The development of the COVID-19 pandemic in the first quarters of 2020 has put global trade and, as a result, Russian industry at risk. The suspension of factories in China led to a reduction in the supply of materials and components, there was a risk of similar consequences in other countries.

SBS Consulting experts conducted a research of the impact of possible restrictions on world trade (including in the scenario of a reduction in Russian exports) due to the pandemic in the domestic industry. The study assessed the role of Chinese products, the negative effect of the reduction in world trade and identified the most vulnerable industries.

Impact of Chinese imports on the Russian economy

Key findings:

• Share of Chinese imports: About 2/3 of imports from China are manufactured goods, mainly machinery and equipment.
• Import dependency: The Russian economy is more dependent on imports of Chinese equipment than on supplies of raw materials and components.
• Output reduction: A halt in Chinese supplies could lead to a 1.5-11% reduction in output.
• Stocks: The impact is mitigated by the availability of stocks, but the long-term effect could be significant.

Most dependent industries:

• Light industry
• Chemical industry
• Manufacture of rubber and plastic products
• Machine building
• Automotive industry
• Manufacture of furniture and consumer goods

Potential problem:

• Essential goods: Availability of irreplaceable goods can be identified by enterprise survey.
• Exports to China: Export problems affect the manufacturing industry to a lesser extent, with the exception of wood processing (Far East segment).

Global shocks and their impact

Key findings :

• Global shocks: More substantial as there is no substitution with equivalents.
• Global trade restrictions: Can cause industries to shut down or output to fall by up to 40% or more.
• Light industry: Most vulnerable to global shocks.
• Machinery and automotive industry: High dependence on Chinese imports.

Decrease in demand :

• Global demand: A fall in global demand for Russian raw materials has a linear effect.
• Export reduction: A 1% reduction in demand leads to a 1% reduction in exports and a proportional drop in output.

Impact of the pandemic on different sectors

Key findings :

• Costs of controlling the virus: The main damage to the economy is the cost of controlling the spread of the virus.
• Reduced consumption: Falling industrial demand for raw materials, reduced energy consumption.
• Plant closures: Quarantine measures lead to plant closures and staff attrition.
• Change in consumer demand: Reduced consumption of everyday goods and increased demand for protection and prevention products.

Service sector crisis :

• Cessation of tourism and travel: Cessation of mass events and restriction of catering and consumer services.

Analysis of dependence on Chinese imports

Key findings :

• High dependency products: The markets most dependent on Chinese imports are electronic music equipment, sporting goods and toys.
• Rise in prices: The reorientation of supplies from China will lead to price increases for many goods, such as pyrotechnics and chemical elements for electronics.

Russian companies:

• Most dependent companies: These include manufacturers from the light industry, chemical industry and machine building.

Impact of the coronavirus outbreak

Key findings :

• Stockpiles: The availability of stockpiles mitigates the negative impact on markets in the short term.
• Critical impact: Service industries are the most affected, while manufacturing has not yet felt the full force of the negative impact.

Impact on industries :

• Light Industry: Critical dependence on Chinese imports.
• Machinery and automotive industry: High chance of availability of critical Chinese products for manufacturing.

Conclusion

The study highlights the significant impact of the COVID-19 pandemic on the Russian manufacturing industry, especially those sectors that depend on Chinese imports. In the short term, the negative effects are mitigated by stockpiles, but the long-term risks remain significant. To minimise these risks, it is necessary to develop localised production and seek alternative supplies, as well as to strengthen state support for the most vulnerable sectors of the economy.