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![Luna Sun]()
China’s private firms see Russia as land of opportunity, up for grabs amid West’s exodus
- But
experts say China’s state-owned enterprises are likely to remain
cautious, worried about the potential diplomatic fallout of running
afoul of Western sanctions on Russia
- Smaller
businesses may be more likely to take the advice of China’s ambassador
to Russia, to ‘fill the void in the Russian market’
Luna Sun
After seeing a number of car companies drop out of the Russian market, Li Dan decided to expand her company in Moscow to also make and sell car parts for American and European brands. For years, she solely made and sold parts for Russian cars, but after Ford and Volkswagen were among those to exit the market, she came to the conclusion that Audi, Ducati, Skoda and Porsche might soon need to repair their cars in the country.
Coca-Cola, McDonald’s and Starbucks all suspend Russia operations in landmark move
“The US and European cars in Russia will need repair at some point, and that will be a problem in the future,” Li said. “Those dealers who directly import cars or parts from the US or EU market – they will have to seek more stable cooperation from China from now on because of the sanctions.”
This will present an opportunity for Chinese brands to break into the Russian market, and some have already started, she added. Soon after many Western brands announced their exits from Russia, Li received a promotion to buy a vehicle from Haval, which is owned by Chinese carmaker Great Wall Motors and specialises in crossovers and SUVs.
“The sanctions are here to stay, but big infrastructure projects must continue. The trade between the two countries will most definitely increase in size in the next couple of years, and the pace will pick up as well.”
China has been Russia’s biggest trading partner for 12 consecutive years, and bilateral trade between the two countries topped US$147 billion in 2021, up by 35.9 per cent from a year earlier, according to Chinese Ministry of Commerce data.
While Western pressure has been mounting for China to take a clear stand against Moscow, China has vowed to continue to do business with Russia under a strategic partnership that it says has “no limits”.
“Any Chinese bank with international business would be reluctant to approve account applications from Russians, especially multicurrency accounts. It is possible that some small banks with only domestic operations could develop a workaround as ‘specialist’ banks dealing with Russia,” he said.
“Companies are not actively looking to violate the sanctions,” Zhuang said. “Instead, they are trying to find covert ways to work behind the scenes.”
29 Mar, 2022
From car parts to food and household cleaners, smaller private firms in China are seeking ways to capitalise on the “void” left by a mass exodus of high-profile Western brands from the Russian market.
But the outlook for state-owned companies and banks is a little foggier.
Western sanctions over the war in Ukraine have sent the likes of Ford, Coca-Cola and other iconic brands heading for the exit in Russia. This has created opportunities for Chinese firms, despite warnings from the United States and its allies over providing assistance to help circumvent the various bans and restrictions imposed on Russia.
After seeing a number of car companies drop out of the Russian market, Li Dan decided to expand her company in Moscow to also make and sell car parts for American and European brands. For years, she solely made and sold parts for Russian cars, but after Ford and Volkswagen were among those to exit the market, she came to the conclusion that Audi, Ducati, Skoda and Porsche might soon need to repair their cars in the country.
Coca-Cola, McDonald’s and Starbucks all suspend Russia operations in landmark move
“The US and European cars in Russia will need repair at some point, and that will be a problem in the future,” Li said. “Those dealers who directly import cars or parts from the US or EU market – they will have to seek more stable cooperation from China from now on because of the sanctions.”
This will present an opportunity for Chinese brands to break into the Russian market, and some have already started, she added. Soon after many Western brands announced their exits from Russia, Li received a promotion to buy a vehicle from Haval, which is owned by Chinese carmaker Great Wall Motors and specialises in crossovers and SUVs.
China’s ambassador to Russia has already
urged Chinese traders in Moscow to seize the business opportunities
arising from the crisis, and to restructure their businesses to “fill
the void in the Russian market”, according to a Russia Confucius Culture
Promotion Association post on its official WeChat account.
“Under
the complex geopolitical situation, big corporations face a lot of
hardships, or even cutoffs, in payment and supply chains,” Zhang Hanhui
said during a meeting with local business representatives earlier this
month.
We will … explore ways to work with Russian companies under the backdrop of the belt and road strategic developmentWang Chuanbao, Federation of Overseas Chinese in Moscow
“Now is exactly the time where private and small and medium-sized enterprises play a role,” the ambassador added. “The country is smoothing out all sorts of channels, especially in payment and logistics, and building new platforms.”
We will … explore ways to work with Russian companies under the backdrop of the belt and road strategic developmentWang Chuanbao, Federation of Overseas Chinese in Moscow
“Now is exactly the time where private and small and medium-sized enterprises play a role,” the ambassador added. “The country is smoothing out all sorts of channels, especially in payment and logistics, and building new platforms.”
Wang Chuanbao, the president
of the Federation of Overseas Chinese in Moscow, also told the Post that
the gap left by Western companies in Russia has led to an imbalance of
supply and demand, undoubtedly generating new business opportunities.
“But
the sanctions this time around are more severe and expansive,” Wang
added. “Chinese traders need to spend some time carefully considering
ways to fill these industry holes and secure a place in Russia’s market.
“We
will actively assist incoming Chinese companies in studying and
collaborating with the Russian market, as well as explore ways to work
with Russian companies under the backdrop of the belt and road strategic
development.”
Belt and Road Initiative explained
Liu Yunpeng, a Russia-based Chinese food importer, also saw a silver lining for his business amid the short-term challenges, including depreciation of the Russian rouble.
Belt and Road Initiative explained
Liu Yunpeng, a Russia-based Chinese food importer, also saw a silver lining for his business amid the short-term challenges, including depreciation of the Russian rouble.
Because of the sanctions, many well-known
Western brands have retreated from Russia, leaving an enormous market to
be filled by Chinese brands, Liu said.
“My company has been
importing Chinese food and baijiu to Russia since 2014, and as the
strategic partnership between China and Russia has continued to deepen, I
have fully felt the expansive potential of Chinese food in Russia,” he
said.
For Chinese businesspeople, the sinking rouble and inflation
rising by as much as 30 per cent have also led to shrinking sales and
revenues, rising lending rates and demands from Russian employees to
increase pay.
In addition, as the West has cut off selected Russian banks from the Swift financial messaging system, many transactions can no longer be paid with US dollars and euros, which have been used in most trade transactions between China and Russia. However, for Li, whose clients had been reluctant to switch to the Chinese yuan, the shift away from the US dollar has created an unexpected opportunity.
In addition, as the West has cut off selected Russian banks from the Swift financial messaging system, many transactions can no longer be paid with US dollars and euros, which have been used in most trade transactions between China and Russia. However, for Li, whose clients had been reluctant to switch to the Chinese yuan, the shift away from the US dollar has created an unexpected opportunity.
“We had been urging our clients to pay with [the yuan]
for a long time because of the unstable exchange rates, but it never
happened because the clients didn’t want to go through the trouble of
opening new bank accounts,” Li added.
“But as our clients’ banks were
sanctioned, they found banks that support [yuan] transactions right
away, and our businesses returned to normal in about a week.”
[China-Russia trade] will most definitely increase in size in the next couple of years, and the pace will pick up as wellBo Zhuang, economist
However, these types of market opportunities resulting from the withdrawal of Western brands look to be limited to privately owned enterprises and small to medium-sized companies.
[China-Russia trade] will most definitely increase in size in the next couple of years, and the pace will pick up as wellBo Zhuang, economist
However, these types of market opportunities resulting from the withdrawal of Western brands look to be limited to privately owned enterprises and small to medium-sized companies.
Large state-owned enterprises (SOEs)
in China will remain wary of breaching Western sanctions, said Zhuang
Bo, a China economist at investment firm Loomis, Sayles & Company.
“Chinese
companies in some niche sectors will especially benefit from the EU and
US leaving Russian markets, such as in auto parts, foods, medical
supplies` and infrastructure components,” Zhuang said.
“The sanctions are here to stay, but big infrastructure projects must continue. The trade between the two countries will most definitely increase in size in the next couple of years, and the pace will pick up as well.”
China has been Russia’s biggest trading partner for 12 consecutive years, and bilateral trade between the two countries topped US$147 billion in 2021, up by 35.9 per cent from a year earlier, according to Chinese Ministry of Commerce data.
While Western pressure has been mounting for China to take a clear stand against Moscow, China has vowed to continue to do business with Russia under a strategic partnership that it says has “no limits”.
However,
as the US and its allies are watching closely to stack evidence and are
prepared to impose punitive measures should China take any action to
support Russia’s war on Ukraine, Chinese SOEs will not risk violating
sanctions by making inroads into the Russian markets, at least not
conspicuously, according to Zhuang.
“Any Chinese bank with international business would be reluctant to approve account applications from Russians, especially multicurrency accounts. It is possible that some small banks with only domestic operations could develop a workaround as ‘specialist’ banks dealing with Russia,” he said.
“Companies are not actively looking to violate the sanctions,” Zhuang said. “Instead, they are trying to find covert ways to work behind the scenes.”
The smaller and privately owned companies
with more flexible payment methods and logistics are the ones that
could effectively take advantage of the window of opportunity, Zhuang
added.
When asked about the role Chinese SMEs play in Russia, Foreign
Ministry spokesman Wang Wenbin said last week that “China and Russia
have been cooperating in economics and trade on the basis of mutual
respect and mutual benefits”, without elaborating on the ambassador’s
meeting in Moscow.
“Overall, we are still in the early stage of
development, and there won’t be anything game-changing happening in the
short term,” Zhuang said.