Looking at major Chinese investments in Russia, it’s quickly obvious that nearly all the projects receive support at the highest level, out of strategic considerations. It’s not surprising, therefore, that most of them are focused on energy and are implemented by state giants such as the CNPC and Sinopec petroleum corporations or the Silk Road Fund.
There are, however, exceptions to this rule, and they are private tech companies from China, which often prove far more dynamic than the state companies receiving budget funding. Chinese tech giants such as Huawei and Alibaba, guided exclusively by market principles, are quietly incorporating Russia into a technological Pax Sinica, and Western sanctions are only speeding up that process.
For many years, cooperation between Russia and China in the field of technology was limited to the military-industrial complex. This changed with Russia’s “pivot to the East” following its fallout with the West over the Ukraine crisis. The two countries signed an agreement on cooperating via the Eurasian Economic Union and the Silk Road Economic Belt in 2015, and a year later, a bilateral dialogue on innovation was launched.
Since then, many practical projects have started to appear, but most of them have still been linked to interstate cooperation, such as work to make the GLONASS and BeiDou navigation satellite systems compatible. Moscow and Beijing also declared 2020 and 2021 years of cooperation in science, technology, and innovation, with a focus on biotech, artificial intelligence, and robotics.
Official intergovernmental events are dominated by energy and infrastructure projects. At the same time, major high-tech Chinese companies are active on the Russian market, signing contracts with local firms and expanding their presence. Their activity is not reflected in official bilateral documents, however, and they rely on state support far less than state-owned development banks or oil and gas giants.
The most famous Chinese tech company operating in Russia is the e-commerce giant AliExpress, part of the Alibaba Group empire, which partly owes its success to its early arrival in Russia, back in 2010, before there were many homegrown competitors outside of Moscow and St. Petersburg. The 2014 economic crisis was a boost for the Chinese platform, and Russia became a key market for the company. By 2018, AliExpress accounted for more than 70 percent of Russians’ orders from foreign online stores.
However, it still only accounted for 1 percent of the Russian online market as a whole in 2018, according to Morgan Stanley. In the last decade, Russian internet commerce has become quite developed and segmented, plus the average purchase cost on AliExpress is fairly low (1,500 rubles, or $20) compared to domestic platforms.
To shore up its position, from October 2019 AliExpress Russia started working as a joint enterprise between Alibaba Group (with a 47.8 percent share in the enterprise) and the Russian telecom Megafon, the Russian internet company Mail.ru Group, and the Russian Direct Investment Fund. This is a format unique to Russia: in other countries, the Chinese giant has not given away any significant share packages to local companies. By creating a joint enterprise, Alibaba has gained local allies in the unspoken standoff with Russian online retailers who have lobbied for a tax on AliExpress.
The second major Chinese player on the Russian tech market is Huawei. The company was always interested in Russia, but in recent years, against the backdrop of sanctions and the bans on Huawei products in the West, that interest has soared.
The company now has partnerships with more than twenty Russian universities, with work placements and grants for students, and joint research centers and educational programs. This cooperation helps Huawei to recruit talented employees.
Despite the pandemic and the economic crisis, Chinese behemoths continue to expand their presence in Russia, to their domestic competitors’ chagrin. In July 2020, Ilya Sachkov, CEO of the Russian cybersecurity company Group-IB, complained to Russian Prime Minister Mikhail Mishustin that Huawei and other foreign companies working in Russia “are not only damaging Russian sovereignty in terms of information security; they are also completely destroying the labor market,” by offering Russian specialists earning 250,000 rubles ($3,388) up to six times that figure.”
Huawei has gained support in Russia at the very highest level. At the 2019 St. Petersburg International Economic Forum, President Vladimir Putin criticized U.S. sanctions against the company.
China’s tech giants, then, don’t need support from the Chinese state to be successful on the Russian market. Instead, they enter into alliances with local players and work on their own government relations: Alibaba isn’t the only company to have set up a joint enterprise. In March 2020, Huawei became a strategic partner of Sberbank’s cloud platform, dropping plans to develop its own cloud brand in Russia.
Chinese companies are changing China’s image in the eyes of Russian consumers. If just ten years ago Chinese goods going to Russia were mainly cheap light manufacturing items, now Chinese electronics dominate, from Huawei smartphones and Haier home appliances to Xiaomi smart devices. Russian attitudes to Chinese IT goods are also changing: they are no longer seen as cheap and low quality.
For the average consumer, Huawei isn’t about 5G and other cutting-edge technology; it’s about affordable, good-quality smartphones that have overtaken Siemens, Nokia, Sony, and HTC to compete with the heavyweights Samsung and Apple. Chinese smartphones have been the market leaders in Russia since 2015, and now account for nearly 60 percent of the market. Another Chinese tech giant—Lenovo—dominates the Russian computer market, with 23.5 percent of the laptop market in the first quarter of 2020.
Chinese private high-tech businesses are gradually incorporating Russia into Pax Sinica, and—most importantly—are preparing society for that. Considering that Western sanctions will remain in place under President-elect Joe Biden (and may even be tightened), and that the confrontation between China and the United States makes the balkanization of global tech regulation increasingly likely, private Chinese tech companies will play an important role in ensuring that Russia remains firmly on the Chinese side of the digital fence.
This publication is part of the Sino-Russian Entente project carried out with the support of the UK Foreign and Commonwealth Office.
