Chinese companies weigh business and politics in Russia after war

Russian president Vladimir Putin’s invasion of Ukraine has put Chinese companies in an increasingly precarious position as they attempt to preserve and expand their business with Russia while navigating what they hope will prove to be short-term disruptions.

DJI, the Chinese drone maker whose equipment is used by both sides in the Ukraine war, typifies those challenges after finding itself in the spotlight last week when a senior Ukrainian official urged the company to stop doing business with Russia.

Russian troops “are using DJI products in Ukraine in order to navigate their missile[s] to kill civilians”, Mykhailo Fedorov, Ukraine’s vice prime minister, wrote in an open letter posted on Twitter. He demanded that DJI take a series of measures, including sharing more product information and blocking the potential use of its drones by Russian forces. “We call on your company to stop doing business in the Russian Federation until the Russian aggression in Ukraine is fully stopped,” Fedorov added.

While many western technology companies have responded positively to such pleas DJI, the industry leader, rebuffed them as firmly as Chinese diplomats have rebuffed criticism that President Xi Jinping has effectively sided with Russia.

The company tweeted in response to Fedorov that its products did not meet “military specifications” and his other requests were either impractical or required a formal order from the Ukrainian government. “We remain available to discuss these issues at your convenience,” DJI said.

“DJI can’t block products that are purchased and activated in Russia as doing so may violate data compliance rules,” said a person close to the business. “The company doesn’t want to be involved in politics.”

But the person added that if US sanctions threaten DJI’s access to American-made components, it will have no choice but to “exit the Russian market”.

“DJI complies with the laws and regulations of the markets in which we operate,” the company said.

A Beijing-based lawyer who advises Chinese companies on their Russian operations said many were struggling to balance commerce and allegations that they were keeping Russia’s economy afloat after western governments imposed wide-ranging sanctions on Moscow.

“Chinese companies are finding it increasingly difficult to walk a fine line between conducting normal business activities in Russia and bankrolling its war against Ukraine,” the person said.

As Russia’s invasion of Ukraine drags on, China’s economic links with its northern neighbour have also come under strain. According to a recent survey of 322 Chinese exporters by FOB Shanghai, an industry forum, 39 per cent of respondents said the war had “severely” undermined their Russian business.

Importers are not faring much better. Russia’s coal exports to Asia, where China is the biggest buyer, fell to 1.8mn tonnes in the first two weeks of March compared to 62mn tonnes in February, according to Refinitiv, a data provider.

“There is too much risk trading with Russia,” said Frank Yao, owner of a coal trader based in the northeastern city of Dalian. His company cancelled an order from Russia this month because the seller had trouble processing payments after western governments banned some of the country’s banks from Swift, the global financial messaging system.

Chinese diplomats have rebuffed criticism that President Xi Jinping, right, has effectively sided with Vladimir Putin since the start of the war © AP

But many Chinese companies still want to expand their trade with Russian counterparts.

Xibao Metallurgy Materials Group, a manufacturer and distributor of advanced materials based in the central Chinese district of Xixia, recently signed a Rmb300mn ($47mn) deal to build a refractory material plant in Lipetsk, a city in western Russia. Refractory materials are used in heat-intensive industries such as steel making.

Li Shucheng, Xibao’s president, said in an online ceremony on March 10 that he was determined to embark on the project despite “lots of challenges arising from continuous regional conflicts”.

“We have assessed all kinds of potential risks and opportunities and have drawn up a well-founded contingency plan for our investment,” Li added.

In the northeastern city of Changchun, the state-owned commodity trader Jidian International Trade Co has purchased at least 50,000 tonnes of coal from Russia since the war broke out, according to an executive who asked not to be named. “We are still in the business when many of our peers are out,” the person added, noting that the company had signed long-term contracts with Russian coal groups such as SUEK and Elga.

Many of Jidian International’s peers are following suit. The China Coal Transportation and Distribution Association, an industry body, hosted a video conference on March 11 at which a dozen of the country’s big power plants and about 20 Russian coal companies discussed plans to increase bilateral trade just as the US and UK banned Russian oil imports.

“We are actively exploring opportunities to work with our Russian partners,” said an official at Oasis Logistics Corp, a commodity trader in eastern Jiangsu province that was represented at the conference.

Despite a plunge in shipments over recent weeks, many analysts expect coal exports to rebound strongly in coming months. “Russia’s coal shipments to China may increase even further if other Asian countries reduce purchases,” brokerage Yongan Futures said in a report last week, adding that Chinese imports could offset reduced buying from South Korea after Seoul imposed sanctions on Moscow.

Shortly before the war began, Sergey Mochalnikov, a senior official at Russia’s energy ministry, said the country planned to almost double annual coal exports to China to 100mn tonnes.

Chinese demand for Russian coal has been stoked by shortages at home, which contributed to a series of severe power outages last year in many manufacturing areas.

Local mines have been forced to cut back on production in order to meet strict emissions target. The problem has been exacerbated by the suspension of Australian coal imports amid long-running political tensions between Beijing and Canberra.

“China needs Russian coal not because we want to provide support for Putin,” said the official at Jidian International. “We do so because it helps solve our economic problems.”

Additional reporting by Tom Mitchell in Singapore




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