Chinese tech giants are quietly backing away from doing business with Russia

Chinese tech companies are quietly retreating from doing business in Russia under pressure from US sanctions and suppliers, despite Beijing’s calls for companies to resist coercion abroad.

Several major companies are reducing shipments in Russia, where Chinese tech companies dominate the market for many products, without making any public announcements, according to interviews with people familiar with the matter.

Among them, the personal computer giant Lenovo Group Ltd., said the people. and Xiaomi Corp. To manufacture smart phones and smart gadgets. Unlike many Western companies, the companies have avoided making public statements about Russia’s war in Ukraine or its actions there as Beijing opposes Western sanctions.

Consumer drone company SZ DJI Technology Co. The unusual move was to announce last month that it was suspending its operations in Russia and Ukraine pending a compliance review.

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

The withdrawal follows waves of widespread financial sanctions and export controls that the United States and its allies imposed on Russia in the wake of its invasion of Ukraine in late February. The United States has threatened to punish Chinese companies that break the rules.

Major US chip companies that supply Chinese companies are pressing customers to comply with the rules and ensure that their semiconductors do not end up in third-party merchandise shipped to Russia in violation of the rules, according to people familiar with the matter.

One supplier sent a letter to all of its customers in March pushing them to comply, while sales staff also reached out to ensure compliance, according to one of the people.

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

The sharp drop in technology exports to Russia highlights the sweeping nature of Western sanctions and their ability to reach deep into supply chains to compel companies located in faraway places, even when the governments of the countries in which those companies are located oppose them.

Official trade data showed that total Chinese exports to Russia fell 27% in value terms from February to March.

China has expanded its toolkit of measures to counter foreign sanctions, including rules that can compel Chinese companies not to comply with foreign sanctions it deems unjustified, although Beijing has so far not issued any non-compliance orders.

With Chinese companies hurt by US sanctions, the measures threaten to widen the rift between the US and China over the Russian-Ukrainian conflict and further spur China’s ambitions to develop supply chains independent of US technology.

Western sanctions include strict controls that prevent exports to the Russian defense sector and the export of products made using US equipment, software, or schemes, even when those products are made by non-US companies.

These measures have proven particularly effective in the technology sector, whose complex global supply chains provide many avenues the US government can pull.

Despite the widespread nature of the penalties, some items have managed to slip through. For example, the Russian telecommunications company Beeline, which is owned by Veon Ltd. The Dutch company, earlier this month, said it had received communications equipment from the Chinese telecom giant Huawei Technologies in March.

It said the shipment resulted from a 2021 assessment of future infrastructure needs, saying the delivery was “fully compliant with all applicable laws, including US export controls.”

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

In an interview with New York times In March, Chinese companies threatened sanctions if they did not comply with the sanctions.

Steve Brazier, chief executive of market research firm Canalys, said that if a Chinese computer company were cut off from a major chip supplier, “it would be disastrous.” “You can understand why they might be motivated not to get caught up in it.”

Kevin Wolf, a former Commerce Department official and partner at Akin Gump Strauss Hauer & Feld LLP, said that although US sanctions contain cuts for some consumer electronics, they must be sold directly to NGOs or consumers to allow for export. .

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

Among the Chinese companies that have halted shipments to Russia is Lenovo, the world’s largest PC maker, and the No. 2 hardware vendor in Russia, after HP Inc. , last year.

The company, a leading US computer retailer, halted shipments shortly after the Russian war began and foreign sanctions took effect, although some existing stocks are still for sale in the country, according to suppliers, logistics firms and market researchers who They track movement. of the company’s products.

Xiaomi, Russia’s No. 2 phone seller last year after Samsung Electronics, cut shipments to Russia, according to people familiar with the matter, with a distributor operating in the region saying no shipments had been delivered in recent weeks.

Not all Chinese companies ignore the Russian conflict.

DJI’s announcement last month that it would suspend operations in Russia and Ukraine made the company a rare example of a Chinese company that has publicly halted its activities due to the dispute.

The company did so after reports of its drones being used in the conflict and complaints from Ukrainian officials about technical defects in its products.

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