How did Chinese cross-border online sellers get caught up in the Russia-Ukraine limbo?

March 10, 2022 0 Comments

In an era where international commerce has reached practically every corner of the planet, escalating geopolitical disputes between influential countries will inevitably affect many foreign economies and the everyday people that deal within them.

For instance, some Chinese cross-border sellers are currently feeling the effects of the ongoing conflict between Russia and Ukraine.

Purchases from Russia and Ukraine have mostly ceased since the tension between the two nations escalated, according to Liu, an Europe-focused online store operator on AliExpress. “Since February 23rd, my store’s visitors and orders from Russia, Ukraine, and Belarus have dropped significantly – Ukraine has dropped the most. Meanwhile, the traffic from Western European countries remain relatively unchanged,” she said.

AliExpress’ package delivery locker in Russia

Qin, a merchant with over 10 years of experience in cross-border e-commerce, said that his store on AliExpress has hardly received any orders from Ukraine since the 23rd, though there have been a few from Russia.

There are quite a few sellers who have felt a similar type of impact. South China Morning Post quotes Wang Xin, executive chairwoman of the Shenzhen Cross-Border E-Commerce Association: “The Russian and Ukrainian markets have basically come to a standstill.”

Following a post by a cross-border seller with almost 700,000 followers on Weibo outlining how tough it is to trade with Russia under the present circumstances, many sellers are now sharing the tribulations they are facing doing business with Russian customers.

Launched in 2010 by Chinese e-commerce giant Alibaba, AliExpress aims to link Chinese vendors with wholesale and retail buyers from across the world. Although delivery of items might take weeks, it is popular with Eastern European customers due to its low prices. 

Russia is now AliExpress’s largest market, with Ukraine being fifth on the list. According to AliExpress, it was the most-visited online marketplace and the most-downloaded shopping app in Russia in 2021. The platform, which now represents around 10% of Russia’s e-commerce market, plans to grow to 20% by 2025.

Even so, the fall in order volumes was not really a surprise given the heightened tensions between Russia and Ukraine. However, sellers are facing more uncertainties due to the sharp depreciation of the Ruble, along with Russia being kicked out of SWIFT (Society for Worldwide Interbank Financial Telecommunication). SWIFT is the dominant messaging system underpinning global financial transactions, and according to Reuters, the system is used for 70% of transfers in Russia.

Clara, who mainly targets the Russian-speaking market, said one of her clients wanted to pay in US dollars, but because Russian banks had been banned from using SWIFT, the transaction could not be settled. Similarly, due to the excessive depreciation of the Ruble, some customers have asked for payment delays. “The shipment had to be cancelled because I couldn’t get paid. I also asked the factory to suspend production for Russian clients.” she said. 

Although China’s cross-border interbank payment system, also known as CIPS, is a viable alternative to SWIFT, it has limitations when it comes to replacing the system that has long dominated world commerce.

Backed by the People’s Bank of China (PBOC), CIPS handles payments using Chinese Yuan. But it still largely relies on SWIFT for cross-border financial messaging, and the Chinese Yuan is still far from a key global currency. In January, only 3% of global payments on the SWIFT network were handled in Chinese Yuan

The system is still not widely used nor well understood. On a cross-border e-commerce forum, a seller inquired about CIPS settlement, but no one gave him a useful answer. “Our Russian customers want to pay us in Chinese Yuan via CIPS, but we don’t know how to accept it, and neither does the bank’s customer service staff.” the seller said.

In 2014, following Russian military intervention in Ukraine, the US, the EU, and many other countries imposed economic sanctions on the country, which led to a severe decline in the value of the Ruble. “From my experience, what is scarier than Russia getting kicked out of SWIFT is the plunge in the value of the Ruble. Many Chinese suppliers lost a lot of big Russian customers during the previous round of Ruble depreciation, and this round may be worse.” a veteran in the cross-border e-commerce sector said.

The logistical snags caused by the conflict have also hit sellers hard. Initially, logistics activities were affected as mainstream Western shipping and courier companies stopped serving Russia. Then, major European countries blocked many airways accessing Russia, and Russia retaliated by banning airlines from those countries, causing air freight costs to almost triple. An industry insider said that since most planes to Europe have to pass through Russia, it is undeniable that logistics routes have been severely affected and prices will continue to climb in the near future.

For more than a decade, China has been Russia’s top commercial partner, and commerce between the two nations reached a new high of $146.9 billion in 2021, up 35.8% year on year, according to China’s General Administration of Customs. During the first ten months of 2021, Chinese exports to Russia hit about $52.9 billion. According to data from the news outlet CGTN, in 2019, China accounted for about 90% of Russia’s total cross-border shipments and about half of Russia’s cross-border e-commerce turnover.

But when taking account of China’s foreign trade as a whole, the share of trade with Russia is much smaller than that with the EU and the US. Data from China’s customs agency showed that China-US trade climbed by 28.7 percent to $755.6 billion in 2021, with China’s trade surplus with the US totaling $396.58 billion for the year. Meanwhile, its trade with the EU increased by 27.5 percent year on year to $828.1 billion.

In a cross-border e-commerce community, multiple sellers reached a consensus that 2022 may be a tough year for them as global political and economic uncertainty increases. Some are contemplating pivoting more resources to markets like the US, Canada, or Japan, which enjoy a stable political and economic climate.

“We can’t meddle with what’s going on, but we can modify how we react to setbacks”, Liu said. “The darkness will fade and the light will come.”

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