China faces big choice on Russia when it comes to seafood, and beyond

Published on
March 16, 2022
Sanctions on Russian trade imposed by the U.S., European Union, and the U.K. on Russia in response to its invasion of Ukraine are likely to have a major impact on global seafood trade, including trade with China, according to Lotus Seafood CEO Nick Ovchinnikov.

Sanctions on Russian trade imposed by the U.S., European Union, and the U.K. on Russia in response to its invasion of Ukraine are likely to have a major impact on global seafood trade, including trade with China, according to Lotus Seafood CEO Nick Ovchinnikov.

Lotus Seafood is an Oceanside, California, U.S.A.-based seafood trader that is undergoing a transformation from providing commodity seafood to specializing in frozen value-added meals. Ovchinnikov relocated his business from Russia to California 10 years ago.

“Russian companies will have a hard time receiving money for their catch from the West. This will push prices up from other world suppliers, but it's essential for them not to get greedy and not disrupt or spoil certain market segments. We already see breaded whitefish processors have to look for alternatives to Russian pollock, which is used as raw material. Most clubs and retailers are removing Russian-origin seafood like king crab [and] Pacific salmon from their shelves,” he told SeafoodSource. “This is all just beginning, and it's a bit hard to predict how exactly the global seafood supply chain will change as a result of all this, because we [haven’t yet seen] the final list of sanctions to be imposed. But the fact that the consequences will be enormous is undoubtful.”

Ovchinnikov said he “fully supports” sanctions against Russia.

“Every dollar transferred to Russia can be potentially used for the funding of the killing of Ukrainians,” he said.

As for the impact on the Chinese processing industry, a key buyer of Russian whitefish, strict COVID regulations at Chinese ports had already squeezed Russian fishery supply from entering China, making it harder to judge the immediate impact of sanctions. Lotus Seafood has long had a sourcing office in China, and Ovchinnikov said he believes sanctions on Russia will impact the trade into Chinese processing facilities.

“I'm pretty sure it will, but again, we need to wait for the fallout of all sanctions,” he said. “China may try to take advantage of the situation, and renminbi trade may be a solution for Russia-Chinese trade. Still, in case the U.S. sanctions will be imposed against all Russian seafood, they will most likely be extended to Russian raw material processed in China.”

Ovchinnikov said there are potential lessons in the historical sanctions issued against North Korea, which prohibited it from exporting seafood to most markets.

“A few years ago, we observed a similar case, when some U.S. importers were caught importing seafood ‘reprocessed’ in China by North Korean workers, which resulted in a severe investigation and possible penalties to the U.S. importers. This will most likely work the same way for Russia-originated fish and seafood, should any Chinese processors get caught,” Ovchinnikov said. “On the other hand, Chinese imports of Russian raw material have been severely affected by COVID-related restrictions in the last two years, so it will make changes less significant, since the majority of Russian pollock exporters to China have been already affected by various Chinese bans and import restrictions for COVID reasons. So the loser will be Russia, because China will capitalize on this situation and put pressure on prices. This has been a horrible tactical blunder the Russians have created for themselves at the end of the day.”

China is Russia's largest trading partner, accounting for 23 percent of Russia's imports and 15 percent of its exports (mostly oil and gas). But both China and Russia remain reliant on Western suppliers for key technology like advanced semiconductors. The financial ties between the two countries extend to the financial sector, as Chinese companies lent approximately USD 151 billion (EUR 137.6 billion) to Russian firms between 2000 and 2017. China, a major buyer of Ukrainian grain and military hardware, last month also lifted restrictions on wheat imports from Russia and signed a 30-year deal to buy increased volumes of Russian gas. These deals will be transacted in yuan rather than U.S. dollars.

On 7 March, at the start of the ongoing National People’s Congress in Beijing, China Foreign Minister Wang Yi backed his country’s all-encompassing partnership with Russia, which was signed at the 2022 Winter Olympics in Beijing in February. In that agreement, China stated it strongly supports "respecting and safeguarding the sovereignty and territorial integrity of all countries."

Sara Shi, a sales executive at seafood processor and importer Dalian Rich Enterprise Group Co., said her company is taking a “wait-and-see” approach to the trade situation with Russia..

“There is some effect for seafood business, because 80 percent of pollock raw material and wild salmon is of Russian origin,” Shi said. “But seafood companies in China are used to facing [all] kinds of problem[s] since COVID-19 happened in 2020. Everything is okay now. Plants are trying best to open and start to process. Let’s wait and see, everything will be fine finally.”

China risks getting “trashed by proxy” if Russia’s Ukraine campaign goes badly, according to Francisco Sisci, a senior research associate at China Renmin University. The Ukrainian conflict has bound the E.U. and U.S. more closely together, in opposition to China’s efforts to pry Europe away from its American alliances and make it friendlier to China. But China may also benefit as U.S. attention is drawn from Taiwan and other territorial disputes in which China is entangled.

Photo courtesy of Lotus Seafood/LinkedIn

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