Putin’s ‘dear friend’ Xi has taken the brunt of Russia’s economy

When Vladimir Putin paid a four-day visit to Xi Jinping in September, he addressed his Chinese counterpart as a “dear friend.”

Speaking to Xi at a giant orchid exhibition at Beijing’s Great Hall of the People, the Russian president claimed their relationship was at an “unprecedentedly high level”.

On the surface, of course, it appears that China’s alliance with Russia has only strengthened since Putin invaded Ukraine in 2022.

Nowhere is this more evident than when looking at trade between the two countries, which has grown since the West imposed heavy sanctions on Putin.

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

However, it has come at the cost of close ties with China.

In particular, Russian businesses are increasingly frustrated by the flood of cheap Chinese goods.

Vladimir Milov, who served in the Russian government from 1997 to 2002 before becoming an outspoken critic of Putin, says the economic alliance is bad for Russia.

“It’s deeply damaging,” he says. “China is taking advantage because it knows Russia has nowhere to go.”

Such warnings may signal a cooling of economic relations between the two countries.

Although bilateral trade is set to reach a record high in 2024, it has declined by nearly a tenth this year so far.

Lada sales plunge

A major area of ​​stress is the car.

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

Exports of Chinese cars to Russia have increased sevenfold in the two years to 2024, raising complaints from domestic manufacturers.

Maxim Sokolov, the chief executive of Russian carmaker AvtoVAZ, accused the Chinese of “unprecedented dumping”, which he said in December crossed “all imaginable limits”.

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

Komaz, Russia’s largest truck maker, also cut its working week in August after demand for its vehicles fell by 60 percent. At the time it blamed “excessive” imports.

To assuage some of the criticism, the Kremlin has responded by significantly raising import duties on vehicles.

From October 2024, Russia has more than doubled the “recycling fee” imposed on imported cars.

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

This means that Chinese car exports to Russia have halved in the first six months of 2025.

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In July, Russian regulators also banned truck imports from fleets of major Chinese brands — Dongfeng, Foton, FAW and Sitrak — which they said posed a “direct threat” to public safety.

“These trade-related tensions are becoming more and more acute as the market is flooded with Chinese goods and uncompetitive Russian industries are unable to sell their own,” says RAND research leader John Kennedy.

Cut the restrictions

There are indications that Russia’s steel sector has also been affected.

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

No one to be ashamed of, China has struck back with trade sanctions of its own.

Notably, Xi reimposed tariffs on Russian coal in January 2024, two years after sanctions were first lifted.

Already affecting exports to China, Milov claimed the tariffs were adding to the worst crisis for Russia’s coal industry since the fall of the Soviet Union.

This year alone, the sector’s revenue is expected to decline by 12 percent.

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

Milov says what China imports from Russia, it gets incredibly cheap because Russia has a monopoly as the only buyer.

Russia’s biggest exports to China are oil and gas, which make up two-thirds of its trade.

Rosneft chief executive Igor Sechin said China saved $18 billion from buying Russian oil compared to exports to the Middle East between January 2022 and June 2024.

“With sanctions lifted, Russia wants to look like every trading partner,” says Gregor Sebastian of Rhodium’s China corporate advisory team.

“China is importing raw materials that it manufactures into manufactured goods and then resells them to Russia at very high profit margins. That’s the crux of the relationship.”

However, Russia wants new technology and investment from China. And that is not achieved.

The joint project is stalled

Milov said the average annual flow of Chinese investment into Russia has dropped from an average of $1.2 billion to $400 million since 2011.

In 2022, China removed Russia from its Belt and Road financing program, while in July, China’s Ministry of Commerce “strongly advised” carmakers not to invest in Russia.

Many major projects previously announced with Chinese assistance have now been scrapped or put on hold.

Russia quietly disappeared in the joint development of long-range aircraft with the Commercial Aircraft Corporation of China.

Work had already begun on the project, initially called CR929, which stood for “China Russia”. However, now that the R has been dropped, the aircraft is named C929.

Plans by Chinese CRRC Changchun Railways to build a high-speed rail line between Moscow and Kazan in south-west Russia have also been put on hold.

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

After a meeting between Putin and Xi in September, Gazprom announced that the two countries had signed an agreement to build the “Power of Siberia 2” gas pipeline in China.

But while it will no doubt prove to be a major victory for Russia, China has not confirmed the project.

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

“Despite all these hugs and kisses at summits, China and Russia are far apart,” Milov says.

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