How a Chinese border town keeps Russia’s economy afloat

Trainloads of Siberian lumber cross China’s border, ready to be sliced and polished into furniture components and chopsticks. Truckloads of Russian rapeseed come across to be crushed for canola oil. And at a palatial used car showroom, Russians buy late-model used cars to send back to their hometowns.

As is visible in Manzhouli, China’s main border crossing with Russia, the two countries’ economies are increasingly intertwined. China is the biggest buyer of Russian oil, timber and coal, and it will soon be the biggest buyer of Russian natural gas. Trade between the two countries exceeded $240 billion last year, up two-thirds since Russia invaded Ukraine in February 2022. China has supplied many of the drones and drone components used by Russia in the conflict.

China’s staunch support for Russia’s economy has helped Moscow survive: dozens of countries have barred Russia from much of the global financial system, upending its economy at home.

China has had the opposite reaction to Russia’s war on Ukraine.

“China-Russia relations represent the most stable, mature and strategically significant big-country relationship in the world today,” Wang Yi, China’s foreign minister, said this month after meeting Russian foreign minister Sergey Lavrov.

By backing Russia so enthusiastically, China’s leaders have put new strain on their country’s relationship with the European Union. If Beijing had distanced itself from Moscow, Europe might have turned toward China as US president Donald Trump threatened tariffs on European goods this year.

European Union leaders are set to meet Chinese officials Thursday for a daylong summit in Beijing. They are expected to again ask that Chinese president Xi Jinping, China’s top leader, reduce China’s economic and industrial support for Russia’s war in Ukraine. European Commission president Ursula von der Leyen said this month that China’s stance on the war in Ukraine would be “a determining factor” for the bloc’s relations with Beijing.

“China’s unyielding support for Russia is creating heightened instability and insecurity here in Europe,” she said. “We can say that China is de facto enabling Russia’s war economy – we cannot accept this.”

Much of the trade between China and Russia has long run through Manzhouli. Russia built a rail line through the city into northeastern China in 1900. Today, trains and trucks from Russia cross into China, many of them carrying timber or freshly cut boards: pine for construction and furniture, white birch for chopsticks, aspen for framing concrete and sturdy elm for coal mine supports.

The flow underscores Russia’s diminished economic position. It is now functionally an economic satellite of China, dependent on Beijing for manufactured goods while selling raw materials that China could, if it wanted to, buy elsewhere.

Almost 6 per cent of the entire Russian economy now consists of exports to China. That is a proportion equalled by Iran, another country under international sanctions. As part of pressure on Russia to accept a ceasefire, Trump threatened last week to impose high tariffs or other sanctions on countries trading with Russia, although he did not name China.

Manzhouli’s official economic strategy – “Russian supply, Chinese processing” – underlines Russia’s evolution into a supplier of raw materials to China’s vast manufacturing sector, which dwarfs Russia’s own.

Russia depends on China for clothing, electronics, even cars. China’s northbound exports have risen 71 per cent since the start of the Ukraine war.

The trade alliance also shows up in other contexts. State media in China has tilted strongly toward Russia in the Ukraine war. Russian television channels have been gradually squeezing out their US counterparts in Chinese hotels. China’s sympathies show up on store shelves in Manzhouli: Stalin-brand vodka and ground coffee are on sale, and one store even specialises in busts of past Soviet leaders and matryoshka dolls that resemble President Vladimir Putin.

The new embrace signals a turnaround in the two countries’ relationship.

During the 1950s, Soviet advisers helped a mostly rural, underdeveloped China build many of its early steel mills, railroads and weapons factories. But now, China produces 32 per cent of the world’s manufactured goods – more than the United States, Japan, Germany, South Korea and Britain combined.

Russia’s share of global manufacturing? It’s just 1.33%, even including weapons production, according to the United Nations Industrial Development Organisation.

China is also benefiting from the imports. By buying timber and other goods from Russia, through Manzhouli, Beijing has been able to avoid buying imports from the United States and its allies. China used to buy raw materials such as rapeseed from Canada, for example, but has shifted to purchasing more of these goods from Russia after Canada mostly sided with then US president Joe Biden last year and subsequently with Trump in imposing higher tariffs on Chinese goods.

China retaliated against Canada by imposing tariffs of 100 per cent on imports of canola oil and canola meal from Canada. China also began a trade case against Canadian rapeseed, targeting some of Canada’s largest exports to China.

At the Manzhouli Xinfeng Grain and Oil Industry Limited Company, bright red forklift trucks move sacks of supplies. The highly automated factory, less than one mile from the border, removes the hulls from Russian rapeseed and presses them to make canola oil.

Huang Baoqiang, the managing director of a nearby lumber mill, said his company bought large quantities of timber from neighbouring Siberia and turned them into bed slats and other furniture components. The US treasury department has tried to block the use of dollars for transactions with Russia, but Huang said he was able to pay with Chinese renminbi or Russian roubles through VTB Bank. The bank, one of Russia’s largest financial institutions, faced sanctions by the United States and the European Union soon after Russia invaded Ukraine.

But while Russia and China increasingly trade with each other, there are a few signs of tension.

Russia has banned the shipment of freshly cut pines to China. So the bark is removed from pines, and the logs are cut into boards at sawmills in Siberia, to the annoyance of businesspeople such as Huang.

China, in turn, imposed tariffs on imports of Russian coal at the start of last year after state-owned Chinese coal mines expanded output and complained of Russian competition.

The biggest stress in the trade relationship involves cars. Back in 2021, Chinese cars weren’t very popular in Russia. But after the invasion of Ukraine, western carmakers withdrew from the country and Chinese manufacturers slashed prices.

Chinese cars captured 60 per cent of the Russian market by late summer last year, according to GlobalData Automotive, a research firm.

Russia’s carmakers had initially been expected to benefit from the retreat of their western competitors and were disappointed by China’s success. They persuaded Moscow to start collecting a $7,500 (€6,400) fee on imported cars. The fee, which took effect on October 1st, has an exemption: it does not apply to used cars purchased by Russian citizens for personal use.

China’s car exports to Russia in the first five months of this year plunged 58 per cent from a year earlier. “It’s a big bucket of cold water on what Chinese automakers expected to be their top market for years to come,” said Stephen Dyer, head of the Asia automotive practice at AlixPartners, a consulting firm.

Chinese entrepreneurs in Manzhouli are already exploiting the used car loophole in Russia’s rules. A block from the Russian border, a year-old palace of a used car showroom in Manzhouli has towering bronze doors that open up to an 80ft-high hall, all designed to lure Russian shoppers who want to beat the $7,500 fee.

On sale are barely used BMWs, Land Rovers, Volkswagens and other popular brands no longer sold in Russia, as well as Chinese brands such as Zeekr and Hongqi.

The staff explained that new cars were not available – but that used cars, only a month old, could be purchased and shipped.

– This article originally appeared in The New York Times