How surging trade with China is boosting Russia's war

Recent analysis by CNBC reveals that Russian customs data from August 2023 indicates the ongoing import of battlefield equipment, such as drones, helmets, vests, and radios, from China.

How surging trade with China is boosting Russia's war
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According to recent analysis by CNBC, Chinese companies are becoming increasingly important in supporting Russia's struggling economy and enhancing its military capabilities. Russian customs data from August 2023 reveals the import of various items such as drones, helmets, vests, and radios from China, which are crucial in sustaining President Vladimir Putin's prolonged war efforts. Additionally, analysts highlight the emergence of trade flows that are often overlooked but are directly and indirectly aiding Russia's offensive actions.

According to recent analysis by CNBC, Chinese companies are becoming increasingly important in supporting Russia's economy and enhancing its military capabilities. This is evident through their involvement in trading goods that are used on the battlefield in Ukraine.

According to the most recent Russian customs data from August 2023, it appears that the import of drones, helmets, vests, and radios from China continues. This ongoing importation serves as a crucial support for President Vladimir Putin's prolonged war of attrition, which has been ongoing for over 18 months. Additionally, it presents a profitable opportunity for Chinese companies to capitalize on.

According to analysts interviewed by CNBC, there is evidence of lesser-known Chinese exports being used to support Russia's war efforts. These exports, which are primarily intended for civilian use, include vehicles, construction equipment, and synthetic materials.

According to Mark Cancian, a senior advisor at the Center for Strategic and International Studies, it is undeniable that the Chinese authorities are well aware of the trade flows. These flows are of such magnitude that they would not be able to persist without the consent of the Chinese government.

CNBC's request for comment on the trade flows was unanswered by the defense ministries of China and Russia.

Despite Beijing's insistence that its trade with Moscow is simply "normal economic cooperation" and not targeting any "third party," this trade is still taking place. Chinese Foreign Minister Wang Yi recently affirmed China's ongoing business cooperation with Russia, just ahead of a scheduled meeting between Russian President Vladimir Putin and Chinese leader Xi Jinping in October.

Following the release of a U.S. intelligence report in July, comments have emerged highlighting China's growing significance as a support system for Russia in its war efforts. The report suggests that China has likely been providing Moscow with crucial technology and dual-use equipment, which have been utilized in Ukraine.

The supplied goods encompassed a wide range of items, such as navigation equipment, jamming technology, and components for fighter jets.

Kyiv has recently disclosed that its forces have observed a growing presence of Chinese components in the weaponry employed by the Russian military since April 2023. This timeframe coincides with the period when Putin and Li Shangfu, the former Chinese defense minister, reaffirmed their nations' "unrestricted partnership."

The Ukrainian Defense Ministry and the general staff of the Ukrainian Armed Forces have not yet provided a response to a request for comment regarding the findings on the battlefield.

The trade of 'dual-use' goods experiences a significant increase.

In 2022, the total trade between Russia and China reached an all-time high of $190 billion, marking a significant increase of 30% compared to the previous year. The momentum continues in 2023, as the first seven months alone have witnessed a total trade value of $134 billion, indicating a strong likelihood of surpassing the previous year's record.

Estimates from the Bank of Finland's Institute for Emerging Economies suggest that China's share of Russia's imports has increased significantly, now comprising approximately half (45%-50%) compared to one-quarter prior to the war. This includes the trade of dual-use items and technologies, which encompass goods with both civilian and military applications, such as drones and microchips.

China's semiconductor sales to Russia experienced a significant increase in 2022, reaching a value of over $500 million compared to $200 million in the previous year. Similarly, China's drone sales to Russia also saw growth, with sales exceeding $12 million in the period up to March 2023.

According to CNBC's analysis, Russian declarations and certificates of conformity, which are required for the import and sale of goods in the country, reveal a consistent trade of these goods between Russian and Chinese companies since the beginning of Russia's full-scale invasion of Ukraine in February 2022. It is important to note that these declarations are filed by the buyer rather than the manufacturer of the goods.

According to translated filings, drones manufactured by SZ DJI Technology, a Chinese multinational, were registered in Russia multiple times between September 2022 and January 2023. The exact quantity of imports was not specified. These drones were imported both directly from SZ DJI Technology and indirectly from Chinese exporters such as Autel Robotics, based in Shenzhen, and Iflight Technology.

Despite DJI's statement on its website in April 2023, where they announced the voluntary suspension of all sales and business activities in Russia and Ukraine since April 26, 2022, and the contractual prohibition of sales by dealers to both countries, including for combat purposes.

In response to CNBC's inquiry, a representative from DJI emphasized the company's strong commitment to regulatory compliance. They stated that DJI takes this matter very seriously and has implemented all necessary measures to ensure that their products are not utilized for combat purposes, causing harm, or being modified into weapons.

According to the documents, Nebesnaya Mekhanika, a Moscow-based company that used to be DJI's official distributor in Russia before the war, filed its submission in September 2022. Nebesnaya Mekhanika is an importer of drones and its name roughly translates to "Heavenly Mechanics".

According to records, Vodukh, an importer based in Moscow, registered an undisclosed quantity of lithium ion and lithium polymer batteries from DJI in July 2023. Additionally, in November 2022, they registered an unspecified number of battery stations directly from DJI. These items have a wide range of applications, from powering small electronic devices to electric vehicles.

In late 2022, a company called Pozitron, based in Rostov-on-Don, imported over 54,000 helmets from Chinese suppliers Liaoning B&R Technology and Beijing KRnatural International Trade Co. The filing did not specify whether these helmets were for construction or military purposes.

It is evident that Chinese companies are capitalizing on the opportunity to sell their products to Russia, potentially those that they are unable to sell in China or the Western markets, but at a premium price.

According to defense analyst Cancian, it is clear that these goods have played a crucial role in Russia's military arsenal.

According to him, Russia has been consistently engaging in heavy artillery fire, with an astonishing range of 10,000 to 20,000 rounds per day. Sustaining such an intense level of ammunition consumption necessitates external assistance.

He further mentioned that their supply of cruise missiles had also begun to deplete. In fact, their reserves were nearly depleted within the initial six months. To address this shortage, they resorted to producing more cruise missiles using components supplied by the Chinese.

According to the documents, Moscow-based Legittelecom procured helmets and vests in batches of 100,000 each in November 2022. The supplier for these military products and police equipment was Deekon (Shanghai) Industry Co., headquartered in Shanghai.

According to its website, Legittelecom offers consulting services for permits related to the import, export, and sale of radio electronics and high-frequency devices. In March 2023, Legittelecom imported an undisclosed quantity of portable radios, commonly known as walkie-talkies, from Hong Kong Retekess, a wireless communications company.

The documents did not provide clarity on whether Legittelecom was the ultimate recipient of the products or the entity to which it issued permits. However, radios of Chinese origin have been found on the battlefield in Ukraine. Despite CNBC's request for comment on the transactions, the companies involved did not respond.

However, experts have pointed out that the inconsistent import patterns indicate a level of opportunism among businesses on both sides, as they strive to exploit Moscow's military requirements.

According to Antonia Hmaidi, an analyst at the Mercator Institute for China Studies in Berlin, Chinese companies are observed to be selling products to Russia that they may not be able to sell in China or the Western markets, but at a higher price. Hmaidi has been studying Chinese dual-use exports to Russia since the beginning of the war.

She further explained that it is not the major exporters in China who are responsible for these exports. Rather, it is the smaller companies that are involved. She pointed out that Western sanctions aimed at these companies would have minimal consequences. "These companies do not possess significant intrinsic value, making it relatively simple to establish new ones," she added.

In September 2022, a company called Silva was officially registered in the remote Eastern Siberian region of Buryatia. In March 2023, Silva submitted import documents for 100,000 helmets from Shanghai H-Win New Material. Later, in August 2023, the company filed for the procurement of radio telemetry systems from Hubei Jingzhou Mayatech Intelligent Technology. These systems have the capability to track drones, although the exact quantity requested was not specified.

Hmaidi provided another instance of a Hong Kong-based company, founded in 2020, that previously supplied goods to North Korea and has now expanded its operations to include Russia. In recent times, Pyongyang has been enhancing its relationship with Moscow, as evidenced by the meeting between the leaders of both countries in Russia's Amur region in the past month. This development has raised concerns among Western nations, who suspect that North Korea might be preparing to supply Russia with military equipment.

CNBC made efforts to reach out to all the mentioned companies but did not receive any response.

Trade flows that are not given enough recognition or appreciation.

Analysts have reported that Russia has not only escalated its imports of Chinese goods with explicit military applications but has also seen a rise in imports of Chinese goods that have potential direct and indirect implications for warfare.

According to data compiled by ImportGenius, a customs data aggregator, the dollar value of Chinese shipments of Aramid fiber to Russia increased by over 350% in 2022 compared to 2021. Aramid fiber is a type of synthetic fiber known for its heat resistance and is used in various applications such as bicycle tires and bulletproof vests. In just the months of January and February 2023, the imports of Aramid fiber were nearly 50% of the total imports for the entire year of 2022.

According to Joseph Webster, a senior fellow at the Atlantic Council, construction equipment has played a crucial yet often overlooked role in China's support of Russia's war efforts. By assisting in strengthening Russia's defenses against Ukraine's counteroffensive, these machines have made a significant contribution.

Webster, a researcher who has extensively studied the increase in China's exports of excavators and front-end shovel loaders, emphasized the significant yet often overlooked role these machines play in China's involvement in the war in Ukraine.

The surge in the supply of trench digging equipment to Russia is highly unlikely to be a mere coincidence.

He pointed out that there was a significant surge in the supply of trench digging equipment to Russia precisely during the period when the Russian military was actively engaged in trench construction. This correlation strongly suggests that it was not a mere coincidence.

Trade data revealed that Russian imports of Chinese earth-moving front-end shovel loaders were nearly double, while imports of excavators were over three times higher, in the first seven months of 2023 compared to the corresponding period in the previous year.

Between January and May 2023, the value of imported Chinese heavy-duty trucks increased by 11 times compared to the same period in 2021. These trucks have been observed in various applications, including military use on the battlefield as well as indirect utilization.

In June, Ramzan Kadyrov, the head of Russia's Chechen Republic, shared a video on his official Telegram social media account. The video displayed a range of armored vehicles, including Chinese "Tiger" armored personnel carriers, which he claimed were being sent to Ukraine as part of Russia's special military operation.

Webster pointed out that while Chinese exports may not be directly involved in frontline operations, they still play a crucial role in supporting Russia's economy. He suggested that the increased fleets could have significant consequences by enabling Moscow to maintain a balance in manufacturing output, which is essential for both its civilian and military sectors.

Webster, referring to Kamaz, the state-owned truck manufacturer in Russia, suggested that the supply of Chinese truck exports to the Russian civilian sector could potentially allow Kamaz to adapt its production lines for the manufacturing of armored vehicles, considering the current sanctions in place.

Is there collusion between the Chinese government?

The discoveries contribute to the increasing number of Chinese products and companies that have been identified as suppliers to Russia's military, including those owned by the state.

According to the July intelligence report from the United States, it was revealed that state-owned Chinese companies, China Taly Aviation Technologies and China Poly Technologies, were identified as suppliers of parts to defense companies in Russia with ties to the Kremlin. These parts were specifically used in Mi-system helicopters deployed on the frontlines.

When questioned about the intelligence report and the trade of dual-use goods, China's commerce ministry directed CNBC to its previous response in May. In that response, China described its trade relationship with Russia as one that is built on "mutual respect and mutual benefit, resulting in a win-win situation for both parties."

According to a translation, the Chinese department responsible for handling the Ukraine issue has consistently emphasized China's stance. They have stated that China will not exacerbate the situation or exploit it for any advantage.

This statement builds upon previous remarks made by the foreign ministry in April, affirming that China will not supply weapons to either party involved in the conflict. Additionally, China will exercise strict control over the export of dual-use items, ensuring compliance with relevant laws and regulations.

The level of awareness and involvement of Chinese authorities in the trade is still uncertain. The fact that the items involved have dual-use capabilities has allowed China to maintain plausible deniability and evade sanctions from Western countries. At the same time, both Washington and the EU have been hesitant to directly accuse Beijing.

A comment request on the trade flows was left unanswered by the National Security Council at the White House.

However, analysts have observed that Beijing has shown little sign of taking any measures to reduce the sales.

Chinese exporters who engage in trade with Russia will not face penalties as long as they do not explicitly violate Western sanctions.

According to Webster, exporters in China who ship goods to Russia will not face penalties as long as they do not explicitly violate Western sanctions and avoid escalating tensions with the West. As long as they can maintain a low profile with these exports, it appears that they are unlikely to incur the displeasure of the Communist Party.

However, maintaining a close partnership with Moscow could have serious implications for China's struggling economy in the long run. The United States and several Western nations have already imposed limitations on the trade of certain sensitive technologies to China, as part of a broader effort to reduce their dependence on Beijing due to national security worries. This trend reflects a shift towards diversification and risk reduction away from China.

According to Hmaidi, China's stance is that they would rather see Russia not suffer any losses, but they are hesitant to directly intervene in the situation. While there may be discussions about providing weapons and some intelligence suggesting China's interest in doing so, they are cautious about violating any sanctions and therefore take great care to remain within the boundaries set by them.

The Western allies are currently confronted with a challenging choice: whether to focus on targeting individual sellers, understanding that the effects may be restricted in scope, or to take measures against Beijing, which could have broader consequences and carry the risk of retaliation.

Webster stated that if China were to openly back Russia, it would have significant consequences for Beijing's overall economic, political, and security ties with the alliance of democracies led by Washington and Brussels.