Chinese trade with Russia feels the sting of the war in Ukraine By Reuters

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© . FILE PHOTO: Flags of China and Russia are shown in this illustration photo, taken March 24, 2022. REUTERS/Florence Lo/Illustration

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By Sophie Yu and Brenda Goh SHANGHAI/BEIJING () – China’s exports to Russia have been ravaged as the ruble fluctuates, clear evidence of a ripple effect that Western sanctions against Russia’s invasion of Ukraine in China are having, even if they remain hang diplomatically by his neighbor. Chinese multinationals have stayed in Russia as their Western rivals flee, but it is smaller Chinese companies that are more vulnerable to exchange rate losses, with several telling that much of their Russian business is on hold as both sides await volatility. “The products I would send to Russia are in my warehouse,” says Deng Jinling, whose factory in eastern China makes vacuum bottles. Last year, about 30% of its 40 million yuan ($6.29 million) revenue came from Russia. “Our customers are all waiting to see if the exchange rate can improve a bit. Their costs are currently too high with the exchange rate,” she says. Another Chinese trader, who only gave her the last name Guo, said her company acted as an intermediary between Russian and Chinese customers, but that the volume of products such as sheets and kitchen appliances they usually handle had fallen by a third. China is Russia’s largest source of imports, selling $12.6 billion worth of goods to Russia alone in January and February — mostly computers, cars, shoes and toys, according to customs data. Both Russian importers and Chinese exporters are delaying business for fear of getting caught by the roller coaster ruble. “The ruble’s depreciation means you lose money every time there is a sale,” said Shen Muhui, who heads a trade group that represents more than 20,000 small Chinese exporters to Russia. He said a few more Russian customers were willing to use to pay for goods, but not enough to make much of a difference, and demand for his storage services in Russia had fallen by about a fifth since the start of the war in Ukraine and about 90% of its members were affected. “You can’t raise prices because the Russians can’t afford it… So you lose if you convert your receipts into yuan,” Shen said. “Exporting to Russia is becoming impossible.” LONG-TERM OPTIMISM The ruble has seen tremendous volatility against both the US dollar and the Chinese yuan since Russia launched a so-called “special operation” in Ukraine on February 24. The conflict caused the ruble’s value to fall by more than 40% against the yuan, although the Russian currency has recovered about 70% since its March 9 low. Against the US dollar, the ruble fell a whopping 44% in just seven trading days after the invasion, but has risen nearly 90% since its March 7 low, trading around 81 against the dollar in the interbank market. China has refused to condemn Russia’s actions in Ukraine or call it an invasion and has repeatedly criticized what it calls illegal and unilateral sanctions. Major Chinese companies such as Xiaomi (OTC:) and Great Wall Motor have remained largely silent about their plans for Russia. But behind the scenes, China is wary of its sanctioned-violating companies and is urging to be cautious about investments there, reported on March 25. The state-run Sinopec (NYSE:) Group has suspended talks over a major petrochemical investment and a gas marketing venture in Russia, the sources said. Winnie Wang, chairman of the Shenzhen Cross-Border E-commerce Association, was optimistic about long-term trade with Russia and said she expected China’s exports to increase in variety and volume, despite short-term challenges, including the currency volatility. Wang said she hoped traders could get rid of the US dollar’s settlement. “The two countries need to work together to design a new payment framework for trade,” she said.

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