The Physical Effects of an Economic Crisis in Russia

For the Chinese small traders in Vladivostok, 2014 seems to have been a watershed year.  Years of boom turned to gloom as traditional wholesale markets dominated by Chinese traders emptied out.  Merchants speak of a massive exodus of compatriots, as they no longer have enough customers to justify high financial and personal social costs of importing their wares and residing in a foreign city.  Some merchants gave alarmingly high numbers of more than 2/3 of fellow traders returning to China after 2014.

2014, as those who follow international affairs would know, is the year that external factors really started damaging Russian economic fundamentals.  Low oil prices severely dented a major earner of foreign currency, putting downward pressure on the Russian ruble.  American sanctions after Russian involvements in Eastern Ukraine further weakened the state's ability to halt the downward spiral of the ruble and resulting inflation.  Russia has recovered somewhat since by finding domestic substitutes for imports and selling oil and gas to China.

But for small traders in a low margin business like import export, volatility in foreign currency values can be a life and death matter in business.  For those who brought in their goods to Russia before 2014, prices had to be significantly increased just to break even on their costs.  The fact that the ruble tanked from 30-something to the dollar, to about 62 now means their regular Russian customers just no longer have the purchasing power to digest the massive quantities Chinese traders bring in every year up north.

Add to the decline in local consumer demand was an increase in supply of petty goods from an unlikely source: Vietnamese traders.  Vietnamese traders are systematically pricing out the Chinese, particularly in the fashion business, by adopting the Chinese model with much lower overhead.  In the words of Chinese traders, the Vietnamese lower costs by putting themselves up in tiny shared houses with no privacy and buying directly from Chinese suppliers on loan (rather than in cash as Chinese merchants tend to do) with low repayment rates.

The results of the two developments can easily be seen on the ground.  Sportivnaya Market on the outskirts of Vladivostok, traditionally dominated by Chinese merchants, are becoming increasingly empty of Russian customers and full of Vietnamese shops.  The author's observation found five Vietnamese shops for every Chinese shop present, while most shops were glaringly empty everywhere.  Asked about business, Chinese traders remark that unlike before, only weekends have sufficient foot traffic to sustain business. 

The unsurprising outcome is a pile-up of shops turning losses rather than profits.  Asked about prospect of future business, most expressed pessimistic sentiments.  The upturn is not forthcoming, they say, but at the same time ruling out going home immediately.  After 7, 10, and even 20 years in the city, starting a new business in China or elsewhere have become less and less practical and realistic.  Besides, with large amount of unsold inventory, they cannot simply leave without abandoning physical assets that they cannot liquidate for future investments. 

It is really a shame that such a gloomy sentiment prevails.  As more than one merchant mentioned, the potentials of the Russian Far East abounds, with so much natural resources untapped and few people to tap them.  Those with enough capital and energy can still start their own businesses logging, mining, or even fishing to earn themselves a more than comfortable lifestyle.  For those who lived here for a long time, they also expressed fondness for the clean air and quietness of the city, a glaring and often welcoming contrast to their Chinese hometowns. 

So what is preventing Russia from turning around its miserable economic fortunes right now?  For the traders, they point immediately to local police harassments.  Arbitrary arrests based on dubious laws occur too frequently, with demand for bribes eating into their already razor-thin profit margins.  Chinese authorities, perhaps in their priority of cozying up to Russian government officials, have also turned a blind eye to police corruption, doing absolutely nothing upon hearing complaints from Chinese traders.  The misfortunes of Chinese small traders are likely to remain in place for quite some time.