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Why the Corporate Flight From Russia Is No Precedent for China

Businesses are unlikely to face similar pressures in an Asian crisis.

By , the dean of global business at Tufts University’s Fletcher School of Law and Diplomacy.
A closed Starbucks in Moscow
A closed Starbucks in Moscow
A woman walks past a closed Starbucks coffee shop in Moscow on March 10. AFP via Getty Images

Putin’s War

Russia’s invasion of Ukraine has triggered an unprecedented economic and financial blockade of the world’s 11th-largest economy. But even more striking than the unified stand of so many governments around the world is the massive voluntary exodus of international corporations from Russia. Some have closed indefinitely, others have suspended sales, while yet others have halted operations. For some, it looked like the end of an era: When McDonald’s opened its first Russian restaurant on Moscow’s Pushkin Square two months after the fall of the Berlin Wall, it symbolized the winding down of the Cold War.

The corporate exodus unfolded surprisingly swiftly, from a few dozen companies in late February to over 400 by March 23. Not every company has left, of course; some, like Koch Industries, have dug in, while others, such as Eli Lilly, are only providing essential medical supplies. Still others claim to have exited but have kept their businesses going by creating supposedly independent legal entities. What is remarkable is those that have left are not just leaving money on the table but in some cases could see the loss of decades’ worth of investments. For BP and Exxon Mobil, the exits meant a withdrawal from multibillion-dollar energy projects, and there is a risk of the Russian government nationalizing their assets. BP alone could lose $25 billion by leaving Russia, which is more than a quarter of the company’s market capitalization.

BP is among a handful of companies for which the pullout has massive repercussions. But it is an exception, because for most global companies, the Russian market represents only a small part of their business. For these companies, the much larger implication of the pullout is the precedent it could set for a far more important market: China.

Russia’s invasion of Ukraine has triggered an unprecedented economic and financial blockade of the world’s 11th-largest economy. But even more striking than the unified stand of so many governments around the world is the massive voluntary exodus of international corporations from Russia. Some have closed indefinitely, others have suspended sales, while yet others have halted operations. For some, it looked like the end of an era: When McDonald’s opened its first Russian restaurant on Moscow’s Pushkin Square two months after the fall of the Berlin Wall, it symbolized the winding down of the Cold War.

The corporate exodus unfolded surprisingly swiftly, from a few dozen companies in late February to over 400 by March 23. Not every company has left, of course; some, like Koch Industries, have dug in, while others, such as Eli Lilly, are only providing essential medical supplies. Still others claim to have exited but have kept their businesses going by creating supposedly independent legal entities. What is remarkable is those that have left are not just leaving money on the table but in some cases could see the loss of decades’ worth of investments. For BP and Exxon Mobil, the exits meant a withdrawal from multibillion-dollar energy projects, and there is a risk of the Russian government nationalizing their assets. BP alone could lose $25 billion by leaving Russia, which is more than a quarter of the company’s market capitalization.

BP is among a handful of companies for which the pullout has massive repercussions. But it is an exception, because for most global companies, the Russian market represents only a small part of their business. For these companies, the much larger implication of the pullout is the precedent it could set for a far more important market: China.

Already, China risks getting enmeshed in the web of Ukraine-related sanctions as it emerges as the single most important country potentially undermining sanctions on Russia. U.S. President Joe Biden warned Chinese President Xi Jinping there would be “consequences” if Beijing were to help Moscow in this way. What’s more, the unprecedented sanctions against the Russian economy could provide policymakers with a playbook for a future crisis with China. Witold Henisz, who studies the impact of political risk on corporations at the University of Pennsylvania’s Wharton School, said that one of the most pressing questions in boardrooms following the Russian invasion is: “What would happen if we have to pull out of China?”

It would be foolish to expect a similar mass corporate exodus in a hypothetical crisis with China.

For most companies, the loss of Russian revenues is a tolerable sacrifice. Apple, for example, loses iPhone sales at the rate of only about $3 million a day. But if Apple were to lose access to China—either because of sanctions or other pressure to disengage—losses would be two orders of magnitude higher. Apple is the top-selling brand in the world’s largest smartphone market, with China revenues of around $280 million a day during the fourth quarter of 2021.

While the world focuses on Ukraine and the Russian bombs raining down on its citizens, there is no dearth of worrying signals about China. According to U.S. intelligence, Russia has requested military and financial assistance from China. Beijing is allegedly open to helping out, and its banks may already be playing a role in sanitizing sanctioned Russian financial transactions. Alongside Biden’s warning that China risked U.S. countermeasures, similar messages have come from America’s Secretary of State Antony Blinken and National Security Advisor Jake Sullivan. And there are other signs that Washington considers Russia’s invasion of Ukraine to have increased the risk for a conflict with China. U.S. Navy Adm. John Aquilino, who heads U.S. Indo-Pacific Command, recently told the House Armed Services Committee that the war was a wake-up call for the military to prepare for a future conflict with China.

All these signals that their biggest international market and most important part of their supply chain is under increased scrutiny by U.S. policymakers will not be lost to corporate CEOs doing their geopolitical homework. And they will surely have considered the precedent that pulling out of Russia might set.

But U.S. companies need not worry. Similar sanctions or other pressures to withdraw from China are unlikely for three reasons.

First, CEOs can make a reasonable bet that whatever China’s future transgressions may be, the chances of it going as far beyond international norms as Russia has done are low. Unlike Russia, China does not have a centurieslong tradition of aggressive imperial expansion, and there are no indications that it plans—or is even ready—to invade Taiwan militarily anytime soon. Moreover, there are hopes that top-level warnings from U.S. government officials would keep China from crossing too many lines in its own self-interest.

Second, it is reasonable for the companies to bet that the United States and other governments will shrink from imposing sanctions on China that are even remotely as drastic as what they have imposed on Russia. Western economic interests are far too intertwined with China’s. In 2020, China was the United States’ largest goods trading partner, with $615.2 billion in total trade compared to only $21.8 billion in total trade with Russia. Exports to China supported an estimated 1.2 million U.S. jobs in 2019. American investors held $1.1 trillion in equities issued by Chinese companies, with $3.3 trillion in U.S.-China two-way equity and bond holdings at the end of 2020. And it’s not just about markets for goods and financial securities: Apple’s supply chain would likely collapse if it had to stop producing in China, with 42 percent of its devices manufactured there.

Third, leaving Russia was relatively easy and came with a snowballing effect that would be highly unlikely in the event of a China crisis. As more companies exited Russia, pressures rose on those remaining to exit as well. A highly public roster of exits, along with the naming and shaming of companies still operating in Russia, vastly increased the reputational risk of staying—which, in turn, made it a rational decision to leave. The business case for exiting was further bolstered by a collapsed ruble, broken supply chains, and payments systems rendered inoperable by sanctions. It is much harder to imagine a similar mass exit across multiple industries from China, not least because the decision to abandon the market would be infinitely more difficult to make. Companies would also have to worry about Chinese competitors chomping at the bit to fill out the vacuum—something few businesses operating in the Russian economy ever had to worry about.

Despite the rising tensions with China, it is hard to see how the Ukraine war could set a precedent for a confrontation with a vastly bigger economic power such as China. The corporate exodus from Russia might be celebrated as an example of capitalism with a conscience, but it helps that capitalists are always conscious of brand reputations and bottom lines. In China’s case, we’ve seen that companies have been perfectly willing to look the other way on continued human rights violations, quashing of civil liberties, and authoritarian overreach in the name of the bottom line. It would therefore be foolish to expect a similar mass corporate exodus in a hypothetical crisis with China.

Bhaskar Chakravorti is the dean of global business at Tufts University’s Fletcher School of Law and Diplomacy. He is the founding executive director of Fletcher’s Institute for Business in the Global Context, where he established and chairs the Digital Planet research program.

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