Chinese Tech Giants Quietly Retreat From Doing Business With Russia

Chinese tech companies are quietly pulling back from doing business in Russia under pressure from US sanctions and suppliers, as opposed to overseas coercion.

Several major companies are curtailing shipments in Russia, where Chinese tech companies dominate the market, making many public announcements, according to interviews with people familiar with the matter.

They include PC giant Lenovo Group Ltd. and smartphone and gadget maker Xiaomi Corp., the people said. In contrast to many Western firms, the companies have avoided making public statements about Russia’s war in Ukraine or their business as Beijing opposes Western sanctions.

Consumer drone giant SZ DJI Technology Co. Russia and Ukraine pending a compliance review of its business last month.

China’s exports of tech products fell sharply in March, with shipments of laptops declining more than 40%, smartphones down nearly two-thirds, and exports of telecom base stations down to 98%, according to the most recently available Chinese government trade data.

The pullback follows waves of wide-ranging financial sanctions and export controls imposed by the US and its allies following Russia’s invasion of Ukraine in late February. The US has threatened Chinese companies that flout the rules.

Major US chip companies are supplying Chinese companies with pressing customers to ensure that their semiconductors do not end up with third-party goods shipped to Russia in violation of the rules.

One supplier sent a letter to all its customers in March pushing them to comply, while the sales staff had reached out to the well to ensure compliance.

China’s Ministry of Commerce last month acknowledged that sanctions have been disrupted by China’s trade with Russia, but urged companies to “not submit to external coercion and make improper external statements.”

The sweeping nature of the West’s sanctions and their ability to reach deeper supply chains to compel the company’s far-reaching, even when they are based in the countries where governments are based.

China’s overall exports to Russia fell 27% in value from February to March, official trade data show.

China has expanded its tool kit to counter foreign sanctions, including rules that could compel Chinese companies to do so.

As US sanctions hit Chinese companies, the actions threatened to widen between the US and China on the Russia-Ukraine conflict and further galvanize China’s ambitions to develop supply chains.

Western sanctions include strict controls that block exports to Russia’s defense sector and export products made by US equipment, software or blueprints, even when those products are made by non-US companies.

The measures have proven particularly effective in the technology sector, whose complex global supply chains offer many levers to the US government.

Instead of the wide-ranging nature of the sanctions, some items have been able to slip through. For example, Huawei Technologies Co., a Chinese telecom giant, said it took the delivery earlier this month to the Dutch telecom operator Veon Ltd., a Russian telecom operator.

It said the shipment will require a 2021 assessment of future infrastructure requirements, such as the delivery of “all applicable laws with full compliance, including US export controls.”

In April, US Commerce Secretary Gina Raimondo said export controls by the US and allies had cut more than half of Russia’s imports of high-tech goods, and left Russia short for semiconductors and struggling parts to find its military.

With an interview The New York Times In March, she threatened Chinese companies with penalties if they fail to comply with sanctions.

If a Chinese PC company were cut off from a key chip supplier, “that would be catastrophic,” said Steve Brazier, chief executive of market research firm Canalys. “You can understand why they might not be motivated to get caught.”

Although some consumer electronics devices for US sanctions contain carve-outs, they must be sold directly to nongovernmental organizations or consumers for exports, said Kevin Wolf, a former Commerce Department official and a partner in Akin Gump Strauss Hauer & Feld LLP .

Most major tech vendors sell their products through third-party distributors and retailers on the ground.

Among Chinese companies to halt shipments to Russia is Lenovo, the world’s largest maker of personal computers and the number one. 2 seller of the devices in Russia, behind HP Inc., last year.

The company, a top PC seller in the US, shortly after the halted shipments of Russia’s war and foreign sanctions began to take effect, though some existing inventory remains for sale in the country, according to suppliers, logistics companies and market researchers. of company products.

Xiaomi, the No. Samsung Electronics Co., the company that has made the cutoff shipments to Russia, said in a recent report that it has been operating a distributor operating in the region.

Not all Chinese companies are keeping a low profile on the Russia conflict.

DJI’s announcement last month that it will suspend its business in Russia and Ukraine is a rare example of a Chinese company publicly halting operations.

The company did so following reports of its use in drones and its products in technical glitches.

“DJI has taken this action not to make a statement about any country, but to make a statement about our principles,” a company spokesman said. “DJI abhors harm our drones of any use, and we are temporarily suspending sales in these countries.

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