Transcript: What next for Russia after Navalny?

This is an audio transcript of the FT News Briefing podcast episode: ‘What next for Russia after Navalny?’

Josh Gabert-Doyon
Good morning from the Financial Times. Today is Monday, February 19th, and this is your FT News Briefing.

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The European Union plans to hit Apple with an antitrust penalty. And German companies are pouring money into capital projects in the US. Plus, we take a look at what Alexei Navalny’s death means for the opposition movement in Russia.

Max Seddon
I think if you’re Putin, you’re very much feeling really extremely confident right now.

Josh Gabert-Doyon
I’m Josh Gabert-Doyon, in for Marc Filippino, and here’s the news you need to start your day.

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US president Joe Biden’s Inflation Reduction Act seems to be having an impact, at least in the German corporate world. German companies nearly doubled their investment in US projects last year. The Biden administration has been offering tax incentives to onshore jobs and speed up the energy transition. But a strong US economy has helped too. Trucks and SUV projects from Volkswagen, battery production for Mercedes-Benz and petrochemical plants from BASF were all among the record investment.

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Russia’s main opposition leader, Alexei Navalny, died in prison on Friday. Officials haven’t stated a cause of death for him, but many western governments are saying Moscow and Russian president Vladimir Putin are responsible. Here to explain what Navalny’s death means for the opposition effort in Russia is the FT’s Max Seddon. Hi, Max.

Max Seddon
Hi.

Josh Gabert-Doyon
So what’s been the reaction since Navalny’s death on Friday?

Max Seddon
Well, to be honest, it’s been very muted because we’re approaching this week the two year anniversary of Russia’s invasion of Ukraine, which has essentially snuffed out almost all space for dissent in Russia. You can go to prison for discrediting the armed forces or spreading, quote unquote, fake news about the war. And that was very much visible on Friday, Saturday, Sunday when you saw how Russians were trying to react with basically the only legal way these days in Russia to express their grief, which was laying flowers at the monument to political prisoners right outside the security service headquarters in Moscow. And they were allowed to do this but 366 people as of Sunday night have been arrested at various events like this across the country. And it really just sums up the very dark climate of fear and repression that has gripped Russia ever since Putin started the war.

Josh Gabert-Doyon
And Max, what about the timing of Navalny’s death? Is there anything we can glean from that?

Max Seddon
We really know very little about the circumstances of Navalny’s stuff at the moment. So on Saturday, Navalny’s mother went to the very remote town in northern Russia, beyond the Arctic Circle, where he was being held when he died in a maximum-security prison and was given all sorts of contradictory information about how he died, where his body was, who was in charge. And the upshot of it is we might not have any idea of any of this, because there is a 30 day window when they can legally not give his body back to the family for whatever reason. And that, perhaps not coincidentally, will be right after the Russian presidential election happening from the 15th to the 17th of March. But I think it’s less the timing of that, more where Russia is two years into the war. Sanctions haven’t broken Russia’s economy. Western support for Ukraine is faltering, and Russia just had its first major victory since about nine months ago. I think if you’re Putin, you’re very much feeling really extremely confident right now.

Josh Gabert-Doyon
OK. And just how big of a hit is this for Russia’s opposition? I mean, what does that movement even look like right now?

Max Seddon
There isn’t one. To be perfectly honest with you, all of the major opposition leaders are either dead, like Navalny, or they’re in jail, or they are in exile. And you know, what happened to Navalny is underscoring how Putin has just completely eliminated, even the tiniest hint of a challenge towards him. You know, he’s running for president. The only three candidates on the ballot have openly said that they’re not trying to win. He really has, you know, complete absolute power at this point. What the effect of losing Navalny, even though he was already in prison to Russians who oppose Putin, is that he really, for them, represented the prospect of an alternative of a different future of a Russia that doesn’t have to be the way that it is now. And it’s absolutely harder to imagine that with him gone.

Josh Gabert-Doyon
You’ve been reporting on these events for the last few days. What do you think this is all telling us about the direction that Russia is heading?

Max Seddon
I think unfortunately, this is just yet another nail in the coffin of hope for Russia this election in March. This will be the first time that Putin is not allowed even a completely tame, controlled liberal candidate on the ballot. And he is establishing, you know, this kind of totalitarian society where you can be arrested for, you know, the most ridiculous, imagined infractions. And, it’s a country that’s just really an unbelievably dark place right now. And with every, you know, passing horrible thing like this that happens. It’s unfortunately more and more difficult to imagine a better future for it in the short or medium term.

Josh Gabert-Doyon
Max Seddon is the FT’s Moscow bureau chief. Thanks, Max.

Max Seddon
Thank you.

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Josh Gabert-Doyon
The European Union is set to fine Apple around €500mn for anti-competitive business practices. The penalty is related to Apple’s music streaming service, and it’s the first time that the tech giant has been fined by the EU. The case alleges that Apple blocked its rivals from letting users know about more affordable streaming services outside the App Store. Apple now joins the ranks of Google, Meta and Microsoft, who have all received large EU fines.

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Emerging market investors in the US are giving China the cold shoulder. Over the last year, investors have dumped China-focused exchange traded funds. Instead, they’ve been favouring investments that have no exposure to the world’s second-largest economy. Here to talk about the pivot away from China is the FT’s Sun Yu. Hi there.

Sun Yu
Hi.

Josh Gabert-Doyon
All right. So how severe is this turn away from China?

Sun Yu
I think it’s on a pretty big scale because the so-called US-listed emerging markets ETFs without exposure to China reported a tripling in fund inflow last year from a year earlier. And at the same time, we have also seen a huge outflow in the so-called China focused ETFs also listed in the US.

Josh Gabert-Doyon
OK, so people are pulling money away from those China focused ETFs and they’re putting money into these China excluded funds. Why is that going on?

Sun Yu
I think subtly, geopolitical tensions played a part in making China less attractive for global investors. So the tension between China and the US and also China and Europe is making a lot of investors more cautious in buying to China. At the same time, the Chinese authority is playing an ever larger role in intervening in the local economy, to the extent that basically they want to boost the development of the state sector, sometimes at expense of the private sector, which definitely is not good for the economy. And China is underperforming as opposed to other Asian countries. The benchmark CSI300 index in China lost more than 11 per cent last year, as opposed to a double digit gain in other emerging market countries like Brazil, Mexico or India.

Josh Gabert-Doyon
OK, wait, so why are other emerging market stocks doing particularly well compared to China?

Sun Yu
Basically many of these countries, they’ve launched, structural economic reforms, for example, India and Mexico. Secondly, I think they’ve benefited greatly from the effort by the US to diversify its supply chain, the so-called fence shoring or reshoring. So a lot of manufacturers have left China for these countries, which is a boom for these countries’ economy, of course, right?

Josh Gabert-Doyon
Right. And is there anything that China could do to get emerging market investors back on their side?

Sun Yu
I wouldn’t say emerging market investors have completely lost interest in China. It’s just the country’s economic outlook and its policy environment have changed so much that investors feel they should treat China as something very special that’s different from either emerging market countries or advanced economy. I think the idea is that because normally ETFs are considered a way of passive investments, right? You do need to think you can construct a portfolio of a bunch of companies and do investments and then sit there and do nothing. But in the case of China, because the policy environment has changed so much or has become so unpredictable, some investors thought it might be a better idea to re do sort of active investment. So that makes a better sense to have sort of a China specialist to manage China portfolio instead of sort of building a passively constructed portfolio.

Josh Gabert-Doyon
Sun Yu is an investment correspondent for the FT. Thanks for speaking with us.

Sun Yu
Sure.

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Josh Gabert-Doyon
Before we go, the decades long hot streak for the video game industry could be ending. Sales for gaming consoles are down for the first time in 30 years. The pandemic saw a massive growth period for gaming companies but as consumers balk at high prices and studios are forced to cut thousands of jobs, the industry is asking itself could this be game over?

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You can read more on all of these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.