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China lifts all wheat-import restrictions on Russia amid Ukraine crisis

South China Morning Post logo South China Morning Post 24/02/2022 Frank Tang
  • Agreement reflects deepening ties between Beijing and Moscow while addressing China's need to enhance food security
  • China could provide a lifeline to Russia's economy after the United States and its allies imposed swift economic sanctions on Moscow this week

China has announced it is fully open to Russian wheat imports, in the latest sign of their strengthening bilateral ties as the Ukraine crisis is unfolding before a global audience and in the wake of fresh sanctions being imposed on Moscow.

The announcement by China's General Administration of Customs was made public on Thursday, hours after Russian troops launched a wide-ranging attack on Ukraine. However, the agreement was part of a package of deals made during Russian President Vladimir Putin's visit to Beijing early this month.

China had previously restricted imports of Russian grain due to phytosanitary concerns - measures for the control of plant diseases, especially in agricultural crops - and China's latest customs statement also said Russia would take all measures to mitigate infestation risks.

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China began allowing large-scale wheat imports from Russia's far east region in October, with China's largest agribusiness firm, the state-owned Cofco, buying the first batch of 667 metric tonnes (1.47 million pounds).

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As the world's largest exporter of wheat, Russia sent more than 30 million metric tonnes abroad in the first 11 months of last year.

According to the Agroexport federal centre under Russia's Ministry of Agriculture, agricultural exports to China dropped by 13 per cent in 2021 from a year earlier, to US$3.5 billion, accounting for 9.8 per cent of Russia's total agricultural exports.

That included US$116 million worth of cereals, US$1.1 billion in fishery products and US$408 million worth of meat and dairy products.

China's 2021 wheat imports rose by 16.6 per cent, year on year, to 9.77 million metric tonnes.

China's yuan unlikely safe haven currency as Ukraine crisis roils markets

Separately, China's ambassador to Russia, Zhang Hanhui, said on Wednesday that China was "pleased" to see that its currency has been widely used in Russian trade, financial investments and foreign reserves, and was also looking forward to discussions about yuan settlements in bilateral energy deals.

Zhang's comments, made during an interview with Russian news agency Interfax, came as Moscow officially recognised the independence of Ukraine's Donetsk and Luhansk regions and launched attacks on Ukraine territory from Thursday morning.

The stance by China, which could provide a lifeline to Russia's economy, is being closely watched after the US and its allies imposed swift economic sanctions on Russia this week.

Washington imposed sanctions on two Russian state-owned banks, barring them from raising funds from international markets.

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European Commission President Ursula von der Leyen also said on Thursday that the 25-member bloc could freeze Russian assets and ban Russian banks from entering European financial markets.

The Chinese ambassador said expanding the scale of local currency settlements is one of the main paths toward deepening financial cooperation.

"We are pleased to see that the Russian government is expanding its use of the yuan in trade settlements, and is purchasing yuan-denominated financial products and reserve currencies," Zhang told Interfax, whose Chinese transcript was released on the website of the Chinese embassy in Moscow.

About 17.5 per cent of trade between China and Russia was settled in yuan in 2020, marking a big increase from 3.1 per cent in 2014, according to Zhang.

The two countries agreed to a 150-billion-yuan currency exchange in 2014 that was to be renewed every three years.

Russian data showed the Chinese currency accounted for 12.8 per cent of Russian foreign exchange reserves in 2020 and 30.4 per cent of its sovereign-wealth-fund holdings in July last year.

"The Chinese yuan has its own advantages and usage potential in the Russian markets," Zhang said.

"Although bilateral oil and gas contracts are mainly to be settled in foreign currencies, we are pleased to see that the enterprises of both sides are actively studying the feasibility of using yuan settlements."

In line with the elevation of their bilateral ties to a "comprehensive strategic partnership", Chinese President Xi Jinping and Putin witnessed the signing of more than 10 deals earlier this month, including an additional supply of 100 million metric tonnes of crude oil from Rosneft Oil Company, as well as new gas-supply deal with Gazprom.

Unequal China-Russia partnership strives for balance against the West

Lu Xiang, a senior fellow with the Chinese Academy of Social Sciences, expected that China's cooperation with Russia would not be disrupted, regardless of how the international situation changes, and he estimated that China could become the largest destination of Russian energy exports.

"China is willing to assist Russia in maintaining its economy," Lu said. "And in the meantime will mitigate risks by maintaining dialogues with Europe."

Foreign ministry spokeswoman Hua Chunying said on Wednesday that China insisted on opposing unilateral sanctions, calling for "restraint" and "dialogue" to solve the Ukraine issue.

Energy is currently the main area for Sino-Russia cooperation. Russia is the second-largest source of crude imports after Saudi Arabia, with imports reaching 72.4 million metric tonnes in the first 11 months of last year.

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China's foreign ministry said on Thursday that all countries should work together to jointly protect global energy security.

Hua was asked at a regular daily briefing if China would release energy reserves in response to Russia's attack on Ukraine, which has sent oil prices surging.

China imported more than 70 per cent of its crude oil requirements last year, and its total crude oil imports totalled 513 million metric tonnes, according to customs data.

Sino-Russia trade jumped 35.8 per cent from a year earlier to a record high of US$146.9 billion last year, more than one-third of which was related to energy. The two countries have set a goal of boosting trade to US$250 billion by 2025.

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