Putin’s Kowtowing To China Is Hurting Russian Businesses

Ozon Global opened a representative office in the Chinese city of Shenzhen in Guangdong Province in late 2022 to attract Chinese sellers. A total of 12,000 sellers were registered on the e-commerce platform at the time, and around 10,000 of them were Chinese.

By the end of 2023, the number of Chinese sellers on Ozone surpassed 100,000. At present the site is said to have around 500,000 registered sellers, meaning one in every five sellers on Ozone is Chinese. All this has negatively impacted the Russian sellers who are finding their products falling down in the search results with Chinese clones taking the top position.

Not only is this resulting in declining sales for the Russian sellers but also a damage to their reputation in cases where their product cards are stolen by the Chinese sellers, as buyers dissatisfied with the quality of goods arrived from China leave negative reviews to the Russian sellers and not the Chinese ones.

At present, the only factor helping the Russians compete with the Chinese sellers is the longer delivery time taken by Chinese products to reach the end consumer compared to the Russian ones due to the ability of Russian sellers to place their products in all or most of the Ozon warehouses. However, this could soon change.

Wildberries, the largest online retailer in Russia, in its bid to attract Chinese sellers, has given them the opportunity to store goods directly in its warehouses. So, this might fuel the competition, resulting in Ozon doing the same for Chinese sellers.

Overall, the Russian sellers find themselves in a very difficult position with online marketplaces trying to attract Chinese sellers to increase their volume of cross-border sales. For instance, the Chinese sellers account for more than 90% of cross-border trade on Ozon, whose representatives deny any competition to the Russian sellers from the Chinese ones.

Not even the Russian government, it seems, is sympathetic to the grievances of Russian entrepreneurs, going by the remarks of the head of the e-commerce council of the Russian Chamber of Commerce and Industry, Alexey Fedorov, who denied any impact of the Chinese sellers on Ozon on the Russian sellers when asked about this issue. “The appearance of Chinese sellers on Ozon did not affect Russian sellers,” Fedorov was quoted as saying in June by Vedomosti, a Russian business daily.

The Truth Of ‘NO LIMITS’ Partnership

As stated earlier, problems in bilateral payments have begun to negatively impact the trade between Russia and China, which could probably bring some measure of relief to Russian businesses, at least until the governments of the two countries are able to address this issue properly.

According to Vasily Kashin, who heads the Center for Comprehensive European and International Studies at the National Research University Higher School of Economics, it may take some months to completely circumvent the secondary US sanctions but there is hope of additional payment channels emerging by next year.

“Apparently, it will take more months to completely overcome the consequences of the escalation of sanctions, which began at the beginning of the year. But there is hope that additional channels for making payments will appear, and delays will decrease. The Americans will counter this by introducing new sanctions. But still, given the presence of branches of banks of the two countries working in national currencies, and taking into account other planned measures, it is likely that by next year we will have a system that will be protected, which the Americans will not be able to influence,” Kashin told BFM.ru.

However, the larger observation here is the extent to which Russia is kowtowing to China, and how despite this kowtowing, the latter has not been very forthcoming. For instance, it was reported by the Financial Times (FT) in June, citing unnamed sources, that negotiations between Russia and China on the ‘Power of Siberia 2’ gas pipeline deal have hit the snag due to the latter’s unreasonable demands on price and supply levels.

This pipeline, which was planned to transport a maximum annual capacity of 50,000,000 m³ of natural gas from Russia to China, is said to be critical for Gazprom, Russia’s state-owned energy company that has been bleeding cash after losing a major chunk of the European market due to Russia’s invasion of Ukraine in 2022. Last year, the company reported a loss of US$6.9 billion, marking the first annual loss in the last 20 years.

China is said to have demanded to pay for the natural gas at rates very close to Russia’s heavily subsidised domestic prices. Now, before the war in Ukraine, Gazprom relied on its gas sales to Europe at high prices to supply the Russian domestic market at subsidised rates, so if it accepts the Chinese demand, domestic gas prices will have to be increased, adding to the woes of Russian wartime economy which is already grappling with inflation.

Moreover, China wants to commit to buying what is described as only “a small fraction of the pipeline’s planned annual capacity of 50bn cubic metres of gas,” by the Financial Times report. Apparently, Beijing, while being cognizant of Russia’s importance to China’s energy security, is also mindful of the risks associated with over-reliance on any one country for energy supplies, especially Russia, considering how Moscow had tried to weaponize the Nord Stream gas pipeline to pressure Europe over Ukraine.

The Russian economist Vladislav Inozemtsev, who is the director of the Moscow-based nonprofit think tank, Centre for Research on Post-Industrial Societies, alluded to this in a recent interview with Novaya Gazeta while pointing out that Russia is currently the largest energy supplier for China.

“That is, Russia is already the largest player in China’s energy market, it supplies approximately one-fifth of both oil and oil products and gas, so in this sense China is more dependent on Russia than on other countries. And I do not think that it seeks to increase this dependence even more, this contradicts the traditional Chinese approach,” Inozemtsev continued.

Also, in the long run, China is looking to curtail its hydrocarbon consumption by transitioning to the use of green energy, which is poised to reduce its reliance on hydrocarbon imports, including from Russia. Therefore, prospects for the ‘Power of Siberia 2’ gas pipeline deal between China and Russia are not looking good.

However, experts such as Alexander Gabuev, the director of the Carnegie Russia Eurasia Center in Berlin, suggest that Beijing may still want to enter into the pipeline deal with Russia to secure a source of gas supply not based on maritime routes that would be affected in case of a maritime conflict around Taiwan or the South China Sea, and Moscow will have no choice but to accept Chinese demands due to the lack of another overland route for its gas exports.

Basically, there certainly are limits to this so-called ‘NO LIMITS’ Sino-Russian strategic partnership, and currently it is China who is deciding where those limits are with Russia seem to be having no say in it at all. Or, another way of putting this is, that this ‘NO LIMITS’ partnership applies only to China’s demands from Russia.

So, as the author had suggested in his previous article five months ago, what may have seemed to Russia as China’s embrace earlier, has now ended up becoming a noose around its neck, with Russian businesses, including state-owned gas giants like Gazprom, beginning to feel the squeeze of it.

Tanmay Kadam is a geopolitical observer based in India. He has experience working as a Defense and International Affairs journalist for EurAsian Times. He can be contacted at tanmaykadam700@gmail.com