China’s imports from Russia surged to $11.5 billion in August, the highest monthly haul in over two decades, despite an overall decline in its purchases of foreign goods. The surge comes as trade between the two neighbors’ booms in the wake of Western sanctions on Russia over its invasion of Ukraine.

Bilateral trade between China and Russia now stands at over $155 billion in the year to date, with Russia expecting the volume to reach $200 billion this year.

China has long been a key destination for Russian energy, but it is also increasingly becoming a critical source of imports such as cars and consumer electronics after many international companies exited Russia following the war.

According to the latest Kiel Trade Indicator, activity in Russia’s ports was surprisingly high in August, with the volume of goods unloaded at the country’s three biggest container hubs approaching pre-war levels.

In response to sanctions, Russia has also moved to settle a much bigger share of its trade in yuan instead of dollars and euros. The Chinese currency accounted for 34% of Russian imports in July and 25% of exports, according to the central bank.

However, the central bank has warned that the domestic market is at times experiencing a deficit of the Chinese currency. In a June report, it said some yuan proceeds were occasionally being held by market participants in nonresident Chinese banks, in part to help finance imports.

As a result, Russia has seen outflows of the yuan to accounts abroad, while capital controls in China make it difficult to raise onshore yuan.

  • How will China’s growing reliance on Russian energy and imports affect its relationship with the West?
  • How will Russia’s move to settle more trade in yuan affect the global financial system?
  • How will China and Russia manage the yuan deficit?

These are all important questions that will need to be answered as the relationship between China and Russia continues to evolve.