Ukraine war: Shenzhen smartphone maker AGM’s Russian business on thin ice after invasion

Shenzhen-based smartphone company AGM, which makes ruggedised models that can operate in extreme cold weather, saw sales in its second-largest market Russia briefly reduced to zero following that country’s invasion of Ukraine on February 24.

AGM co-founder Austin Ding told the South China Morning Post that orders from Russia, which accounts for about 30 per cent of its total sales by volume, evaporated in the first two weeks after the war in Ukraine started.

“The main reason was the hugely volatile exchange rate, and a weakened spending power in the market,” Ding said in an interview on Tuesday in Shenzhen. He also indicated that the price of AGM smartphones, including models designed to function in Siberia’s harsh winter, doubled and even tripled overnight for Russian consumers.

International sanctions against Russia for invading Ukraine sent the rouble into free fall, which made it difficult for AGM because its sales in Russia are settled in US dollars.

Ding said AGM smartphone sales in Russia are mainly conducted through AliExpress, the global online marketplace operated by Alibaba Group Holding. E-commerce giant Alibaba owns the South China Morning Post.

AGM sales in Russia have seen a rebound, but still way below pre-invasion levels, after the rouble gained some degree of stability, according to Ding.

The Bank of Russia unleashed a raft of policy measures in late February to try to stabilise the country’s financial system, including increasing its key interest rate from 9.5 per cent to 20 per cent and introducing mandatory hard-currency revenue sales for exporters.

Meanwhile, Chinese budget smartphone maker Transsion Holdings said in a message to investors in March that it started settling transactions in yuan to maintain its operations in Russia.

China’s Transsion using yuan payments to keep Russia smartphone business going

The Russian market could become more challenging for Chinese firms when harsher economic sanctions from Washington and Brussels kick in, which will affect the export of microelectronics and telecommunications products to Russian entities.

China’s official trade data showed that its exports to Russia slumped 7.7 per cent in March from a year ago, as the value of exports plunged to US$3.8 billion last month, marking the smallest shipments since May 2020.

Imports from Russia, however, rose 26.4 per cent in March on the back of higher energy prices.

“In the long run, Russia is still a promising market [for us],” AGM’s Ding said.

Tech hub Shenzhen, a metropolis in southern Guangdong province, is home to China’s fast-growing cross-border e-commerce community, which had cultivated Russia as a profitable niche market before the war in Ukraine.

In response to the potential impact of that war, the Shenzhen branch of the China Council for the Promotion of International Trade recently conducted an online special training session for nearly 2,000 delegates from the city about the risks involved in trade with Russia, according to a statement on the trade promotion agency’s website.

Shenzhen business delegates were reminded to stay vigilant against “secondary sanction risks” and enhance due diligence background checks of their Russian counterparts, according to the statement.