Russian plans to destroy a huge haul of goods smuggled in from China will cause Chinese traders massive losses, state media reported on Tuesday, in a rare snag in warming ties between the two giants.

Russian media have reported that the merchandise, worth two-billion dollars, was seized last September as part of a crackdown on Moscow's Cherkizovsky Market, a massive trading centre.

Nearly 80 000 Chinese merchants trade at the market and the crackdown will force many out of business, China's state-run Global Times newspaper said, quoting experts warning the row could stymie Chinese investment in Russia.

The paper quoted merchants in China who send goods for sale at the market as blaming the dispute on a Russian crackdown on a customs tax loophole utilised by the traders.

The Moscow Times said on its website on Tuesday that the market had been ordered temporarily closed the day before, after Prime Minister Vladimir Putin complained about delays in cracking down on the market.

It quoted a city official saying the market was the scene of "many violations of migration, civil, administrative and criminal law."

Haul of contraband

The seizure of the Chinese goods was the largest haul of contraband in Russia's history, the St. Petersburg Times reported last week on its website.

A Chinese foreign ministry spokesperson said he did not know the specifics when asked about the situation Tuesday, instead stressing China's improving ties with Russia.

"I would like to point out that China and Russia should maintain and develop normal trade relations, which is in the interest of both countries," spokesperson Qin Gang said.

"As for people-to-people and trade exchanges, when issues arise we hope that these issues could be solved in a peaceful and friendly manner."

He also urged Chinese engaged in trade with Russia to observe local laws.

Ties between the two former Cold War rivals have dramatically improved in recent years.

Bilateral trade was estimated at more than $55-billion last year, according to the Kremlin.

However, the economic crisis has caused trade to fall 42 percent to $7.3-billion in the first quarter of 2009 compared to the same period last year, Russia's trade envoy to Beijing said recently.

AFP

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