Despite Russia's official narrative of an "unbounded camaraderie" with Beijing, China has markedly reduced its financial commitments to its northern neighbor since the full-scale invasion of Ukraine, according to a recent report by BOFIT. While China remains Russia's foremost commercial ally, accounting for over one-third of its total external trade, this deep trade dependency has not translated into equally robust investment.
Analysts suggest Chinese investors view the Russian market with caution, apprehensive of escalating risks from international sanctions. The economic relationship, though vital for Moscow, is described as shallow. Data from the UNCTAD, a United Nations body, indicates a significant shift: cross-border mergers and acquisitions involving Russia became net negative in two thousand twenty-two and two thousand twenty-three, meaning more foreign companies exited than entered the market.
Furthermore, direct foreign investments dedicated to establishing new enterprises (greenfield FDI) have dwindled dramatically. From an annual average of three hundred projects worth eighteen billion dollars between two thousand eleven and two thousand nineteen, these plummeted to merely twenty projects valued at seven hundred million dollars annually in two thousand twenty-two and two thousand twenty-three. This figure is notably lower than inflows into countries like Zambia or the Dominican Republic.
The total volume of foreign portfolio capital in Russia also saw a sharp decline, from one hundred ninety billion dollars in early two thousand twenty-one to fifty billion dollars by mid-two thousand twenty-four. Specifically, Chinese yearly investments dropped from one point two billion dollars in the two thousand eleven to two thousand eighteen period to just four hundred million dollars in two thousand twenty-two and two thousand twenty-three. The last substantial Chinese investment, exceeding one hundred million dollars, aside from construction contracts, dates back to two thousand twenty-one.
Experts attribute this trend to several factors. Some suggest actual Chinese investments might be higher due to complex offshore holdings not fully captured by statistics. However, Russia historically held a poor reputation among Chinese investors, offering high asset costs without corresponding investor protection or a clear legal framework. Moreover, the conflict-induced sanction volatility makes it more attractive for Russia to import critical components than to localize their production with Chinese partners.
