Chinese Investors Jump In Where Western Business Have Exited Russia

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Europe’s loss is China’s gain as Beijing’s corporates hoover up the EU’s market share in Russia

Major European companies have incurred at least €100 billion (US$110 billion) in direct losses from their Russia operations as a result of Western sanctions, the Financial Times reported last week.

The newspaper’s survey of 600 European groups’ annual reports and 2023 financial statements showed that 176 firms recorded asset impairments, foreign exchange-related charges, and other one-off expenses as a result of the sale, closure or reduction of Russia-based businesses.

The aggregate figure does not include indirect macroeconomic impacts from the Ukraine conflict such as higher energy and commodity costs, FT noted, adding that the situation has boosted profits for energy and defense firms.

The report noted that the biggest write-downs and charges were recorded in the energy sector, with three energy giants alone – BP, Shell and TotalEnergies – reporting combined charges of US$45 billion.
“The losses were far outweighed by higher oil and gas prices, which helped these groups report bumper aggregate profits of about US$104 billion last year,” the FT wrote, adding that defense companies’ shares have been buoyed by the Russia-Ukraine conflict.

According to the survey, utilities took a direct hit of US$16 billion, while industrial companies, including carmakers, have suffered a US$15 billion loss. Financial companies including banks, insurers and investment firms, have recorded over US$19 billion in write-downs and other charges.

The report also cited data from the Kiev School of Economics showing that more than 50% of the 1,871 European-owned entities in Russia prior the conflict are still operating in the country. They include Italy’s UniCredit, Austria’s Raiffeisen, Switzerland’s Nestle and the UK’s Unilever.

“The economic losses suffered by many European companies were to some extent foreseen,” Gunnar Beck, a member of the European Parliament (MEP) for the Alternative for Germany party who is currently vice-president of the Identity & Democracy Group in the Parliament, has stated.

“I think the imposition of sanctions, as a tool of foreign policy, is always a very costly affair. But I think there were misconceptions on the side of many European governments in several respects. What wasn’t foreseen was that the sanctions would harm many EU companies and many EU countries much more than Russia. I think that was a surprise. European governments were unaware or had wilfully ignored the fact that the Russian government was relatively well prepared in terms of foreign currency and gold reserves.”

After the start of Moscow’s military operation in Ukraine, over 1,000 Western firms quit the Russian market, pressured by sanctions, according to Yale University analysts. As a result, Russia has reoriented to non-Western partners, most notably China and India. Statistics show that Chinese firms have been successfully filling the gaps left by Western brands. China has been competing with India as Russia’s biggest buyer of oil; and has overtaken the EU as the top importer of Russian agricultural products.

Russia-China trade grew by nearly a third in 2022, reaching US$185 billion, making Moscow the leader among Beijing’s 20 largest partners in terms of trade growth. Officials from both countries have said the US$200 billion turnover goal set by Moscow and Beijing for 2024 could be achieved earlier than expected.

Examples are in numerous industries, such as auto, where under European auto brand competition in Russia, Chinese brands had a 5% market share in 2021. Two years later that has increased to 24% – almost exclusively due because Chinese manufacturers have invested to fill the gap left by the Europeans. The same is also true in white goods such as refrigerators, air conditioners, and washing machines, while the most popular smart phone brands in Russia are Chinese and Korean.

Source: Russia Today

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During these uncertain times, we must stress that our firm does not approve of the Ukraine conflict. We do not entertain business with sanctioned Russian companies or individuals. However, we are well aware of the new emerging supply chains, can advise on strategic analysis and new logistics corridors, and may assist in non-sanctioned areas. We can help, for example, Russian companies develop operations throughout Asia, including banking advisory services, and trade compliance issues, and have done since 1992.

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