Chinese Alibaba in talks with Russian VTB Bank

(MVCOSHOP, CC BY-SA)

The Russian government tries to stay away from cooperating with western technological companies and opens the door for Chinese internet giants like Alibaba to help modernize Russia’s ecommerce market.

In December 2017, after more than a year-long negotiations, an ambitious plan for a partnership between Russia’s largest bank Sberbank and China’s leading ecommerce group Sberbank fell apart. Sberbank, which is by far the largest retail deposit holder in Russia, and Alibaba, one of the most valuable companies in the world, had intended to work together on a joint eCommerce platform. At the end, however, Sberbank’s leadership favored a partnership with the domestic internet giant Yandex. Now it seems that the Chinese company might have convinced another large Russian bank to enter into a partnership with them, the second largest financial institution in Russia — VTB.

The Financial Times wrote that the negotiations between Alibaba and Yandex failed after a dispute over who would control the joint venture, which Sberbank understood as an attempt on part of the Chinese online giant to gain access to Sberbank’s customer database.

Eventually, Sberbank decided to enter into a partnership with Yandex instead. Often referred to in the west as “the Russian Google”, Yandex is the largest technology company not just in Russia, but in Europe, and the largest search engine on the Russian-language internet (Runet). With a large presence in multiple countries of the former Soviet Union, Yandex is the fifth largest search engine in the world.

The deal between Yandex and Sberbank was reached in April this year. Combining the enormous technological capabilities of Yandex with the existing infrastructure and technological resources of Sberbank, the two Russian tech/financial giants hope to develop a leading business-to-consumer e-commerce ecosystem. The new business venture has been valued at RUB60bn (USD1bn), and both partners own equal stakes.

“Using Yandex.Market as a basis for our new project, we want to create a Russian Amazon,” head of Sberbank German Gref commented after the deal was signed.

Similarly, the CEO of Yandex.Market Maxim Grishakov stated that his company aims to “create one of the biggest players on Russia’s online retail market.”

Alibaba moves forward

After a similar technological-financial joint venture was concluded between Gazprombank and Rostech on one hand, and Megafon and Mail.ru Group on the other, the second largest Russian bank has clearly been looking for a partner to work on its own eCommerce platform in order not to fall behind its domestic competitors.

The Russian financial daily Vedomosti informed that VTB Bank started negotiating a joint venture with Chinese eCommerce Alibaba. According to the Russian business daily, VTB is seeking to create a digital platform to be able to compete with a state-owned bank Sberbank, which is currently far ahead as far as digitalization is concerned.

“VTB is very strong in logistics (it controls the Post of Russia), off-line branch chains, financial competencies, and cooperation with Alibaba would fill in the missing knowledge gaps,” an anonymous source quoted by Vedomosti said.

From the other side, Alibaba has a lot to earn from the partnership as well. According to Business New Europe, the deal, if concluded, could “help Alibaba potentially dodge the levy on cross-border commerce which is reportedly being prepared by the government to boost domestic competitiveness on largely foreign and Chinese dominated eCommerce market”.

Russia is one of the key markets for the Chinese eCommerce giant. Alibaba’s cross-border eCommerce business selling from China into international markets, AliExpress, views the Russian market as an extension of the Chinese market, given the geographic proximity. And cross-border retail grew 37 per cent last year to more than RUB300bn (USD5bn), about a third of the total online market, according to Financial Times.

Moreover, Alibaba’s logistics data platform operator, Cainiao Network, has recently announced its plans to establish a global network of logistics hubs, according to the Russian Interfax news agency referring to Chinese sources. Among the five cities chosen by the Chinese company is the Russian capital of Moscow, the other four are Kuala Lumpur, Dubai, the Chinese city Hangzhou and the Belgian city of Liege. The logistic centers are intended to shorten the delivery time to 24 hours.

Chinese-Russian relations flourish

During a recent interview for the Chinese Media corporation, Russian President Putin underlined the fact that China has been Russia’s largest trading partner for the past couple of years.

“China is our largest trading partner and we have over USD86bn trade value each year. We are very pleased with this situation. That said, we expect to see a further growth in bilateral trade volume to as much as USD100bn a year,” Putin said.

President Putin also stressed the fact that Russia and China have the same development goals. “Both China and Russia are striving to improve the quality of life for its citizens and, at the same time, protect our national sovereignty. We both want to ensure our external security and, at the same time, create an economy fit for the 21st century, an economy based on innovation and digitalization. There is a lot that we have in common,” Putin said during the interview.

Filip Brokeš is an analyst and a journalist specializing in international relations.

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