Thursday, 2024 February 22

Doing business in Ukraine: how does the war impact Chinese big-techs

China is a growing superpower that affects all the economies of the world. Even despite its distant location, China has strong influence in Central and Eastern Europe, which in the last decade became even more prominent because of the Belt and Road Initiative that forged an extensive set of China-Europe and China-Central Asia rail freight routes as a transcontinental logistics system and overwhelming infrastructural projects.

Ukraine is one of the biggest European countries and a potential IT hub in Eastern Europe. China became Ukraine’s largest trading partner in 2020, with the value of trade between the two countries reaching $15.3 billion, more than double the value of any other Ukraine’s trading partner. According to Center for Economic Strategy, Chinese FDI to Ukraine is relatively small. Combined capital investment stock from mainland China and Hong Kong is $111 million, or 0.3% of the total FDI stock in Ukraine as of December 31, 2021.

Biggest Chinese companies with operations in Ukraine include state food conglomerate China Oil and Foodstuffs Corporation (COFCO), state-run builders China Pacific Construction Group (CPCG) and China Harbor Engineering Co (CHEC), resource giant China National Building Material Group (CNBM), as well as private big-techs like Huawei Technologies.

However, the Russian invasion made Chinese businesses face unprecedented obstacles, when at stake is not only their profits and reputation, but also the trust of their investors. Due to such a sharp change of settings, the future of many Chinese tech companies in Ukraine remains rather vague.

Agriculture & Energy Infrastructure

COFCO has been operating in Ukraine since 2008 primarily as a grain trader. At the end of 2015, the Chinese corporation COFCO acquired the international agricultural company Noble Agri with assets in Ukraine. Accumulatively, the company has invested more than $200 million in the Ukrainian economy. These are investments in the modernization of an oil refinery in Mariupol, the construction of a grain terminal at Mykolaiyv port, and eight elevators across the country.

Source: COFCO International

Renewable energy has become the sector with one of the highest concentration of Chinese capital in Ukraine. State-owned China National Building Material Group owns ten solar power plants across Southern Ukraine regions Mykolaiv and Odesa, with an installed capacity of 267 MW. Their total shareholder capital is $63 million.

Since the beginning of the Russian invasion, energy and infrastructure facilities have been the most important targets of missile strikes. Interestingly, Chinese assets in Ukraine mostly remained untouched and continued their operation. As of today, there were no mentions of damage to solar power plants in the southern regions owned by CNBM. Speaking of COFCO, the majority of its assets are safe, except for Novooleksiyivsky Elevator – a large-scale grain storage complex in the occupied territory of Kherson region, which was looted, and the grain was exported to Russia, and Oil Extraction Plant ‘Satellite’ in Mariupol, burned by Ukrainian partisans, as Russians placed there a military equipment base after the occupation of the city.

Telecommunications

Chinese telecommunication companies have also firmly established themselves in the Ukrainian market. For example, Huawei began its operating in Ukraine in 1998 and since then its business in the country has grown year-on-year. The company has helped Ukraine to upgrade its mobile networks. In 2019, Huawei won the tender to install the 4G network in Kyiv’s subway and in 2020 was chosen to help ensure and improve Ukraine’s cyberdefence and cybersecurity.

Photo courtesy of Chris Linnett @unsplash

Within the first weeks of the war, Huawei reported on their plans to provide free of charge network equipment to Ukrainian mobile operators to relieve network load in the western region of Ukraine.

“As a result of Russian aggression against Ukraine, 20% of the country’s telecommunications infrastructure was damaged or destroyed. In particular, more than 3,000 base stations of mobile operators were completely or partially suspended. More than 50% of the population had interruptions in their access to the Internet,” the State Special Communications Service reported on June 10, 2022.

Half a year later, after countless Russian attacks on infrastructure objects, the situation even worsened, resulting not only in placing millions of people in darkness and cold, but also threatening a complete blackout of the country.

KrEurope chatted with several telecommunication companies in Ukraine. The activity of Chinese players seems to be constantly increasing, especially in terms of network diversification. Many companies though had to readjust entire logistic routes to deliver equipment from China to Ukraine via other European countries.

E-Commerce

Alibaba, one of the world’s best-known Chinese tech companies, has landed on the front line of this conflict, as it has operations in both Russia and Ukraine. AliExpress, a B2C platform owned by Alibaba, is considered one of the largest online retail service in Ukraine, though the group seems not to have physical offices in the country. Nevertheless, it was among the top 10 marketplaces in 2019, and reported the growth of 74% in 2020 too, mostly due to the e-commerce boom during COVID-19 outburst. According to Similarweb, AliExpress was the fifth most-visited ecommerce website in Ukraine as of January 2022. Before the war, Ukrainian customers ordered more than 30 million parcels from AliExpress per year.

Aliexpress Screenshot
Image Source: aliexpresss.com

However, after the beginning of the war, the Chinese marketplace cancelled all shipping to Ukraine and only resumed in June 2022. AliExpress orders are shipped from China by charter flights in transit via Latvia Post, and then delivered into Ukraine, which might be an unaffordable luxury for most consumers during the wartime. The time of delivery from outside Ukraine is approximately 4-8 weeks, if everything works as planned. At the moment, the top visited positions are taken by local e-commerce platforms like Rosetka and Prom.ua, as consumers definitely prefer shorter waiting periods for ordered goods.

Drone

In pre-war times, Ukraine was a perspective market for DJI’s drone products. They were frequently used in agriculture, geodetic and topographic, real estate and entertainment. The company had two official stores in Kyiv and Lviv and in 2021 opened DJI Academy in Kyiv to provide professional drone training. Furthermore, there are more than 150 authorized DJI drone retailers in Ukraine, according to the company’s website.

In April 2022, in response to accusations of DJI leaking data from the Ukrainian military to Russia, the drone giant declared the suspension of business operations both in Ukraine and Russia to ensure its products are not used in combat. Currently, DJI stores in Kyiv and Lviv are closed, but that does not stop volunteers and charity funds from purchasing in bulk via unofficial channels, e.g. local retailers and sellers out of Ukraine.

Image courtesy of Oliver Schwendener @unsplash

Social Media

TikTok, owned by Chinese holding ByteDance, was reported to become the most popular social network among youth aged 18-24 in Ukraine. According to Statista, the number of users peaked at 30% in May 2021, while continuing to grow. However, in April 2022, almost two months after the invasion, the user reach in Ukraine was measured at 15%. Figures published in ByteDance’s advertising resources indicate that TikTok had 10.55 million users aged 18 and above in Ukraine in early 2022, before the significant downfall.

Since June 2022, “TikTok service for Ukrainian users has been moderated in the European region instead of the Russian one”, said Oleksandr Bornyakov, the deputy minister of digital transformation, in his interview to Channel 24. He also added that due to the high impact of TikTok as a media source, the ministry seeks the opportunities to collaborate with the company and open their office in Ukraine in the future. As the war continues, on 16th December 2022, TikTok further announced that it would cut its staff in Russia.

Gaming

In 2020, Tencent Holdings, the tech & entertainment conglomerate, owner of WeChat and the world’s largest video game vendor, purchased over 25% of the Ukrainian game developer company 4A Games, which developed the critically acclaimed “Metro” first-person shooter series.

Source: 4A Games official Twitter account

The war caught the studio by surprise while working on a multiplayer-focused spin-off to the “Metro” series, as well as a brand new, yet unannounced AAA IP. It remains unclear how advanced the new projects are, and whether the studio plans to include contents based on the ongoing war into these games. Nevertheless, the studio is actively seeking talents for filling more than 40 different vacancies across Ukraine and Malta offices. It is also fundraising for humanitarian aid for Ukraine.

Outlooks

A senior executive from a Chinese tech giant told KrEurope that nowadays during the wartime, despite being a perspective market, Ukraine is a high-risk area in terms of politics and investments. He also assumed that Chinese tech companies might be reluctant to do business in Ukraine in the next 3 to 5 years, but the overall picture can be seen more clearly only when the active phase of war is over.

The risk aversion might lead to loss of significant opportunities, too. At the Web Summit last month in Lisbon, Ukraine had one of the biggest representative teams. The Vice Prime Minister and Minister of Digital Transformation of Ukraine Mr. Mykhailo Fedorov emphasized in his speech that “the war in Ukraine is really a technological war,” and laid out his plans for how the tech sector supports the Ukrainian people, and repairs the damage done to the country. Chinese companies could actively engage in rebuilding Ukraine, same as rebuilding their brand image and influence in the region.

Mykhailo Fedorov at Web Summit 2022, Lisbon, Portugal.
Daria Rybalka
Daria Rybalka
Daria Rybalka is a digital media manager at KrEurope in Berlin. She has a master degree in Chinese Studies at Julius Maximilian University, focusing on Chinese economy and society. Daria is a veteran in content creation and marketing campaigns. She loves fashion & design, and is passionate about Asian TV-series.
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