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How Chinese Businessmen Are Succeeding in Russia
13 November 2015
How Chinese Businessmen Are Succeeding in Russia

While Russians buy from AliExpress, Chinese entrepreneurs buy out crumbling Moscow historic estates.

This translation was sponsored by USRCCNE for the benefit of our members and readers interested in business in Russia. The original Russian can be viewed here.

“2015 thick solid winter dress women wool warm dresses Feminino relaxed fit sleeves long Large size” – the typical descriptions of goods in AliExpress, the Chinese answer to Amazon, read like edgy avant-garde poetry. However, notwithstanding the peculiar turns of phrase, the site is highly popular among Russian shopaholics due to significantly lower prices than those offered by Western and Russian online retailers.

Today, Chinese tourists come to Russia and buy up Russian goat hair shawls, and Chinese businessmen are building factories and restoring Moscow’s historic estates. The Village investigated what the Chinese are doing in Moscow.

A Bank Card for Timchenko

“The Chinese are like space aliens. They may be able to speak Russian without an accent, but not understand a word you tell them. You can spend several hours discussing the topic, elaborating into the details, and at the end of the meeting realize that your Chinese partner was lost in the first 15 minutes of the meeting when you discussed the main theme of the negotiations,” states Denis Fonov, Deputy Chairman at LightBank. He is 28 years old, has experience working in a consulting company and investment funds, and now several times a year makes business trips to China and weekly interacts with Chinese entrepreneurs who desire to start business in Russia.

Last year, LightBank became the first bank to issue China UnionPay credit cards, which allow bank transactions in Yuan. According to Fonov, the cards are in high demand. Currently annual turnover on these cards has reached 60 to 150 million rubles annually. The cards are very useful for Chinese entrepreneurs in Russia and Russian businessmen in China now no longer need to bring suitcases full of cash when visiting factories. They are useful to tourists on both sides of the border and parents of Russian students studying in China. “We see high, almost abnormal activity in the area of Russian-Chinese collaboration. The volume of transactions in Yuans between the two countries is growing by 30-40% each month,” says Fonov. “When it became clear that the currency exchange rate is not going down, everyone started buying products in China: the ruble and yuan are fairly equal in value, while the euro has grown twofold.”

After the introduction of economic sanctions, many of those named on the sanction lists became interested in this payment system. “For example, (Russian Oligarch) Gennady Nickolaevich Timchenko was one of the first to obtain a UnionPay card,” remembers Fonov.

Another demographic for UnionPay are fans of online shopping because the cards allow them to make purchases directly through Chinese internet stores. Currently this is the fastest-growing group of users. Last year AliExpress started an active expansion into Russia, followed by JD.com and OSell. “Last year all Chinese sellers requested payments in dollars, this year they are doing Yuans. The (Communist) party has demanded that the Yuan become a new world reserve currency,” states Denis Fonov of LightBank.

Exotic Shopping

Despite the unusual descriptions of goods, the number of fans of Chinese online retailers is constantly growing. "AliExpress is running an expansion campaign, trying to grab the biggest piece of pie; many consumers are switching to AliExpress,” states Andrey Lyamin, director of ShopoTam shopping service. His company conducts transborder sales and allows use of its warehouse address for ordering goods, which cannot be otherwise shipped to Russia. According to Lyamin, Russians more and more often order gadgets, smartphones, clothes and accessories from China.

At the same time he notes that, unlike in European and American markets, local online retail in Russia operates under confusing rules. For example, the state forbids the export of lithium batteries and products of international brands from China, and sellers frequently change the prices and conditions of transactions – in a few days merchandise can suddenly and without reason go up in price.

But local retailers are trying to change. They amend distorted product descriptions, accept returns even after the deadline, are trying to shorten delivery time to Russia, and attempting to tap the Russian market. “They have everything necessary for it: merchandise, technology, they are advanced in internet marketing,” says Lyamin.

To Lenin’s Motherland

Besides retail, tourism is also growing. Many residents of Siberia prefer vacationing at Chinese resorts. Due to ruble exchange rate, a trip to Hainan is now more cost-efficient than a trip to European beaches. In return, Chinese tourists visit Moscow and Saint-Petersburg (these cities are visited by 98% of Chinese tourists). Their number is growing by 10% per year, according to Svetlana Pyatikhatka, director of Travel Association “World Without Borders”. Currently China is the leader for incoming tourists to Russia. 80% come as part of tour groups, 63% were women, and the average age was 50 years old. During the first six months of 2015, according to Rostourism (Federal Tourism Agency) statistics, Russia received 547,000 Chinese visitors, of which 200,000 came as tourists.

According to calculations of the “World Without Borders” Association, tourists from China spent approximately 1 billion dollars last year in Russia. This year, the number of tourists coming with groups grew by 100%. In the summer, the center of Moscow was filled with groups of Chinese actively taking selfies by the Lenin’s Mausoleum and the Cathedral of Christ the Savior.

In the words of Svetlana Pyatikhatka, most often they visit the object on the UNESCO World Heritage list, therefore in Moscow they are interested in the Red Square, Kolomenskoye estate and park, Novodevichy Convent where “Chinese Trotsky” is buried. Moscow Circus, VDNKh, GUM, Arbat and the Observation Deck on Vorobyovy Gory (Sparrow Hills) are also popular.

Chinese Estates

“The Chinese associate Russia with something good and of high-quality, similar to what Europe used to be for Russians during the Perestroyka years”, explains Fonov. He recalls seeing in Beijing stores clothing with letters randomly written in Cyrillic that cost more than Chinese brands. Locals assured him that they were famous and excellent Russian brands. Many Chinese companies desire to invest in Russia. For example, in 2016, Chinese automotive corporation Great Wall Motors will begin construction of a manufacturing plant in Tula region. Fonov participates in meetings with Chinese investors every week, and his bank intends to open private banking for clients from China.

As for now, he manages Blackmark Capital fund, which contains 60% Chinese investments, and finances the restoration of historic buildings that hold monument status and are objects of cultural heritage registered with the state. Usually, these are abandoned homes in the center of Moscow. “Some are owned by the state, some were privatized in the 90s, in some cases we have to deal with Russian oligarchs,” tells Fonov. During the last year his fund was able to purchase eight properties with the total area of approximately 5,000 square meters. “Why properties get sold? Restoring historic monuments is costly, to own it is even more expensive, no one wants to mess with it,” he explains. “Nobody wants to deal with restoration because it is a difficult and complicated work. It is easier to just get the burden off your shoulders.” According to the Fund’s director, another reason why there is no competition on this market is because these buildings cannot be reconstructed: no walls can be removed to create open space designs.

Restored objects are usually leased as offices to Russian companies and state corporations.

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