Big shifts are underway in Russia-China trade

Data for Q3 on the volume of China’s imports of crude from Russia show a drop against the June level. Rather than an indication that China’s demand has peaked, this may be a sign that China is preparing for the Russian oil price cap recently agreed by G7 by shifting some of its purchases to the grey market. Either way, China on its own is unlikely to absorb all of Russia’s surplus crude.

What you will learn:

• The process of substitution of Western-made products that Russia can no longer import due to sanctions. which had been delayed by China’s Covid-related lockdowns, has now begun. China’s trade data show a pick-up in exports of autos, machinery, and equipment to Russia in Q3. China has also increased imports from Russia, not only of oil and gas, but also coals and metals.
• Meanwhile, the volume of the daily yuan trade in the Russian FX market has nearly caught up with trades in euros and US dollars. Together with recent announcements on switching to roubles and yuan for gas trades, this suggests that the share of yuan-denominated trade between Russia and China is rising. The yuan’s liquidity is now sufficient for Russia’s authorities to intervene in yuan in the FX market when a new budget rule comes in force.