Russia’s Wartime Economic Woes Slow Railway Trade With China

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(Bloomberg) -- Russia faces increasing difficulty shipping commodities to China through its vast eastern rail network, a sign of the growing economic challenges stemming from war and sanctions, despite the Kremlin’s assurances that all is well.

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Russian Railways JSC — the state-owned carrier responsible for all rail transport throughout the country — last week approved a 30% cut in its investment program for next year amid soaring borrowing costs, news agency Tass reported, citing the transportation minister.

An increase in war-related cargoes is also compounding existing bottlenecks, while sanctions weigh on cross-border payments. Those factors, along with longstanding logistical issues, are slowing the transport of goods like coal and aluminum.

The railway “is experiencing its deepest slump since the 2008-09 crisis this year, and the trend is still going strong,” Moscow-based MMI Research said in a Telegram post this month. “We assume that this is due to both the needs of the army — loading the network with priority cargo — and the worsening problems with the rolling stock.”

Russian Railways didn’t respond to a request for comment.

The situation underscores the strains within Russia as the Kremlin’s war in Ukraine approaches its third full year. The central bank on Friday kept its key interest rate at a record 21% as it seeks to cool an overheated economy, which President Vladimir Putin has said is in sound condition.

“Everything is based on the economy,” Putin said during his annual call-in on Dec. 19. “The situation is normal, stable,” despite any external threats and sanctions. While noting that inflation is “worrying,” he added that GDP may grow by about 4% this year — higher than in many Western countries — while unemployment is at a record low.

Fabled Railway

For Russian Railways, the picture is not so rosy. The carrier, which often used to borrow in public markets for investment, has now been largely closed off to them due to sanctions. Government support is limited, as Moscow has re-prioritized its budget toward the war.

Russia shifted its trade in recent years toward Asia, placing greater reliance on the so-called Eastern Polygon rail network. Its 8,700 miles (14,000 kilometers) of track combine Russia’s two longest railroads — the fabled Trans-Siberian, linking Moscow to the Pacific Ocean, and the Baikal-Amur Mainline running from Siberia to the Far East.