reserve.

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