Chinese tech giants quietly pulling back on business with Russia

Chinese tech firms are quietly leaving Russia in the wake of major sanctions putting a financial strain on the European country, according to The Wall Street Journal.

Citing the report, a number of major companies have begun curtailing shipments in Russia, where Chinese tech firms typically dominate the market for various products.

Last month, consumer drone giant SZ DJI Technology Co. announced the suspension of business operations in both Russia and Ukraine, pending a compliance review.

However, in recent weeks, there have been no public pronouncements of vacating Russia from smartphone and gadget maker Xiaomi Corp. or PC giant Lenovo Group Ltd.

Citing recent Chinese government trade data, the Journal reports that China’s exports of tech products to Russia fell sharply in March, with shipments of laptops declining more than 40%, smartphone shipments dropping more than 60%, and exports of telecom base stations falling by a staggering 98%.

The breadth of sanctions and export controls imposed by the United States and its allies are apparently taking a substantive toll. In addition to the fallout of Russia’s full-scale invasion of Ukraine, dating back to Feb. 24, China’s export trade market has also been disrupted by the recent COVID-19-related lockdown in Shanghai.

All told, China’s overall exports to Russia tumbled 27% from February to March.

Last month, China’s Ministry of Commerce acknowledged the limitations in dealing with a sanctions-impaired Russia, but still urged tech companies “not to submit to external coercion and make improper external statements.”

The “external coercion” might be a reference to U.S. chip companies that supply Chinese firms reportedly “pressing” customers to comply with the post-sanction rules, thus ensuring the semiconductors don’t end up as third-party goods shipped to Russia.

The Journal reports that one supplier sent a letter to its customer base in March requesting compliance to the sanctions against Russia.

China has reportedly expanded its measures for countering foreign sanctions, including rules that might compel Chinese companies not to comply with foreign sanctions it deems unjustified.

According to the Journal, Western sanctions also include prohibitive controls that block exports to Russia’s defense sector and the export of products “made using U.S. equipment, software or blueprints.”

In April, U.S. Commerce Secretary Gina Raimondo claimed that Russia’s U.S.-controlled exports had been cut by nearly half, leaving the Kremlin in a semiconductor shortage during its military war with Ukraine.

The previous month, in an interview with The New York Times, Raimondo said Chinese companies could also be hit with penalties for not complying with the U.S-led sanctions.