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Chinese Companies in Dilemma Over Russia

FILE - In this Oct. 31, 2019, photo, a man uses his smartphone as he stands near a billboard for Chinese technology firm Huawei at the PT Expo in Beijing.

Chinese enterprises are caught between the high reputational risk of remaining in Russia during its war on Ukraine and the pro-Moscow sentiment that dominates China's state-controlled media. So far, most have chosen to remain silent.

According to the Yale School of Management, more than 400 companies have announced their withdrawal from Russia's economy since Putin launched the war on Feb. 24. Most are based in the U.S., European Union, Japan and South Korea.

Salvatore Babones, an associate professor at the University of Sydney with expertise in the political economy of the Indo-Pacific region, said that for companies outside China, the desire to maintain a positive public image prompted their withdrawal from Russia.

"The risk of remaining in Russia is reputational," he told VOA Mandarin in a phone interview. "Russia is a relatively small market, and there's a huge public reaction against Russia right now. They (the companies) are responding to consumer pressure."

Russia's imports from China totaled about $54.9 billion in 2020. China is the largest source, followed by Germany, at $23.4 billion, and the United States, with just over $13.2 billion, according to the website Trading Economics, which uses figures from the United Nations COMTRADE database. By comparison, the site reports that China's exports to the U.S. in 2020 totaled $452.6 billion.

Dan Harris, a trade lawyer who specializes in doing business in emerging markets and co-authors the China Law Blog, said the business calculus has changed because of the sanctions imposed on Russia.

"Companies that are not sanctioned … they are saying 'I'm out' because of reputational reasons or because it's not worth figuring out and risking getting in trouble to sell a hundred thousand dollars' worth of product to Russia. It's just easier and safer to get out," he told VOA Mandarin by phone.

A different approach

But while non-Chinese firms rush to exit Russia, most Chinese firms, especially those in the technology sector, have so far chosen to stay put.

The U.S. and other nations have imposed unprecedented sanctions on Russia, including import bans on energy, export bans on advanced technology, and moves to exclude Moscow from the SWIFT system that banks and other financial institutions use for global financial transactions.

In a phone call on Friday, U.S. President Joe Biden warned Chinese President Xi Jinping that Beijing would face severe consequences should it choose to provide aid to Russian President Vladimir Putin's war effort.

On March 14, Hong Kong's Hang Seng index hit a six-year low on fears that Chinese firms could be ostracized if Beijing sided with Russia, according to Bloomberg.

But on Chinese social media, where sentiment against the war is heavily censored, netizens overwhelmingly support Russia. A CNN analysis showed that during the first week of the Russian invasion, half of the most shared content on China's Twitter-like platform Weibo contained information attributed to a Russian official or comments picked up directly from Russian state media.

Consequently, some Chinese companies have doubled down on their support for Moscow, while others have changed course after getting hammered online for announcing plans to halt operations in Russia.

The Chinese government has refused to call Russia's action in Ukraine an invasion. In a daily briefing on March 15, Foreign Ministry spokesperson Zhao Lijian said China was "deeply grieved to see that the situation in Ukraine has reached its current state," and he insisted the country was working for peace talks.

Didi, a ride-hailing app, faced public backlash after announcing that it would withdraw from the Russian market on March 4. Chinese netizens criticized the company, accusing it of giving in to pressure from America. Later, the company made a U-turn and said it would continue operating in Russia.

Hong Kong-based Lenovo Group, which announced the suspension of its shipments to Russia in late February, faced similar criticism on Chinese social media. Sima Nan, a Chinese television pundit known for his nationalistic and anti-American sentiment, wrote on his Weibo account that "Lenovo's decision to follow America's footstep is disgusting."

This public support for Russia has left companies with little room to maneuver, according to Babones.

"The Chinese government suppresses any kind of discussion (that condemns Russia)," he said. "I can't imagine that in China we would see a mass condemnation of Russia leading to the pressure on Chinese companies to exit the market."

China's official position on Moscow's invasion has straddled both sides. Beijing has called for a peaceful resolution to the conflict while maintaining that the sanctions imposed by the West on Russia are counterproductive.

The Japanese business publication Nikkei Asia quoted an official at a major Chinese telecommunication company on March 9 as saying most Chinese companies "will not express opinions that conflict with the government's stance." At the same time, the official said, the companies will shy away from "any statements that are friendly to Russia to avoid boycott from Western companies."

A former executive at the Chinese telecommunication firm Xiaomi told the Financial Times — and was quoted elsewhere as saying — that "it is politically sensitive to openly announce a sales suspension in the Russian market like Apple and Samsung, but from a business perspective, it makes (sense) to stand by and watch what happens next."

Cost to Chinese firms

That wait-and-see approach might be costly to Chinese firms, according to experts. And firms that are more openly supportive of Russia risk a loss of international market share, forcing them to recalculate the risks of remaining in Moscow.

For example, at the telecommunications giant Huawei, just the rumor that it was helping the Russians defend against cyberattacks had reputational costs.

These stemmed from a March 6 report by the Daily Mail, a British newspaper, that cited "reports in China" as saying Huawei has been helping Russia stabilize its internet network after cyberattacks since the start of the Ukraine crisis.

The Daily Mail also cited a report on a Chinese news site that claimed Huawei would use its research centers to train 50,000 technical experts in Russia. The Chinese report has been deleted.

On March 9, the two remaining British members of Huawei U.K.'s board of directors resigned over the claim. Meanwhile, Robert Lewandowski, a Polish professional footballer designated Best FIFA Men's Player of 2020 and 2021, announced the early termination of his sponsorship deal with Huawei.

The former regional ambassador of Huawei in his home country and other parts of Europe, Lewandowski wore an armband in the Ukrainian colors of yellow and blue during a match and said, "The world cannot accept what is happening there. I hope the whole world will support Ukraine."

Harris, the trade lawyer, said that Huawei is already on the "do not trade" list of the U.S. and some of its allies, and companies in other parts of the world, particularly those in Central and Eastern Europe, might decide to cut ties with the Chinese firm to avoid violating sanctions imposed by Washington and other governments.

"If you're dealing with China right now, you should be looking at what the world has done to Russia and figure that that could very well happen to China within the next few months," Harris said.

"It might not happen if China backs away from Russia, but if China doesn't back away from Russia, there are going to be a lot of sanctions, and things are going to get really bad."