The Russian invasion of Ukraine continues to cast a shadow on everything else. Among other things, Europe and Russia have now closed-off each other’s airspace. The impacts are obvious: longer flight times, higher costs, and additional pressure on already heavily strained supply chains. After all, the air route to China has suddenly been extended by 1,200 kilometers. But even in this dispute, the old truism applies: When two quarrel, a third rejoices. Finn Mayer-Kuckuk explains why this third party is mostly Air China Cargo in this case, and how Asian airlines benefit from the European-Russian sanctions spiral.
Our second analysis of today also examines the consequences of European sanctions against Russia. Specifically, it is about punitive measures in the high-tech sector. The focus is primarily on semiconductors, computers, mobile phones, and other high-tech commodities that Russia urgently requires to modernize its economy. Some Chinese semiconductors manufacturers now may hope to fill the gaps in the Russian tech market. But it will not be so easy. Ning Wang shows that both Beijing and Moscow should think carefully about undermining Europe’s high-tech sanctions this way.
Russian airspace has been closed to aircraft from the EU since Monday. Over the weekend, two Lufthansa flights to Seoul and to Tokyo were already forced to turn back mid-flight and return to Munich and Frankfurt, respectively. “Due to the ongoing dramatic developments in the Russia-Ukraine conflict, Lufthansa will no longer use Russian airspace,” a spokeswoman said on Monday.
Lufthansa alone is now canceling 30 eastbound flights for which no other routes could be found or are no longer profitable due to lack of demand. The remaining aircraft are operating alternative routes south of Russian airspace. Swiss, the Group’s subsidiary, is also no longer flying over Russia. Over the weekend, the company still declared that it would be able to continue its Far East operations as usual due to Switzerland’s different rules.
This means that China is still accessible. However, the route will be around 1,200 kilometers, or one and a half hours, longer. “In terms of range, this is not a problem for the aircraft in use today,” says aviation expert Heinrich Großbongardt of the consultancy Expairtise in Hamburg. Flight service consultants did invest considerable extra work over the weekend to draw up the new schedules and routes. But flights to Asia can at least continue. A double blessing in disguise: Because of the pandemic, the routes were hardly busy anyway, which now makes it easier to manage the new situation. In normal operations, this would have led to chaos, believes Großbongardt.
Cargo routes are now more affected, which may also have an impact on supply chains. “Lufthansa Cargo will fly around Russian airspace via a southern routing,” the spokeswoman said. “This will make adjustments to the flight schedule and payload unavoidable.” In other words, aircraft won’t be able to carry as much cargo and will arrive later. By circumventing Russian airspace, most cargo flights to Asia are no longer economical, said Topi Manner, Finnair’s chief executive.
Großbongardt expects rising freight traffic costs as a result. Fully loaded cargo planes have less range. Asian flights then have to stop over in Bishkek, Kyrgyzstan, for example, for refueling. All this costs money and time. This will likely have an impact on shipping charges, pushing up already rising prices even further.
The logistics sector generally expects existing problems to intensify. The Port of Hamburg expects that Russian ships will soon no longer be allowed to dock in the EU. The railway connection along the new Silk Road to China is also interrupted or at least partially impaired. Road transport is also suffering. The war in Ukraine is increasing the shortage of truck drivers.
From a European perspective, however, the general competitive disadvantage for EU airlines weighs even more heavily. This is because Asian carriers are still able to cross Russian airspace. “Air China or Cathay Pacific fly practically the same old routes with a small detour around the actual conflict area,” says Großbongardt. Lufthansa, Air France-KLM, and British Airlines, on the other hand, have to take a huge detour.
Aviation expert Großbongardt does not expect any increased risk of incidents on the routes that remain open to Asian operators. Admittedly, civilian aircraft have been hit throughout aviation history. But in the current situation, aircraft will widely steer clear of the combat zones. However, these are distances of more than 1,000 kilometers – the equivalent of the distance between Frankfurt and Rome. No surface-to-air missile will stray that far.
Russian state-owned airline Aeroflot now has the biggest problem. In recent years, it has built up a strong reputation on Asian routes. Now it is being abruptly forced out of the market. Even if the flight bans last only a few weeks, the damage to its reputation will be considerable.
Großbongardt points out that the majority of Russia’s fleet is leased. It is owned by international providers. Since they will no longer receive money due to the financial embargo, they will cancel their contracts. Although a recall of the aircraft is not feasible at the moment, they can no longer be used. Their insurance coverage ends. All leases with Russian airlines would have to be canceled by March 28, Asian aircraft rental company BOC Aviation stated.
The pressure on Russia’s economy is growing. In addition to financial sanctions, Russia will no longer receive high-tech goods in the future. US President Joe Biden already spoke of sanctions on the day of Russia’s invasion of Ukraine that could permanently damage Russia’s economy. “Some of the most powerful impacts of our actions will come over time as we squeeze Russia’s access to finance and technology for strategic sectors of its economy and degrade its industrial capacity for years to come,” Biden said.
Since last weekend, it has been a done deal that not only the US but also Germany and several other countries will exclude a number of Russian banks and financial institutions from the international banking data system SWIFT. Financial experts around the world agree that this is the harshest sanction against Russia. Commodities from Russia can no longer be paid for. Trade with Western countries comes to a grinding halt, setting Russia back decades.
Foreign companies in Russia are likely to suffer losses in the billions if they have to restrict their economic activities in the country – or even abandon them altogether. Only China, as one of Russia’s few allies, wants to continue to maintain trade with Moscow.
In any case, China has still not taken a clear position against Putin’s war. Rather, Beijing’s Foreign Ministry’s statements sound monotonous and lack empathy for any values: “China opposes the use of sanctions to resolve issues and strongly condemns unilateral sanctions that have no basis in international law,” the Foreign Ministry quoted a statement by Chinese Foreign Minister Wang Yi on Sunday (China.Table reported).
The fear that Beijing’s trade with Russia could offset Western sanctions was already dispelled by the US government’s press secretary. “China cannot cover Russia for the impact caused by the US and European sanctions”, said Jen Psaki.
Her argument: China and Russia’s share of the global economy are far smaller than that of the G-7 countries, which include the US and Germany. According to World Bank figures, China and Russia accounted for 17.3 percent and 1.7 percent, respectively, of global GDP in 2020, compared to 45.8 percent of the G-7 countries.
Economic sanctions primarily involve semiconductors, computers, mobile phones, or high-tech commodities that Russia requires to “modernize its economy”, as EU Commission President Ursula von der Leyen puts it. Accordingly, it is also clear that technology that could be directly used in the military sector or to support it will hardly be allowed to be exported to Russia in the future.
But how effective will the West’s high-tech sanctions be? The problem is quickly identified: It is China, which is one of the world’s leading producers of electronics, machinery, and other industrial goods. Around 70 percent of Russia’s chips are sourced from China. In return, Russia supplies power and food to China.
But the US is a leader in chip design and still holds the most patents in the sector. Whereas China is only one of many chip production sites. And, the fact that chips designed in the US are not delivered from China to Russia is ensured by the Foreign Product Direct Rule (FPDR) of the US government. This is because the FPDR indirectly imposes export restrictions on producers: If production depends significantly on US products, such as software, components, or chips, the final products also fall under the sanctions regime and require a separate US export license (Europe.Table reported).
“The actions of the Trump administration against Huawei could serve as a blueprint. There, the so-called Foreign Direct Product Rule (FDPR) was applied. What is special about it, is its scope: It also affects technology produced abroad that contains a certain percentage of US technologies or was produced with the help of US software or equipment,” Sophie-Charlotte Fischer, a scientist at the Center for Security Studies at ETH Zurich and a specialist in sanctions regimes for high technologies, told Europe.Table.
Nevertheless, the US Semiconductor Association (SIA) does not see severe financial harm to the semiconductor sector from tech sanctions in general. “Russia [is] not a significant direct consumer of semiconductors,” says John Neuffer, CEO of SIA. Russia accounts for a mere 0.1 percent of global chip acquisitions, according to SIA data. US research company IDC also calculates that the Russian chip market has a trade value of only $50 billion in a global industry of $4.5 trillion.
Paul Triolo, head of technology policy at consulting firm Albright Stonebridge Group, told Politico that, while he is convinced China cannot cover Russia’s demand for advanced chips, he noted that Chinese companies have recently positioned themselves well enough to replace US or European cloud services and enterprise software.
And this option also poses difficult choices for both Beijing and Moscow: After all, such a step could make China a target for sanctions from Washington. Moreover, the People’s Republic itself is still dependent on chip imports, as the country is not yet able to manufacture them on its own (China.Table reported).
At the same time, the Russian government and its security apparatus have significant reservations about utilizing Chinese network technology and thus making themselves dependent. “The question is how dependent Russia wants to become on crucial Chinese technologies,” says Sophie-Charlotte Fischer, a specialist on sanctions regimes for high technologies (Europe.Table reported).
“In China, it is frowned upon to speak positively about oneself,” says Christoph Schmitt. So he tells what others say about him: He is said to be an unusual business lawyer. That’s because he’s not only interested in legal paragraphs, he’s also a good listener and finds solutions. All these qualities are important when he drafts joint venture agreements between German and Chinese companies, for example. “After Xi Jinping’s monetary policy made foreign investments more difficult, numerous cooperations have taken their place, which have to be negotiated. In addition to regulating two-way German-Chinese trading, this is my daily doing,” says the 58-year-old.
Together with his seven-member strong German-Chinese team, Schmitt advises German companies that seek to gain a foothold in China – as well as Chinese companies that want to expand to Germany and thus often find their way into European trade. This involves a wide variety of questions, for example: Can a Chinese person who does not live in Germany become the managing director of a German company? What permits does he need to do business here? What aspects of competition law and what technical requirements does he have to take into account if he wants to launch products on the European market. And what kind of distribution system is recommended for a German entrepreneur in China?
Schmitt is very familiar with Chinese cultural customs, as he has been in the China business for 25 years and has already visited China more than 80 times. “German-Chinese business doesn’t happen by inviting German entrepreneurs to Shanghai and putting them in a restaurant with Chinese entrepreneurs,” he explains. Instead, it comes down to individuals who can carefully familiarize the two cultures with each other, he says. “Chinese entrepreneurs don’t talk business directly, but first ask where the other person’s daughter goes to school, which German entrepreneurs might find offensive,” he explains.
Another example: For German entrepreneurs, a letter of intent is a non-binding declaration without consequences that is commonly signed, while Chinese entrepreneurs perceive such a paper to be much more binding and handle it with greater caution. Schmitt sees his task in explaining the mindset of the opposite party and providing an understanding of what a letter of intent contains in legal terms and what reasons speak for or against signing such a document for both parties.
Naturally, Schmitt has to be familiar with Chinese politics and law, because both have a strong influence on what is possible for his clients from an entrepreneurial perspective. His excellent network helps him here, he says, both with the team of Chinese lawyers in his own firm and with cooperation partners in China: “We keep each other informed about new legislation and the latest case law. And we simply call each other when questions arise.”
These conversations usually take place in German or English. “It’s simply incredible how quickly the Chinese learn German. But learning Chinese is very difficult,” admits the family man. In a hotel, he can communicate more or less in Mandarin, but his Chinese skills are not yet sufficient for complex negotiations.
Incidentally, it was a client who took Schmitt, a native of the German city of Düsseldorf, to China decades ago. “He wanted to sell exhaust gas disposal systems for the microchip industry, and companies in Taiwan and China were already more advanced at that time,” he recalls. At that time, he founded a company in Hong Kong. Later, he began trading with mainland China. He established his first sales satellites, which enabled Schmitt to make his first contact with Chinese state-owned enterprises. From the 2000s onwards, a free middle class finally developed in China, which also showed interest in Europe and appreciated the work of the German lawyer as did German companies, which he successfully positioned in China. Janna Degener-Storr
The 38th Ice Festival in Harbin has come to an end. For nearly two months, tourists and visitors were able to stroll through a city of ice. Now, spring can finally arrive, along with the warming sun.
The Russian invasion of Ukraine continues to cast a shadow on everything else. Among other things, Europe and Russia have now closed-off each other’s airspace. The impacts are obvious: longer flight times, higher costs, and additional pressure on already heavily strained supply chains. After all, the air route to China has suddenly been extended by 1,200 kilometers. But even in this dispute, the old truism applies: When two quarrel, a third rejoices. Finn Mayer-Kuckuk explains why this third party is mostly Air China Cargo in this case, and how Asian airlines benefit from the European-Russian sanctions spiral.
Our second analysis of today also examines the consequences of European sanctions against Russia. Specifically, it is about punitive measures in the high-tech sector. The focus is primarily on semiconductors, computers, mobile phones, and other high-tech commodities that Russia urgently requires to modernize its economy. Some Chinese semiconductors manufacturers now may hope to fill the gaps in the Russian tech market. But it will not be so easy. Ning Wang shows that both Beijing and Moscow should think carefully about undermining Europe’s high-tech sanctions this way.
Russian airspace has been closed to aircraft from the EU since Monday. Over the weekend, two Lufthansa flights to Seoul and to Tokyo were already forced to turn back mid-flight and return to Munich and Frankfurt, respectively. “Due to the ongoing dramatic developments in the Russia-Ukraine conflict, Lufthansa will no longer use Russian airspace,” a spokeswoman said on Monday.
Lufthansa alone is now canceling 30 eastbound flights for which no other routes could be found or are no longer profitable due to lack of demand. The remaining aircraft are operating alternative routes south of Russian airspace. Swiss, the Group’s subsidiary, is also no longer flying over Russia. Over the weekend, the company still declared that it would be able to continue its Far East operations as usual due to Switzerland’s different rules.
This means that China is still accessible. However, the route will be around 1,200 kilometers, or one and a half hours, longer. “In terms of range, this is not a problem for the aircraft in use today,” says aviation expert Heinrich Großbongardt of the consultancy Expairtise in Hamburg. Flight service consultants did invest considerable extra work over the weekend to draw up the new schedules and routes. But flights to Asia can at least continue. A double blessing in disguise: Because of the pandemic, the routes were hardly busy anyway, which now makes it easier to manage the new situation. In normal operations, this would have led to chaos, believes Großbongardt.
Cargo routes are now more affected, which may also have an impact on supply chains. “Lufthansa Cargo will fly around Russian airspace via a southern routing,” the spokeswoman said. “This will make adjustments to the flight schedule and payload unavoidable.” In other words, aircraft won’t be able to carry as much cargo and will arrive later. By circumventing Russian airspace, most cargo flights to Asia are no longer economical, said Topi Manner, Finnair’s chief executive.
Großbongardt expects rising freight traffic costs as a result. Fully loaded cargo planes have less range. Asian flights then have to stop over in Bishkek, Kyrgyzstan, for example, for refueling. All this costs money and time. This will likely have an impact on shipping charges, pushing up already rising prices even further.
The logistics sector generally expects existing problems to intensify. The Port of Hamburg expects that Russian ships will soon no longer be allowed to dock in the EU. The railway connection along the new Silk Road to China is also interrupted or at least partially impaired. Road transport is also suffering. The war in Ukraine is increasing the shortage of truck drivers.
From a European perspective, however, the general competitive disadvantage for EU airlines weighs even more heavily. This is because Asian carriers are still able to cross Russian airspace. “Air China or Cathay Pacific fly practically the same old routes with a small detour around the actual conflict area,” says Großbongardt. Lufthansa, Air France-KLM, and British Airlines, on the other hand, have to take a huge detour.
Aviation expert Großbongardt does not expect any increased risk of incidents on the routes that remain open to Asian operators. Admittedly, civilian aircraft have been hit throughout aviation history. But in the current situation, aircraft will widely steer clear of the combat zones. However, these are distances of more than 1,000 kilometers – the equivalent of the distance between Frankfurt and Rome. No surface-to-air missile will stray that far.
Russian state-owned airline Aeroflot now has the biggest problem. In recent years, it has built up a strong reputation on Asian routes. Now it is being abruptly forced out of the market. Even if the flight bans last only a few weeks, the damage to its reputation will be considerable.
Großbongardt points out that the majority of Russia’s fleet is leased. It is owned by international providers. Since they will no longer receive money due to the financial embargo, they will cancel their contracts. Although a recall of the aircraft is not feasible at the moment, they can no longer be used. Their insurance coverage ends. All leases with Russian airlines would have to be canceled by March 28, Asian aircraft rental company BOC Aviation stated.
The pressure on Russia’s economy is growing. In addition to financial sanctions, Russia will no longer receive high-tech goods in the future. US President Joe Biden already spoke of sanctions on the day of Russia’s invasion of Ukraine that could permanently damage Russia’s economy. “Some of the most powerful impacts of our actions will come over time as we squeeze Russia’s access to finance and technology for strategic sectors of its economy and degrade its industrial capacity for years to come,” Biden said.
Since last weekend, it has been a done deal that not only the US but also Germany and several other countries will exclude a number of Russian banks and financial institutions from the international banking data system SWIFT. Financial experts around the world agree that this is the harshest sanction against Russia. Commodities from Russia can no longer be paid for. Trade with Western countries comes to a grinding halt, setting Russia back decades.
Foreign companies in Russia are likely to suffer losses in the billions if they have to restrict their economic activities in the country – or even abandon them altogether. Only China, as one of Russia’s few allies, wants to continue to maintain trade with Moscow.
In any case, China has still not taken a clear position against Putin’s war. Rather, Beijing’s Foreign Ministry’s statements sound monotonous and lack empathy for any values: “China opposes the use of sanctions to resolve issues and strongly condemns unilateral sanctions that have no basis in international law,” the Foreign Ministry quoted a statement by Chinese Foreign Minister Wang Yi on Sunday (China.Table reported).
The fear that Beijing’s trade with Russia could offset Western sanctions was already dispelled by the US government’s press secretary. “China cannot cover Russia for the impact caused by the US and European sanctions”, said Jen Psaki.
Her argument: China and Russia’s share of the global economy are far smaller than that of the G-7 countries, which include the US and Germany. According to World Bank figures, China and Russia accounted for 17.3 percent and 1.7 percent, respectively, of global GDP in 2020, compared to 45.8 percent of the G-7 countries.
Economic sanctions primarily involve semiconductors, computers, mobile phones, or high-tech commodities that Russia requires to “modernize its economy”, as EU Commission President Ursula von der Leyen puts it. Accordingly, it is also clear that technology that could be directly used in the military sector or to support it will hardly be allowed to be exported to Russia in the future.
But how effective will the West’s high-tech sanctions be? The problem is quickly identified: It is China, which is one of the world’s leading producers of electronics, machinery, and other industrial goods. Around 70 percent of Russia’s chips are sourced from China. In return, Russia supplies power and food to China.
But the US is a leader in chip design and still holds the most patents in the sector. Whereas China is only one of many chip production sites. And, the fact that chips designed in the US are not delivered from China to Russia is ensured by the Foreign Product Direct Rule (FPDR) of the US government. This is because the FPDR indirectly imposes export restrictions on producers: If production depends significantly on US products, such as software, components, or chips, the final products also fall under the sanctions regime and require a separate US export license (Europe.Table reported).
“The actions of the Trump administration against Huawei could serve as a blueprint. There, the so-called Foreign Direct Product Rule (FDPR) was applied. What is special about it, is its scope: It also affects technology produced abroad that contains a certain percentage of US technologies or was produced with the help of US software or equipment,” Sophie-Charlotte Fischer, a scientist at the Center for Security Studies at ETH Zurich and a specialist in sanctions regimes for high technologies, told Europe.Table.
Nevertheless, the US Semiconductor Association (SIA) does not see severe financial harm to the semiconductor sector from tech sanctions in general. “Russia [is] not a significant direct consumer of semiconductors,” says John Neuffer, CEO of SIA. Russia accounts for a mere 0.1 percent of global chip acquisitions, according to SIA data. US research company IDC also calculates that the Russian chip market has a trade value of only $50 billion in a global industry of $4.5 trillion.
Paul Triolo, head of technology policy at consulting firm Albright Stonebridge Group, told Politico that, while he is convinced China cannot cover Russia’s demand for advanced chips, he noted that Chinese companies have recently positioned themselves well enough to replace US or European cloud services and enterprise software.
And this option also poses difficult choices for both Beijing and Moscow: After all, such a step could make China a target for sanctions from Washington. Moreover, the People’s Republic itself is still dependent on chip imports, as the country is not yet able to manufacture them on its own (China.Table reported).
At the same time, the Russian government and its security apparatus have significant reservations about utilizing Chinese network technology and thus making themselves dependent. “The question is how dependent Russia wants to become on crucial Chinese technologies,” says Sophie-Charlotte Fischer, a specialist on sanctions regimes for high technologies (Europe.Table reported).
“In China, it is frowned upon to speak positively about oneself,” says Christoph Schmitt. So he tells what others say about him: He is said to be an unusual business lawyer. That’s because he’s not only interested in legal paragraphs, he’s also a good listener and finds solutions. All these qualities are important when he drafts joint venture agreements between German and Chinese companies, for example. “After Xi Jinping’s monetary policy made foreign investments more difficult, numerous cooperations have taken their place, which have to be negotiated. In addition to regulating two-way German-Chinese trading, this is my daily doing,” says the 58-year-old.
Together with his seven-member strong German-Chinese team, Schmitt advises German companies that seek to gain a foothold in China – as well as Chinese companies that want to expand to Germany and thus often find their way into European trade. This involves a wide variety of questions, for example: Can a Chinese person who does not live in Germany become the managing director of a German company? What permits does he need to do business here? What aspects of competition law and what technical requirements does he have to take into account if he wants to launch products on the European market. And what kind of distribution system is recommended for a German entrepreneur in China?
Schmitt is very familiar with Chinese cultural customs, as he has been in the China business for 25 years and has already visited China more than 80 times. “German-Chinese business doesn’t happen by inviting German entrepreneurs to Shanghai and putting them in a restaurant with Chinese entrepreneurs,” he explains. Instead, it comes down to individuals who can carefully familiarize the two cultures with each other, he says. “Chinese entrepreneurs don’t talk business directly, but first ask where the other person’s daughter goes to school, which German entrepreneurs might find offensive,” he explains.
Another example: For German entrepreneurs, a letter of intent is a non-binding declaration without consequences that is commonly signed, while Chinese entrepreneurs perceive such a paper to be much more binding and handle it with greater caution. Schmitt sees his task in explaining the mindset of the opposite party and providing an understanding of what a letter of intent contains in legal terms and what reasons speak for or against signing such a document for both parties.
Naturally, Schmitt has to be familiar with Chinese politics and law, because both have a strong influence on what is possible for his clients from an entrepreneurial perspective. His excellent network helps him here, he says, both with the team of Chinese lawyers in his own firm and with cooperation partners in China: “We keep each other informed about new legislation and the latest case law. And we simply call each other when questions arise.”
These conversations usually take place in German or English. “It’s simply incredible how quickly the Chinese learn German. But learning Chinese is very difficult,” admits the family man. In a hotel, he can communicate more or less in Mandarin, but his Chinese skills are not yet sufficient for complex negotiations.
Incidentally, it was a client who took Schmitt, a native of the German city of Düsseldorf, to China decades ago. “He wanted to sell exhaust gas disposal systems for the microchip industry, and companies in Taiwan and China were already more advanced at that time,” he recalls. At that time, he founded a company in Hong Kong. Later, he began trading with mainland China. He established his first sales satellites, which enabled Schmitt to make his first contact with Chinese state-owned enterprises. From the 2000s onwards, a free middle class finally developed in China, which also showed interest in Europe and appreciated the work of the German lawyer as did German companies, which he successfully positioned in China. Janna Degener-Storr
The 38th Ice Festival in Harbin has come to an end. For nearly two months, tourists and visitors were able to stroll through a city of ice. Now, spring can finally arrive, along with the warming sun.
