A Bloomberg report revealed that Chinese power plants and steelmakers are told to hunt for alternatives for Russian coal amid widening sanctions on Moscow. Lenders are sending private notes to Chinese state-owned companies not to rely upon Russian coal and shore up local production. Now, the Chinese importers are awaiting Beijing’s guidelines on whether to continue with the Russian imports or look for alternative suppliers.
China stops importing coal from Russia
Chinese importers are worried that trade ties with Russia could put them in a tight spot. Additionally, At least two of China’s largest state-owned banks have restricted financing for Russian commodities.
Industrial & Commercial Bank of China Ltd has already stopped issuing dollar-denominated letters of credit for Chinese firms seeking to import goods from Russia. Make no mistake, Yuan-denominated credit lines are still available for firms to purchase Russian goods.
Why is the Chinese market important for Russia?
China is a significant market for Russian coal exports. Russia made up 14% of China’s total coal imports last year due to increased demands and throttled supplies from Australia. China has boosted its local coal production throughout last year, thus producing at least 90% of its needs itself. So, it won’t be a perilous task for China to do away with Russian coal.
On the flip side, Russia needs to divert at least 38% of its total coal production to China to mitigate the impact of western sanctions. Making things worse for Russia are the nations like India and Indonesia, who have amplified coal production this year.
Demand for foreign coal is all set to dampen in India this year. Indonesia is also striving to boost its coal exports in Asian markets. That means, if China decides to shun Russian coal altogether, Russian exporters may very well have a hard time securing enough buyers.
Russia had banked on Chinese markets to circumvent western sanctions and to keep its economy up and running. But, the way things have turned out of late, the Kremlin is realizing it may have overestimated China’s economic might to offset the western sanctions.
China has, so far, walked a tightrope between Russia and the West over Ukraine. Beijing has distanced itself from the invasion but has also stopped short of condemning it.
China and Russia are not allies, says China
A Chinese Foreign Ministry spokesman Wang Wenbin last week spoke about China and Russia just being “comprehensive strategic partners”. The spokesman made it clear that their relationship features “non-alliance, non-confrontation and non-targeting of any third party.”
Moreover, Bloomberg on Friday had reported that Chinese crude oil importers have now halted oil imports from the Russian Far East region. Chinese companies don’t want to be caught in the crosshairs as NATO-member nations still mull over possible sanctions on Russia’s energy sector and putting the nation off the SWIFT payment system.
Adding to that, the instability in the Black Sea has also worsened the Chinese companies’ woes. This has resulted in a mind-numbing increase in shipping charges.
Russian woes exacerbated
The Russian economy is not a strong one and the country can’t stand any heightened conflicts. Any prolonged crisis in Ukraine can not only hamper Russian energy exports but will also cripple Russia’s economy.
So, at this time of crisis, if any nation decides to halt its trade with Russia, it will surely have disastrous ramifications for the Russian economy as well as its political stability. Simply put, China has left Russia to fend for itself at a time when Moscow needed Beijing’s assistance the most.
India may bail out the ailing Russian economy
Meanwhile, India may step up its efforts to help the ailing Russian economy in future given the solid defence ties between the two nations. Indian state-backed refiner Indian Oil Corp is believed to have bought Russian Urals crude for the first time in two years. Reuters reported that IOC bought 2 million barrels of Urals crude from European traders Vitol and Trafigura, which will be delivered in April. This means that India has effectively blocked the West’s efforts to disrupt Russia’s oil supply chains.
On the other hand, India is also working to soften the sanctions blow by exploring ways to set up a rupee payment mechanism for trade with Russia. Various European nations, barring Italy and Cyprus, are calling for putting Moscow off the SWIFT payment system to weaken Russia’s trading regime. Now, India’s rupee payment mechanism would open a window for Russia to trade with India using the Indian currency.