China could fill economic void in Russia, but sanctions may bite

The war in Ukraine has been a boon for Chinese companies as Western firms continue to suspend or exit their businesses in Russia. In fact, China‘s top envoy to Russia, Zhang Hanhui, has urged businesspeople in Moscow to seize economic opportunities created by the crisis, like adjusting their company structures and filling the “gap” in the Russian market.

Statistics: Telecom equipment supplier Huawei saw phone sales in Russia surge 300% in the first half of March, according to MTS, the country’s largest mobile provider. Brands like Oppo and Vivo also logged triple-digit increases.

Meanwhile, popular Chinese companies such as Alibaba, Tencent and Xiaomi continue to conduct “business as usual” in Russia, while others that have made a decision to leave have quickly found themselves in hot water. In late February, ride-hailing giant DiDi announced it would pull out of the country, only to reverse course five days later. Neither statement mentioned geopolitical factors, but users online pointed to heavy public pressure.

Outlook: If Chinese companies continue to sell in Russia, it could cut off their business in the West. Many of the electronics they export often contain high-end semiconductors – or are made with U.S. tools and machinery – making them subject to sanctions on Moscow. In the meantime, firms like Huawei are walking a tightrope, refraining from calling out Russia while trying to avoid secondary sanctions. “These policies and measures are complex and constantly changing, and Huawei is still in the process of careful evaluation,” rotating chairman Guo Ping said in Shenzhen.

Author: Yoel Minkoff, Seeking Alpha

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