Chinese tech giants abandon business with Russia

  • Chinese firms include PC maker Lenovo Group Ltd. and Xiaomi Corp., which makes smartphones.
  • For its part, China is advancing its plan to substitute Western technology and has ordered government agencies to get rid of foreign PCs.

Chinese technology companies are gradually ceasing to do business in Russia. They do so under pressure from the threats of sanctions from Western governments and from the suppliers of the United States. All this despite the request of the authorities for the companies to resist the pressure of the NATO member countries. .

An extensive report published this week by The Wall Street Journal indicates that several of China’s largest companies have reduced their shipments to Russia. The withdrawal of products from the Russian market, which is mostly dominated by Chinese tech companies, is being done quietly, sources familiar with the matter have revealed.

Chinese firms include PC maker Lenovo Group Ltd. and Xiaomi Corp., which makes smartphones and other mobile devices. These companies have not made announcements on the matter, unlike Western firms, so as not to upset Beijing. The Chinese government is not only Russia’s main ally but also a staunch opponent of Western sanctions for the invasion of Ukraine.

Another company that decided to stop its business with Russia was the drone manufacturer SZ DJI Technology Co. However, this company did publish its unusual move. Last month the firm announced the suspension of its business with Russia and the Ukraine, arguing that both could use its products while awaiting a compliance review.

Fall in exports to Russia

In March, exports of Chinese technology products to Russia plunged dramatically. Since the start of the war in Ukraine on February 24, shipments of laptops are down more than 40%. While smartphones fell by almost two thirds and telecommunications base station exports by 98%.

This is indicated by the most recent commercial data report published by the Chinese government. Aside from Russia, China’s trade with most of the world has been similarly disrupted. The new coronavirus outbreak in Shanghai and its consequent lockdown have curbed Chinese global exports. The largest port in the country is located in this city.

Increasing financial sanctions on Russia imposed by the US and the rest of the Western countries were followed by strong export controls to force Moscow to withdraw from Ukraine. The White House, for its part, has threatened severe punishment for Chinese companies that violate established rules.

US chip suppliers have been pressuring their Chinese customers not to sell their products to Russia. US companies are making sure that Chinese companies do not violate Western sanctions, multiple sources said.

One of these companies contacted its clients in China in March to ask them to fully comply with the measures. The same was done by the company’s sales staff who also contacted the Chinese client to ask for guarantees, added the anonymous sources cited by The WSJ.

China recognizes the power of sanctions and calls not to surrender

In April, China’s Ministry of Commerce acknowledged that Western sanctions have caused a disruption in Chinese trade with Russia. Although, he urged companies “not to submit to external coercion and make inappropriate external statements.”

Technology exports to Russia have fallen sharply in the last two months. This has shown the power of Western sanctions and how they influence the global supply chain. The sanctions have meant that some Asian companies, against their will and that of their governments, have had to change their behaviour.

Between February and March, the total exports of Chinese companies to Russia sank 27%, according to available official trade data. However, Beijing on the other hand has been working on a set of measures to mitigate sanctions from the US and its allies.

The Chinese government is considering issuing rules to force its companies not to comply with Western sanctions that it considers unjustified. However, so far he has not invoked them, but he could do so in the near future.

The gap between Washington and Beijing widens

US President Joe Biden and Chinese President Xi Jinping.

Just as the war in Ukraine has forced Europe and the US to curb dependence on Russia for energy, it is also widening the gap between Washington and Beijing on economic policy between the two countries. The result could be China deepening and accelerating the development of supply chains and markets independent of US technology.

Western sanctions are not just limited to exports to Russia. They also include very strict controls to block exports of Russian equipment and weapons. So are exports of products made with US equipment, software, or blueprints regardless of whether such products are not made by US companies.

So far these measures have proven effective, especially in the technology sector. This is a sector with global supply chains with very complex structures and rules, which allow the US government to use them in its favor.

Some companies and industry sectors, however, have gone unnoticed by the sanctioning regime. This is the case of the Russian telecommunications operator Beeline, whose owner is the Dutch firm Veon Ltd.

The company reported receiving a delivery of telecommunications equipment made by Huawei Technologies Co., the iconic Chinese mega telecommunications company, in March.

Although the company argued that this purchase was conceived since 2021, when the company made an evaluation of its future infrastructure needs. It argued that the purchase “was in compliance with all applicable laws, including United States export controls.”

Impacts on imports from Russia

US Commerce Secretary Gina Raimondo said last month that Western export controls have succeeded in reducing imports of high-tech goods from Russia by more than 50%.

He pointed out that the sanctions caused a shortage of semiconductors in Russia and serious problems in finding parts for its armed forces on the market. The official in March had already threatened Chinese companies with fines if they failed to comply with the sanctions.

The sanctions regime imposed by the US has some exceptions. For example, consumer electronic devices. They can be exported to Russia if sold directly to non-governmental organizations or individuals, explained Kevin Lobo, a former Commerce Department official and current partner at Akin Gump Strauss Hauer & Feld LLP.

Sales while stocks last

China’s Lenovo, which is one of the leading PC companies in the United States, stopped its exports to Russia shortly after the war began when sanctions took effect. Although its products are still sold in Russia because the inventory has not been completely depleted.

The other Chinese technology companies have not made any more shipments in recent weeks pending the development of events in Ukraine. But there are some companies that have maintained a more public profile. The Chinese SZ DJI he stopped his business in Russia and said so publicly, but for a particular reason.

The announcement was made after some published reports related to the use of its drones. Ukrainian officials complained about the technical failures of these Chinese equipment.

“DJI has taken this action not to make a statement about any country, but to make a statement about our principles,” the company said. “DJI abhors any use of our drones to cause harm, and we are temporarily suspending sales in these countries to help ensure that no one uses our drones in combat,” he added.

China orders disposal of foreign PCs

Beijing has ordered all central government agencies and its state-owned enterprises to completely replace foreign-made personal computers. Instead the Chinese government has said they should be replaced with national brand equipment.

The term granted for compliance with this measure is two years. China is accelerating its steps to root out foreign technology seen as key from its most sensitive state agencies.

Returning from the May recess, the government asked employees to hand over their foreign PCs and exchange them for local PCs running Chinese operating software. The purpose of the plan is to remove about 50 million of the central government’s 50 million PCs, informed sources quoted by Bloomberg said.

China has embarked on a drastic campaign to replace Western technology with domestic alternatives. Beijing’s effort is aimed at reducing dependence on foreign technology developed by its geopolitical rivals, particularly USA

The strategy seeks to replace everything from semiconductor chips to servers and smartphones. In this sense, the companies most affected by these measures could be the equipment of HP Inc. and Dell Technologies Inc. These are the PC brands that have the most sales in the country after the local giant Lenovo Group Ltd.

Following the Chinese government’s announcement, shares of HP and Dell fell about 2.5% on the New York Stock Exchange on Friday morning. Both companies had apparently already anticipated this move from Beijing and have been working since 2019 to move their production out of China.

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