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EU-Russia sanctions helping China to boost exports

  • Russia is turning to the east for economic partners and all the more so since EU sanctions kicked in (Photo: dolmansaxlil)

European exports are losing market share in Russia to China, with ongoing EU sanctions against Russia likely to be a contributing factor experts said on Tuesday (21 June).

"EU-Russia relations have been challenging since 2014 and ever since then China and Russia have increased their economic collaboration," Alicia Garcia-Herrero, an expert at the Bruegel Institute, a think tank in Brussels, said.

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The EU introduced economic sanctions against Russia in 2014 due to its role in the Ukraine conflict, with the measures shortly to be extended for another six months.

"As Europe became stricter with Russia, China liked it, to say the least, and the trend accelerated," Garcia-Herrero said.

"China and Russia are major trading partners. Europe is Russia's largest trading partner and China is a major competitor in terms of export capacity," she said.

She said Europe and China also compete with each other to get the best terms for Russian goods, such as nuclear energy reactors and machine components.

She added that increased cooperation between China and Russia would cause further losses for Europe.

Simulated scenario

In a simulated scenario, worked out by Bruegel, a 20 percent reduction in export tariffs between Russia and China as a result of a trade agreement would cause a 4 percent reduction in EU exports to both Russia and China, with EU exports to Russia the most severely affected.

"Since 2014 China's export share into Russia has increased more rapidly than before compared to Europe," Garcia-Herrero told EUobserver on the margins of Bruegel’s conference on Tuesday.

She said there is no definitive proof that the EU sanctions are the reason behind the market loss.

"It's hard to measure it properly. The increase in competition happened in the same time, but I can’t prove correlation with sanctions. If there is a correlation, more sanctions would mean more market share would be lost, but I have no proof of it," she said.

Sanctions should be world-wide

Alicia Garcia-Herrero added that in order to make a real impact on Russian foreign policy, the rest of the world would have to have followed the EU and the US in imposing restrictions.

Experts also said that Russia had, prior to the Ukraine conflict, in any case declared a pivot to the east that would have caused losses for Europe.

Chinese goods increased their share of Russia’s imports from 5 percent in 2000 to nearly 20 percent in 2015, the Bruegel study found.

It added that China has also increased its global market share at Europe’s expense.

Over the last decade, Europe’s share of Russia’s imports fell from 70 percent to 55 percent, the study said

Mingxi Sun, counsellor for economic affairs at the Chinese mission to the EU said he could not agree that China is the "biggest winner" of the Ukraine crisis, however.

"Our increased cooperation [with Russia] is in the interest of the two peoples," he said.

An EU official said that while the European Commission does impact assessments on the sanctions, their findings are classified. He added that the EU executive does not examine the knock-on effects of Russia’s trade relations with other countries, however.

The EU official said that market players have already factored in the six-month roll-over of the Russia sanctions and that the extension of measures will hardly impact the trend.

Experts at Tuesday’s event noted that Russia's economic weaknesses, linked primarily to the fall of oil and gas prices, also helped cheaper Chinese goods to increase their presence on the Russian market.

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In a new five-year strategy, the EU executive aims to attract Chinese investment to Europe and to agree a free-trade agreement under conditions.

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Leaders are sitting down for the EU-China summit, but the crucial issue of China's market economy status will not be discussed officially. It still dominates industry's thinking on the relationship.

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