Blog post

China’s growing presence on the Russian market and what it means for the European Union

The European Union’s relationship with Russia is strained, but the two economies are nevertheless highly intertwined. A huge share of Russia’s exports

Publishing date
06 November 2019
Visual of Russian dolls

Russia doesn't just look West, it looks East - and increasingly so. China’s economy has developed very rapidly over the past two decades, becoming the world’s largest exporter from a low base. Its goods have flooded Russia, eating into the EU’s export share. The changing global environment has helped re-orient Russia’s economic relationships eastwards, especially towards China. Chinese-Russian ties are also developing in the context of China’s massive Belt and Road Initiative.

This raises the question of the extent to which China might be able to displace the EU in Russia, in terms of trade, investment and lending. In a Bruegel working paper (written with the support of the EU Russia Expert Network on Foreign Policy), we assessed the deepening of Russia’s economic ties with China and what this might mean for the EU.

The data sheds light on some key issues EU policymakers should pay attention to. Since 2002, the EU’s share of Russia’s imports has dropped from 53% to about 40%, while China’s share has risen from less than 3% to 21%. Therefore, the EU still dominates, but what China exports is changing – and that should also give cause for concern. The share of domestic content in the goods China sells to the world has been increasing, and Chinese exports are increasingly substituting EU exports on the Russian market, especially in capital-intensive sectors. Notable overlaps are vehicles, industrial machinery, electronics and metal components.

In investment, China’s encroachment on the EU’s position in Russia is less evident. While Chinese investment worldwide surged in 2016 and 2017, China’s exposure in Russia is limited and remains much less than the EU’s. Chinese investment in Russia even dropped into negative territory, to -$13 million, in 2018.

The industry focus of Chinese investment has also been very different to the EU’s. In 2018, the biggest target of Chinese direct investment in Russia was the real-estate sector. EU companies have much broader interests in manufacturing and  several service sectors, including wholesale and retail. Nevertheless, the 2019 acquisition by Chinese oil companies of stakes in one of Russia’s most strategic companies, the natural gas producer Novotek, seems to indicate that Russia is becoming a major strategic partner for China.

EU lending to Russia, meanwhile, has declined in the context of sanctions. But Chinese project finance in Russia has steadily increased. Nevertheless, the EU still has much greater financial exposure than China in Russia. EU portfolio investment in Russia is clearly larger than Chinese portfolio investment. As for bank lending, while there are no official statistics on the role of Chinese banks as cross-border lenders, the signs are that Chinese project finance, while increasing, still does not equal even one-third of the EU’s lending flows into Russia.

Europe thus remains Russia’s largest trading partner, lender and investor, but China is catching up quickly, especially on trade and project finance. It is in the trade data that competition between the EU and China on the Russian market shows up most clearly, with the EU losing market share and China ramping up the value-added of its exports to Russia. While it is hard to draw any causality from our descriptive analysis, previous empirical work we conducted on this topic using sectoral data does show that China has taken market share from European exports in key sectors where the EU has long kept a comparative advantage[1].

[1] Garcia-Herrero, Alicia and Jianwei Xu (2016),  The China-Russia trade relationship and its impact on Europe


About the authors

  • Alicia García-Herrero

    Alicia García Herrero is a Senior fellow at Bruegel.

    She is the Chief Economist for Asia Pacific at French investment bank Natixis, based in Hong Kong and is an independent Board Member of AGEAS insurance group. Alicia also serves as a non-resident Senior fellow at the East Asian Institute (EAI) of the National University Singapore (NUS). Alicia is also Adjunct Professor at the Hong Kong University of Science and Technology (HKUST). Finally, Alicia is a Member of the Council of the Focused Ultrasound Foundation (FUF), a Member of the Board of the Center for Asia-Pacific Resilience and Innovation (CAPRI), a member of the Council of Advisors on Economic Affairs to the Spanish Government, a member of the Advisory Board of the Berlin-based Mercator Institute for China Studies (MERICS) and an advisor to the Hong Kong Monetary Authority’s research arm (HKIMR).

    In previous years, Alicia held the following positions: Chief Economist for Emerging Markets at Banco Bilbao Vizcaya Argentaria (BBVA), Member of the Asian Research Program at the Bank of International Settlements (BIS), Head of the International Economy Division of the Bank of Spain, Member of the Counsel to the Executive Board of the European Central Bank, Head of Emerging Economies at the Research Department at Banco Santander, and Economist at the International Monetary Fund. As regards her academic career, Alicia has served as visiting Professor at John Hopkins University (SAIS program), China Europe International Business School (CEIBS) and Carlos III University. 

    Alicia holds a PhD in Economics from George Washington University and has published extensively in refereed journals and books (see her publications in ResearchGate, Google Scholar, SSRN or REPEC). Alicia is very active in international media (such as BBC, Bloomberg, CNBC  and CNN) as well as social media (LinkedIn and Twitter). As a recognition of her thought leadership, Alicia was included in the TOP Voices in Economy and Finance by LinkedIn in 2017 and #6 Top Social Media leader by Refinitiv in 2020.

  • Jianwei Xu

    Jianwei Xu is non-resident fellow at Bruegel. He is a senior economist at Natixis, Asia Pacific. He worked as a professor at Beijing Normal University. He was also a guest researcher at China Academy of Social Science and a youth member of the China Finance Forum 40.

    His research mainly focuses on international economics and labor economics. He is particularly interested in topics related to the Chinese economy. He has published many papers in academic journals and also writes policy articles for the media.

    He received his Ph.D. in economics from China Economic Research Center, Peking University in 2011. He was also a visiting student in Stern Business School, New York University, from 2009 to 2010.

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China Economic Database

Repository of what we consider to be the most relevant macroeconomic data for China and EU-China relations.

Alessia Amighini, Alicia García-Herrero, Michal Krystyanczuk, Robin Schindowski and Jianwei Xu