China Moves Closer to Russia... Lifts Restrictions on Russian Wheat Imports

In 2020, 17.5% of Sino-Russian Trade Settled in Chinese Yuan... A Fivefold Increase Compared to 2014
About 13% of Russia's Foreign Exchange Reserves Held in Yuan

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyun-jung] China is showing closer ties with Russia, which has faced Western economic sanctions due to its invasion of Ukraine.

According to a report by Hong Kong's South China Morning Post on the 25th, the Chinese General Administration of Customs announced the complete opening of wheat imports from Russia the day before. This agreement is believed to have been made during Russian President Vladimir Putin's visit to Beijing earlier this month.

China had restricted Russian grain imports to control crop pests and diseases but began allowing large-scale wheat imports from Russia's Far East region starting last October. Cofco, China's largest agricultural company and a state-owned enterprise, imported 667 tons (1.47 million pounds) of wheat.

Russia, the world's largest wheat exporter, exported over 30 million tons of wheat overseas from January to November last year. According to the Agroexport Federal Center under Russia's Ministry of Agriculture, agricultural exports to China amounted to $3.5 billion (approximately 4.208 trillion KRW) last year, a 13% decrease compared to the previous year. This accounts for about 9.8% of Russia's total agricultural exports. Included in this are $116 million worth of grains, $1.1 billion worth of seafood, and $480 million worth of meat and dairy products.

China's wheat consumption is on the rise. Last year's wheat imports reached 9.77 million tons, a 16.6% increase compared to the previous year.

Some analysts suggest that Russia may be able to circumvent Western economic sanctions through China. The yuan's value is rapidly rising amid expectations that Russia will use the yuan of its ally China more instead of the US dollar. On the previous day, the yuan-dollar exchange rate in the Chinese foreign exchange market fell intraday to 6.32 yuan per dollar, the lowest level since April 2018.

According to Zhang Hanhui, Chinese Ambassador to Russia, 17.5% of trade between China and Russia was settled in yuan in 2020. This is more than five times the 3.1% recorded in 2014. Official Russian statistics show that the Chinese yuan accounted for 12.8% of Russia's foreign exchange reserves in 2020 and 30.4% of the sovereign wealth fund as of July last year. Ambassador Zhang said, "China's yuan has its own advantages and usability in the Russian market," adding, "Although bilateral oil and gas contracts are mainly settled in foreign currencies, we are pleased that companies on both sides are considering the possibility of using yuan settlements."

Lu Xiang, a senior researcher at the Chinese Academy of Social Sciences, predicted that cooperation between China and Russia will not be disrupted regardless of the international situation. He explained, "China is willing to help Russia maintain its economy," and "Meanwhile, it will maintain dialogue with Europe to mitigate risks."