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Home»Finance»Following China’s Export of Sanctioned Goods Through Central Asia to Russia
Finance

Following China’s Export of Sanctioned Goods Through Central Asia to Russia

January 9, 2024No Comments7 Mins Read
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The Cautionary Tale of Georgia’s FTA With China 
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Following the Russian invasion of Ukraine, the United States, the European Union, and other countries around the world have imposed a wide range of sanctions on Russia, forcing Moscow to use Turkey and neighboring Central Asian countries to route trade of sanctioned goods.

Many countries did not join the sanctions against Russia outright, but nevertheless wish to avoid the risk of secondary sanctions. China in particular maintains strong ties with Russia, while seeking as much as possible to reduce the risk of secondary sanctions. Countries in Central Asia, with which China and Russia share a common border, have proved particularly useful in helping China trade with Russia indirectly.

Goods exported to Russia from China via Central Asia need not be weapons in order to contribute to Russia’s war efforts in Ukraine. Without import streams of industrial goods via Central Asia, Moscow might be forced to make more stark “guns vs butter” tradeoffs. Re-export patterns thus undermine sanctions by allowing Russia flexibility to keep production lines in place for military goods.

China is one of the most important foreign trade partners for Central Asian countries, and over the past five years, imports from China to Central Asia have almost doubled. However, in 2022, after the Russian invasion of Ukraine, imports from China expanded dramatically. Over the same time period, Central Asian exports to Russia also grew at a marked pace. 

From 2018 to 2019, imports from China to Central Asia grew 17 percent; they declined in 2020 due to the pandemic and then rebounded to pre-pandemic levels in 2021. Then in 2022, there was a 44 percent increase in imports from China, with Kyrgyzstan’s share of those imports growing particularly quickly. According to Temur Umarov, fellow at the Carnegie Russia Eurasia Center, 2023 became a record year for trade turnover between Central Asian countries and China. 

China’s surging exports to Central Asia are notable, since its overall world exports have not shown such strong growth, while Central Asia’s economic growth rates are in line with prior years.

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In 2022, the volume of Central Asian exports to Russia increased by nearly a third. Kyrgyzstan’s share of total regional exports to Russia has increased by almost two and a half times, and exports from Uzbekistan by more than half. Kazakhstan also increased exports to Russia last year, but more modestly, by only a quarter. At the same time, Tajikistan’s exports to Russia have not changed, remaining close to zero.  

Our hypothesis is that the growth in trade with Russia and China is related, and that it is associated with the re-export of Chinese goods to Russia, specifically in order to help China avoid Western sanctions on Russia.

Made with Flourish

In order to explore this link further, we reviewed the foreign trade of Central Asian countries using the online resource Trade Map, cross referencing top categories of goods in imports from China and exports to Russia, and noting which categories had seen striking growth from 2021 to 2022. Turkmenistan was excluded from this investigation due to the lack of available data.

In the case of Uzbekistan, two new categories appear in the list of top imports from China and exports to Russia for 2022: “nuclear reactors, boilers, and machinery;” and “electrical machinery and equipment.” The supply of “nuclear reactors, boilers, machinery” from Uzbekistan to Russia increased by 264 percent, and electrical machinery and equipment by 150 percent. At the same time, the import of “nuclear reactors, boilers, machinery” from China to Uzbekistan increased by more than a third (134 percent) and electrical machinery and equipment almost by a quarter (124 percent). However, it should be taken into account that the absolute figures of imports of these goods from China significantly exceed exports to Russia.

Kyrgyzstan has four new categories present in both lists of imports from China and exports to Russia: “nuclear reactors, boilers, and machines;” “knitted fabrics;” “footwear articles;” and “various articles of base metals.” In particular, the export of “nuclear reactors, boilers, and machines” increased by 41,105 percent. However, cotton exports accounted for almost a quarter of last year’s growth in supplies to Russia, increasing by 7,564 percent. The 2021-2022 growth in “various articles of base metals” is particularly stark, with exports to Russia increasing 1,245 times. Curiously, “knitted fabrics” was the second fastest growing new category, increasing 411 times, with “nuclear reactors, boilers, and machines” growing 23 times, and “footwear articles,” by a factor of seven. 

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According to Saparbek Asanov, the head of Kyrgyzstan’s Association of Light Industry Enterprises, Legprom, this staggering growth in fabric exports can be linked to a surge in orders from Russian companies. These articles are not directly under sanctions, but according to Umarov, re-export trade to Russia does not only consist of sanctioned goods, but also goods whose availability may have been impacted by the decision of global brands to move out of the Russian market. 

It is also possible that clothing supply chains in Russia have been affected by demand for military uniforms. Additionally, financial sanctions have compelled many Russian firms, which previously outsourced their manufacturing needs to other countries, to turn to Kyrgyzstan’s market. Kyrgyz garment manufacturers are not only fulfilling orders for external brands but are also exporting locally branded clothing and designs, marking a significant shift in the industry’s dynamics. 

For Kazakhstan, “nuclear reactors, boilers, and machines,” as well as “electrical machinery and equipment” were also in the lists of both top 2022 imports from China and exports to Russia. This was also the case in 2021 — they are not new entries — but these categories have increased five times since 2021. “Iron and steel” is a new top category for 2022, and “inorganic chemicals,” as well as “non-railway vehicles” also showed noticeable increases. All of these categories might easily cover goods limited by sanctions and which can be used by the Russian military-industrial complex.

For Tajikistan in 2022, there were no groups of goods present simultaneously in the lists of imports from China and exports to Russia. This is consistent with the current understanding that Tajikistan plays a more limited role in China’s attempts to circumvent sanctions in its trade with Russia.

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The trade turnover of Kazakhstan, Kyrgyzstan, and Uzbekistan with both China and Russia increased significantly in 2022 from 2021. A comparison of imports from China and exports to Russia over time shows that several categories of goods are responsible for driving this growth. The category of “nuclear reactors, boilers, and machinery” is present in all three countries’ lists of top imports from China and exports to Russia. This is a category that has grown 553.34 percent, 2,342.56 percent, and 264.18 percent, from 2021-2022 in the cases of Kazakhstan, Kyrgyzstan, and Uzbekistan, respectively. The same category grew only 8.62 percent and 24.24 percent, between 2018-2019, for Kazakhstan and Uzbekistan, respectively, and declined 75.44 percent in Kyrgyzstan. These shifts strongly suggest a link in 2021-2022 growth with Russia’s invasion of Ukraine and subsequent Western sanctions.

Made with Flourish

According to Umarov, in the coming years it will “become more and more difficult for Central Asian states to help Russians circumvent sanctions,” however, much will depend on how the EU and U.S. react. Umarov said that “Western countries are not ignoring this trend,” and that trade between Russia and Central Asia has already seen a slight decrease in 2023.

However, this decrease is relative, and according to Umarov, re-export patterns may increasingly focus “on products that are not specifically under sanctions, but which are unavailable in Russia” due to global brands’ avoidance of the Russian market.

This article was produced as part of the Spheres of Influence Uncovered project, implemented by n-ost, BIRN, Anhor, and JAM News, with financial support from the German Federal Ministry for Economic Cooperation and Development (BMZ).

Asia central Chinas Export Goods Russia Sanctioned
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