Monday, March 28, 2022

Russia to economic collapse: the swooping ruble plays against China

 The ongoing war in Ukraine has suddenly revolutionized the Russian market and, consequently, the entire world economy. By limiting the analysis exclusively to the technology sector , there has been a diaspora of Western companies - as we are now reporting on a daily basis - and the void left by the big brands that have sided against Putin is trying to fill China which, to date, does not it officially took sides against the conflict by keeping open contacts with the Kremlin .


So much so that just before the invasion by the Russian army, Beijing and Moscow had entered into new trade agreements for the " mutual support of the two economies ": in other words, if Apple, Samsung and the other big names have cut ties with the country, Huawei, Xiaomi, Oppo and other Chinese brands remained on the market . Among other things, with the hope of earning significant shares and expanding on the territory.

There is, however, a major problem: the ruble . The Russian currency has undergone an unprecedented devaluation - from 0.012 euros for a ruble in October 2021 it has gone to the current 0.0071 euros - and this creates major problems for those who - like Chinese tech companies - have decided to remain active in the territory. . In practice, China's leading smartphone manufacturers have halved shipments to Russia since the war began because demand has plummeted. Consider that 6 out of 10 smartphones in the country belong to Chinese brands.

The situation appears to be on standby, and Chinese manufacturers are starting to lose several managerial figures who have resigned in protest against the lack of deployment of their respective companies against the Ukrainian invasion. Despite this, the big Eastern players are willing to observe the Russian market ready to seize any shocks that reactivate bilateral trade. A scenario that, to date, seems decidedly difficult.

SMARTPHONE DISTRIBUTORS CLOSE

" You have to set a new price every day to avoid losses ," explains a Counterpoint Research analyst. With the ruble constantly losing value, the price of smartphones and more is growing just as steadily . And the merchandise remains unsold, with many distributors temporarily halting orders and some manufacturers beginning to fear US sanctions.

In short, on the one hand there is the fear that further sanctions against those who continue to have commercial relations with the country will be added to the sanctions against Russia. On the other hand, there is the willingness on the part of Chinese companies to fill the gaps left by Western companies: as long as the ruble is so weak, however, the supply will be present, but the demand will trudge so much as to make the efforts of the company useless. Chinese business in Russia.

One hypothesis could be to completely break away from the Swift system - many banks have already been ousted - by adopting Cips , an alternative Chinese solution based on the renminbi. Beyond all the problems that this step would entail, we must also take into account the timing for opening a renminbi account at the Moscow office of the Bank of China: the more people who request it, the more it is needed. patience for activation. And it may be too late, as the Russian economy appears to be collapsing already.

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