How Russia’s War Debt Is Reshaping Its Ties With China and North Korea
August 2026
Russia’s war economy is buckling under the weight of its own ambitions. With a budget deficit that blew past $77 billion in the first half of 2026 alone, the Kremlin is now caught in a tightening financial vice, borrowing billions from China while importing tens of thousands of North Korean workers to keep its domestic economy functioning. What is emerging is a picture of a superpower that is quietly becoming a debtor state, squeezed between two authoritarian partners who are each extracting their own price.
A Budget Built for War
Nearly 40% of Russia’s 2026 federal spending has been allocated to defence and security, an unprecedented level in modern Russian history. Military expenditure hit 5.9 trillion rubles in the first quarter alone, a 30% surge compared to the same period in 2025. Finance Minister Anton Siluanov has asked the government to suspend trillions of rubles in planned civilian spending to cover the spiralling cost of the war in Ukraine, with overruns projected at 2 trillion rubles ($28 billion) or more.
The numbers paint a stark picture. The deficit after just four months already exceeded the planned shortfall for the entire year. By some estimates, the full year deficit could reach $105 billion. Russia’s sovereign wealth fund, the National Welfare Fund, has been substantially drained through years of transfers to plug budget gaps, leaving the country with far less fiscal buffer than it once had.
Borrowing From Beijing
To plug the growing hole, Russia has turned increasingly to China. Cumulative Chinese lending to Russia since 2000 exceeds $125 billion, most of it directed at state owned energy enterprises. Russia is China’s single largest foreign debtor, accounting for more than 15% of Belt and Road lending between 2013 and 2017.
That financial dependency is deepening. In May 2026, shortly after Putin’s 25th visit to Beijing, Russia sold 10 billion yuan ($1.5 billion) in yuan denominated sovereign bonds. It was the second such issue, following a debut sale in December 2025 that raised around 20 billion yuan. The logic is straightforward: with domestic interest rates painfully high, borrowing in yuan is cheaper than borrowing in rubles. But it comes at a strategic cost. Every yuan bond Russia issues ties its fiscal future more tightly to Beijing.
Some analysts have drawn comparisons to China’s debt diplomacy playbook, the same approach that left countries like Sri Lanka, Laos and Pakistan deeply beholden to Chinese financial interests. Whether or not China is deliberately engineering dependency, the structural reality is clear: Russia is becoming a borrower that cannot easily walk away from its lender.
North Korea Fills the Gaps
While China provides the money, North Korea is increasingly providing the people. Russia’s mobilisation for the war in Ukraine, combined with casualties and emigration, has created severe labour shortages across the economy. North Korean workers have stepped in to fill the void.
As of August 2026, teams of North Korean women have been arriving in Russia through outsourcing firms, offered to companies in groups of 40 for work on assembly lines, in sewing workshops, on farms, and in restaurant kitchens. The workers are hired under strict conditions: they cannot be separated from their group, must be housed in isolated quarters on a separate floor or building, and are paid hourly rates starting at 480 rubles (roughly $5.50).
A March 2026 report by international human rights foundation Global Rights Compliance revealed first hand testimonies from North Koreans exploited as part of a state sponsored programme that sends an estimated 100,000 workers overseas across 40 countries. Workers described 16 hour days, cockroach infested housing, constant surveillance, and a financial structure where many end up owing more than they earn.
For Russia, these labour brigades serve a dual purpose. They fill gaps in light manufacturing, textiles, agriculture and food services, and in doing so they free Russian citizens for higher priority defence production or frontline deployment.
Pyongyang Pushes Back
But North Korea is no longer content to be a cheap supplier. In a significant policy shift communicated around the Ninth Party Congress in February 2026, Pyongyang ordered its officials to stop accepting low wage contracts, reportedly using the blunt instruction: “don’t sell people cheap.”
The results are already visible. The Russian city of Orenburg attempted to hire North Korean workers for municipal services last year, but negotiations collapsed over wage disputes. Standard wages for North Korean workers in Russia have risen to around $1,000 per month, a significant increase driven by both Russia’s deepening labour shortage and the closer strategic ties between Moscow and Pyongyang.
In April 2026, the largest labour unions of both countries signed a cooperation agreement in Pyongyang, signalling a formalisation of what had previously been a more informal arrangement. North Korea is clearly leveraging its position: it provides soldiers, ammunition, and labour, and in return it receives food, energy, cash, and military technology from Russia.
A Three Way Dependency
What is taking shape is a triangle of mutual dependency that none of the three parties fully controls. Russia needs Chinese money and North Korean labour to sustain its war effort. China gains strategic leverage over a weakened neighbour and secures cheap energy imports. North Korea extracts military technology and economic lifelines that keep the Kim regime afloat.
But there are tensions within this arrangement. North Korea’s decision to demand higher wages suggests it recognises its leverage and intends to use it. China, for its part, maintains a careful distance, ensuring that financial support comes with strings that serve Beijing’s long term interests rather than Moscow’s short term needs.
For Russia, the trajectory is concerning. A country that entered the war with relatively low government debt, just 19% of GDP, is now issuing bonds in a foreign currency it does not control, importing workers under conditions that violate international sanctions, and cutting domestic social spending to feed a military machine that shows no sign of delivering a decisive outcome.
The question is no longer whether Russia can afford this war. It is how long its creditors will keep extending the bill, and what they will eventually demand in return.
Sources include reporting from the Financial Times, The Moscow Times, Bloomberg, NK News, SIPRI, NBC News, Asia Times, and the Korea Economic Institute of America.
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