PRC Investment in Russian Economy Increasingly Important as Sanctions Deepen

Executive Summary:

• Russia has become increasingly dependent on trade with the People’s Republic of China (PRC) since its full-scale invasion of Ukraine in 2022, with more than a third of Russia’s total trade turnover being generated by the PRC.
• The recent memorandum on the development of the “Power of Siberia 2” pipeline could secure long-term PRC purchases of Russian gas. The PRC’s purported aim for severely discounted prices, however, could ultimately render the project unprofitable for Russia.
• U.S. President Donald Trump’s recent pressure on countries buying Russian oil could imperil Russian energy exports, an issue of major concern in both Russia and the PRC, and ultimately deter continued PRC purchases.

The People’s Republic of China’s (PRC) dominant role as Russia’s largest energy customer has only increased since the beginning of Russia’s full-scale invasion of Ukraine three and a half years ago. Determining the scope of this bilateral trade presents difficulties even as it increases. While the topic of Russia–PRC trade is regularly covered by the Russian media, after the start of the war, Russian government data on its foreign trade was partially classified, leaving analysts primarily with statistics from the PRC customs service. According to the PRC’s General Administration of Customs, in 2024, the trade turnover between Russia and the PRC totaled $244.81 billion, representing a 1.9 percent increase from 2023 (RBC, January 13). According to PRC customs data, in 2024, the Russian Federation’s exports to the PRC, which were primarily in the energy sector, remained practically unchanged from the previous year at $129.32 billion. During the same period, the PRC’s exports to Russia increased by 4.1 percent to $115.49 billion (RIA Novosti, January 13). The positive balance of the Russian side in trade resulted in a $13.83 billion surplus, 23.8 percent less compared to 2023 (TASS, January 12).

According to the Central Bank of the Russian Federation (CBRF), in 2024, the PRC’s share in Russia’s exports was 31 percent, compared to 30 percent in 2023. In imports, the PRC’s share was 39 percent, compared to 37 percent the previous year. At the end of 2024, more than a third of the Russian Federation’s total trade turnover was generated by the PRC. For the PRC, Russia’s share in trade is modest, accounting for 4–5 percent of total turnover (Strategic Culture Fund, September 13). According to the CBRF, at the beginning of 2022, the volume of foreign direct investment (FDI) in the Russian economy was $497.7 billion, which by mid-2025 had diminished to $216 billion. This means that since the war began, FDI in Russia has more than halved, decreasing to 43 percent of its pre-war level, demonstrating the impact of Russia’s war against Ukraine’s economy. Following the imposition of sanctions against Russia, led by the United States and the European Union in February 2022, and the subsequent abrupt curtailment of trade with the West, Russia’s initial trade losses were largely offset by increased trade with the PRC, India, and other friendly and neutral countries (see EDM, November 13, 2024, January 27, April 28, September 8, 10; see China Brief, July 18). This would diminish over time, however, as more sets of sanctions were imposed, increasing the importance of energy sales to the PRC as options dwindled.

The American Enterprise Institute’s China Global Investment Tracker (GIT) estimates that the total value of PRC assets created to date through capital exports and construction in all countries worldwide has exceeded $1.5 trillion (American Enterprise Institute, July 22, 2024). A small amount of this was invested in Russia. According to data from the PRC’s Ministry of Commerce, by the end of 2022, the PRC’s accumulated foreign investment in Russia had reached $9.9 billion, representing a mere 0.3 percent of the PRC’s total foreign investment (Vedomsti, July 29, 2024). 

At the end of 2024, Russia was only fifth in the PRC’s foreign trade turnover, after the United States, South Korea, Japan, and Vietnam (Al Jazeera, September 3). In terms of the size of accumulated PRC investments, however, Russia is now second in the world after the United States. The PRC has accordingly become an increasingly essential prop of the Russian economy since the sanctions regime began (see EDM, November 13, 2024). Neither Russia nor the PRC appears interested in disclosing the true scale of PRC investment in the Russian economy, especially as sanctions against Russia continue.

The bilateral camaraderie conceals an unsettling truth for Russian President Vladimir Putin’s government. Russia now appears more dependent on the PRC than at any time in its history. In 2024, the PRC represented 34 percent of Russia’s total trade, while Russia accounted for just 4 percent of the PRC’s (The Economist, May 12). Harsh Western sanctions have left Russia with fewer customers for its raw materials, particularly energy exports, and reduced its options for essential imports (see EDM, November 29, 2022, October 18, 2024, April 1).

Further strengthening the PRC’s role as a trading partner of necessity, earlier this month, the European Commission, under the 1996 Wassenaar Arrangement—signed by 42 nations including the United States and Russia—restricted EU exports of “dual-use” technology equipment that can have both civilian and military applications, including quantum computers, semiconductor-making machines, and integrated circuits. Even though the Wassenaar Arrangement includes Russia, which has previously blocked listing products it wants for its war, the decision marked the first time since the war began that the European Commission proceeded without first securing international consensus from agreement signatories (European Commission, September 8).

The upcoming litmus test for future PRC purchases of Russian natural gas is the proposed $50 billion, 1,700-mile “Power of Sibera-2” (PoS-2) pipeline, designed to transport 50 billion cubic meters (bcm) annually of Russian natural gas from the Iamal peninsula in western Siberia through Mongolia into the PRC’s northern regions (Kommersant, September 2).

On September 2, Gazprom Chairman Aleksei Miller announced that a trilateral meeting between Chinese Communist Party (CCP) General Secretary Xi Jinping, Putin, and Mongolian President Ukhnaagiin Khurelsukh in Beijing reached an agreement on the construction of the PoS-2 gas pipeline. Miller told journalists, “now it will be the largest, largest and most capital-intensive project in the gas industry in the world” (Interfax, September 2). True to the opaque nature of Russia’s energy trade with the PRC, however, the day after Miller’s announcement that a “legally binding memorandum” had been signed, the state-owned China National Petroleum Corporation (CNPC), a buyer of Gazprom’s gas, remained silent about the agreement, while PRC state media also did not write anything about the memorandum (The Moscow Times, September 3).

A potential cause of the PRC reticence to discuss the PoS-2 is that the natural gas price may remain a point of contention. According to Aleksei Gromov, Principal Director on Energy Studies at the Institute for Energy and Finance, the PRC earlier demanded that gas cost the same as in Russia, $120–130 per thousand cubic meters (tcm), a severe fiscal haircut 3.2 times lower than current prices in Europe of $390 per tcm (Vedomsti, September 2). According to the Russian Ministry of Economic Development, Gazprom currently pumps gas to the PRC at $247 per tcm, 36 percent cheaper than the price charged to European customers (The Moscow Times, April 22). In a worst-case scenario, such severely discounted prices could ultimately make the project unprofitable for Russia.

The wild card for the Russian economy remains the U.S. President Donald Trump administration, which is currently intensifying its campaign against foreign purchasers of Russian energy exports, particularly the PRC, India, the European Union, and North Atlantic Treaty Organization (NATO) members (Euronews, September 24). Should the U.S. government’s pressure campaign succeed in curtailing or ending these purchases, the PRC’s withdrawal because of sanctions against Russia would have an immediate and catastrophic effect on the Russian economy.

Far more potential disruption to the Russian and PRC economies may now be imminent. On September 23, following a meeting with Ukrainian President Volodymyr Zelenskyy on the sidelines of the 80th UN General Assembly in New York, Trump announced a complete reversal of his previous policy toward Ukraine (President of Ukraine, September 23). In a post on Truth Social after the meeting, Trump wrote that he thinks “Ukraine, with the support of the European Union, is in a position to fight and WIN all of Ukraine back in its original form.” Furthermore, he called Russia a “paper tiger” and noted the effects the war has had on Russia’s gas production. He finished the message by stating that the United States will continue to supply weapons to NATO, which NATO could then give to Ukraine (Truth Social, September 23).

The PRC remains Russia’s largest energy customer.  Many obstacles, however, remain before the PoS-2 pipeline can impact future exports. While the implications of Trump’s Truth Social Ukrainian pronouncement are currently murky, it contains the possibility of genuine sanctions imperiling Russian energy exports, an issue of major concern in both Russia and the PRC. Both countries are likely waiting to see if and when Washington might follow through.