The Banking Executive Magazine - April 2022 Issue

China’s Growth the economic centerpiece of Sino- Russian relations. In 2019, fuel ac- counted for about 17%, or $344 billion, of China’s total imports of $2.1 trillion. Russia has been the biggest crude oil exporter to China since 2016, and is its fastest-growing sup- plier of natural gas. Twelve percent of all Chinese oil and gas imports now come from Russia. To meet domestic energy demand and moderate its greenhouse-gas emis- sions, China plans to increase the share of natural gas in its primary en- ergy consumption to 15% by 2030. Russia holds nearly a quarter of the world’s gas reserves and is the largest exporter. The two countries therefore agreed to a long-term contract under which Russian gas exports to China will increase to 48 billion cubic me- ters, or nearly 10% of China’s pre- dicted gas consumption of 526 billion cubic meters, by 2025. The Russian-Ukrainian conflict, and the subsequent Western-led eco- nomic and financial sanctions im- posed on Russia, has suddenly cast a shadow of uncertainty over these plans. Besides exacerbating existing supply-chain disruptions, the wide- ranging sanctions have made it diffi- cult for Chinese firms to operate in Russia. Most importantly, the war in- volves two of the largest global ex- porters of food and energy. Ukraine and Russia together account for 28% of world grain exports, and wheat futures on the Chicago Mer- cantile Exchange have soared by more than 50% since the invasion. Similarly, oil, gas, and coal prices have surged due to supply disrup- tions and the sanctions against Rus- sia. These inflationary pressures could have potentially devastating effects on the Chinese population, as well as on the country’s manufactur- ers. But the Chinese government’s neutral political stance toward the Russia- Ukraine conflict may also yield eco- nomic payoffs if China becomes more important to Russia without overly offending major Western trad- ing partners such as the US and Aus- tralia. Russian food exports in 2021 totaled $38 billion, of which $4.7 billion went to the European Union. So, Chinese food-price inflation could be moderated if EU sanctions the BANKING EXECUTIVE 44 ISSUE 160 APRIL 2022 Ukraine and Russia together account for 28% of world grain exports China is likely to gain more favorable terms for its energy imports as the war continues and other countries reduce their purchases of Russian oil and gas