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’
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.
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.
“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.
“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.
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.
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.
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.”
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.
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.