How Chinese, Iranian companies profit in Russia-occupied Ukrainian regions

Chinese firms are involved in mining and construction, supply telecommunications equipment and provide financial services, it said.

They operate quietly, and often statements from separatist or Russia-appointed officials are the only source of information about their presence.

As Russia integrates its power in the occupied areas and transfers politicians to occupation administrations, Chinese companies carry out “another replacement, but in the economy”, the EHRG’s Maksym Butchenko told Al Jazeera.

Most of the enterprises in the occupied regions do not work. For example, out of 94 coal mines that operated in Donetsk and Luhansk, known collectively as the Donbas, before 2014, only five remain open.

The remaining ones “completely reoriented towards working with China and Russia”, Butchenko said.

Meanwhile, the occupied regions’ economy is “totally yuanised” as local businesses use Chinese electronic payment systems through Telegram channels that offer currency exchange and transfers, and yuan is sold in 79 banks in the occupied areas, the EHRG said.

“This is a threatening precedent from the viewpoint of international politics and law because this violates international agreements,” Butchenko said.

He called what China does there “shadow integration”.

A profitable ‘crisis’

Beijing, which calls the Russia-Ukraine war a “crisis”, has not recognised the occupied areas as part of Russia and repeatedly said it supports the idea of Ukraine’s “territorial integrity”.

Chinese factories are a source of the war’s key weapon – spare parts and accessories for millions of drones assembled by both sides.

Beijing’s official position on the war is neutrality.

Unofficially, Chinese companies have “almost captured the entire market in the occupied areas”, Butchenko said.

The Chinese companies operate as free agents, ready to risk being sanctioned, a Kyiv-based analyst said.

“China doesn’t prohibit [business in Russia-occupied areas], but it turns a blind eye to some things,” Volodymyr Fesenko, head of the Penta think tank, told Al Jazeera. “If a [Chinese] company has its interest, it’s ready to risk, including the risk of being sanctioned by Western nations and Ukraine.”

Kyiv sanctions such companies, urges the West to follow suit and bans them from doing business in Ukraine.

The list of sanctioned companies includes Alibaba, the owner of AliExpress; the mammoth China National Petroleum Corporation; and dozens of manufacturers of drone and missile components.

But sometimes, slapping sanctions on Chinese conglomerates is next to impossible because replacing their services and expertise is too costly.

Huawei, a telecommunications giant whose equipment is being installed in occupied areas, still operates in Ukraine.

“Their prices are way lower than those of their competitors,” a government-affiliated telecommunications expert told Al Jazeera on condition of anonymity because he is not authorised to discuss sensitive information.

“Once, their experts were rewriting the code for us all night, and the problem we were having was fixed in the morning,” he said.

Businesses in Russia-occupied areas often have no choice but to buy Chinese goods because other companies refuse to have their goods sold there.

“China is here for good,” a business owner in Donetsk told Al Jazeera on condition of anonymity because contacts with foreign media are forbidden. “All new equipment here is Chinese from machine tools to ventilators.”

The Iranian factor

Moreover, Moscow reportedly encourages the occupied regions to develop ties with Iran.

Tehran buys grain and coal and “integrates the economy of occupied Donbas into its own logistical chains created after decades of isolation”, the EHRG said in a report released in April.

Donskiye Ugli, a Russian coal mining company that operates “nationalised” mines in Donetsk and Luhansk, ships the fossil fuel to Iran, according to separatist official Andrey Chertkov.

The company reportedly has ties to fugitive Ukrainian oligarch Viktor Medvedchuk, whose daughter was baptised by Russian President Vladimir Putin.

It has not replied to Al Jazeera’s requests for comment.

Pavel Kovalev, the People’s Republic of Luhansk’s deputy prime minister, said in August that local food producers were ready to start supplying casein, a milk protein, to Iran.

The Iranian factor “shows that it was with Russia’s permission and insistence that Iranian companies appeared in the occupied territories”, Butchenko said.

“The Kremlin not only gives permission to Iranian companies to enter the occupied areas’ market but also encourages them,” he said.