Putin’s ‘dear friend’ Xi piles pain on Russia’s economy

When Vladimir Putin He took a four-day trip to visit Xi Jinping in SeptemberHe addressed his Chinese counterpart as “my dear friend”.

Speaking to Xi at a vast orchid-filled exhibition in the Great Hall of the People in Beijing, the Russian president claimed their relations were at an “unprecedentedly high level”.

On the surface, China’s alliance with Russia appears to have grown even stronger since Putin invaded Ukraine in 2022.

Nowhere has this been more evident than when looking at trade between the two countries, which has boomed since the West slapped Putin with massive sanctions.

Last year, the value of trade between Russia and China reached a record $245bn (£182bn) as Xi became the world’s biggest buyer of Putin’s oil and gas. Overall, China has also become Russia’s largest supplier of goods.

But rapprochement with China comes at a price.

Russian businesses in particular have become increasingly frustrated in this regard. flood of cheap chinese goods.

Vladimir Milov, who worked for the Russian government from 1997 to 2002 and later became an open critic of Putin, says the economic alliance has backfired badly for Russia.

“It’s extremely disadvantageous,” he says. “China takes advantage of this because it knows Russia has nowhere to go.”

Such warnings may signal that economic ties between the two countries are beginning to fray.

While bilateral trade is set to reach a record high in 2024, it has fallen by about a tenth so far this year.

Lada sales dropped

One of the important areas of tension is cars.

After Western manufacturers cut ties with Russia in 2022, Chinese competitors stepped in.

In the two years to 2024, Chinese car exports to Russia have increased sevenfold, leading to an increase in the number of complaints from domestic manufacturers.

Maxim Sokolov, chief executive of Russian automaker AvtoVAZ, accused the Chinese of “unprecedented dumping” and said in December that it exceeded “all conceivable limits.”

Sales of his company’s signature Lada car plummeted, prompting the company to cut production by nearly half and switch to a four-day work week at the end of September.

Russia’s largest truck manufacturer, Kamaz, also shortened its working week in August after demand for its vehicles fell by 60 percent. At the time, he blamed “excessive” imports.

To alleviate some of the criticism, the Kremlin responded by significantly increasing import fees on vehicles.

Russia has more than doubled the “recycling fee” it demands from imported cars since October 2024.

This charge, which is supposed to cover future disposal of the vehicle but largely functions as a tariff, was 667,000 rubles (£6,275) per vehicle as of January this year.

This has led to China’s car exports to Russia falling by half in the first six months of 2025.

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In July, Russian regulators also banned imports of trucks from a fleet of major Chinese brands such as Dongfeng, Foton, FAW and Sitrak, which they described as a “direct threat” to public safety.

“These trade-related tensions will start to emerge more and more as the market becomes saturated with Chinese goods and uncompetitive Russian industries fail to sell,” says John Kennedy, Rand research leader.

Sanctions are biting

There are signs that Russia’s steel industry is also suffering.

Andrey Gartung, general director of the Chelyabinsk Forging and Pressing Plant, warned last year: “Russian enterprises competing with the Chinese are holding on by the skin of their teeth.”

China, not one to be shy, responded with trade restrictions of its own.

The most significant was Xi reimposing tariffs on Russian coal in January 2024, two years after the restrictions were first lifted.

Milov claims the tariffs are exacerbating the worst crisis for Russia’s coal industry since the collapse of the Soviet Union, which has already hit exports to China.

The industry’s revenues are expected to fall by 12 percent this year alone.

Elsewhere, China has refused to lift a long-held import ban on winter wheat and barley, until now Russia’s biggest agricultural exports. Instead, it buys from Ukraine and Kazakhstan.

Milov says China imports things from Russia incredibly cheaply because it has a monopoly as one of Russia’s only buyers.

Russia’s biggest export to China is oil and gas, which accounts for two-thirds of its trade.

Rosneft’s CEO Igor Sechin said that between January 2022 and June 2024, China’s savings from buying Russian oil were as much as $18 billion compared to Middle Eastern exports.

“Russia lifting sanctions shows what Beijing would want every trading partner to look like,” says Gregor Sebastian of Rhodium’s China Corporate Advisory team.

“China imports the raw materials it produces into finished goods that it can then sell back to Russia at much higher profit margins. That’s the main part of the relationship.”

But more than anything, Russia wants new technology and investment from China. And he can’t get it.

Joint projects stand

Milov says China’s average annual investment flow to Russia has fallen from an average of $1.2 billion in 2011 to $400 million.

In 2022, China will exclude Russia from the Belt and Road financing program, while in July the Chinese Ministry of Commerce “strongly advised” automakers not to invest in Russia.

Many major projects previously announced with Chinese support were either canceled or put on hold.

Russia quietly disappeared from what was supposed to be a joint development of a long-haul aircraft with the China Commercial Aircraft Corporation.

Work had already begun on the project, which was originally called CR929, meaning “China Russia”. However, the R has now been dropped, with the aircraft renamed C929.

Plans by the Chinese CRRC Changchun Railway Vehicles to build a high-speed rail line between Moscow and Kazan in southwestern Russia have also been halted.

Separately, there has been no progress on the development of the Tianjin oil refinery, a joint venture between Rosneft and China National Petroleum Corporation (CNPC) approved in 2014.

Following Putin and Xi’s meeting in September, Gazprom announced that the two countries signed an agreement for the construction of the “Power of Siberia 2” natural gas pipeline to China.

But while this would undoubtedly be a major victory for Russia, China has not yet approved the project.

This may be a sign that, for all the pomp and ceremony, the countries’ authoritarian alliance may be weaker than it seems.

“Despite all the hugs and kisses at the summits, China and Russia are far away from each other,” says Milov.

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