"Gray customs" is the name given to the illegal practice of getting items across the border without official customs approval
 
China said Monday it will work with Russia to restrict the so-called "gray customs clearance" system in a bid to reverse a decline in bilateral trade.

Sun Yongfu, director of the department of European affairs under the Ministry of Commerce (MOFCOM), made the announcement Monday at a press briefing.

"Gray customs" is the name given to the illegal practice of getting items across the border without official customs approval.

For years, Chinese exporters have turned to well-connected sources to process goods at the Russian border. Exporters who refuse to pay for such services have seen their goods held up, even when they had all the correct documentation.

The Russian government deemed the practice illegal, and, on June 29, raided the Cherkizovsky market in Moscow looking for goods brought into Russia that way. Many Chinese import-export companies were affected.

Sun also said Monday that China and Russia were conducting trials on ways to swap their currencies at border cities. He said the nations want to bring in a currency swapping policy to strengthen bi-lateral trade as soon as possible. The system may be in place later this year.

He said the initiatives will not erase the trade deficit between China and Russia (China imports more from Russia than it exports to the country), but the efforts will help ease the imbalance and the Chinese Government will push hard to close the gap completely.

The closure of the Cherkizovsky market, Russia's largest daily wholesale market where 80,000 Chinese businessmen earned a living, led to the Russian authorities confiscating goods allegedly "smuggled" by Chinese sellers via the gray customs system.

According to MOFCOM, more than 10,000 vending stands, owned by 60,000 Chinese, were affected and goods valued at $5 billion, packed into 15,000 shipping containers, were temporarily seized.

After lengthy talks between China and Russia, the issue has been "preliminarily resolved", Sun said.

About 95 percent of the seized goods have been returned to the Chinese owners.

But Sun said it will be important going forward for the "root of problem" - gray customs clearance - to be dealt with.

"The practice has negatively affected bilateral trade," Sun said.

Ling Ji, deputy director of the department of European affairs with the commerce ministry, said the closure of the market hurt Chinese exports.

China is Russia's second- largest trading partner.

China-Russia trade reached $55 billion last year, according to Russian Customs. But during the first five months of this year, China-Russia trade saw its first drop since 1999, plunging 39 percent from a year earlier, according to the commerce ministry.

China ran a trade deficit with Russia of $1.37 billion -- meaning it imported $1.37 billion-worth of goods more than it exported - thanks to China's voracious importing of electrical and mechanical goods and energy-related products.