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German Businesses Hurt by Sanctions Imposed Against Russia

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German medium-size businesses are starting to feel the negative impact of Western sanctions imposed against Moscow, as Russia is turning towards Asia-Pacific nations for high-tech machinery and engineering systems.

MOSCOW, September 10 (RIA Novosti) – German medium-size businesses are starting to feel the negative impact of Western sanctions imposed against Moscow, as Russia is turning towards Asia-Pacific nations for high-tech machinery and engineering systems.

"The innovative German machinery makers and engineering companies, mostly medium and small businesses, are being hit the hardest," Volker Treier, deputy managing director of the German Chambers of Commerce (DIHK) said, as quoted by the Business Insider Tuesday.

Treier said he expects German exports to Russia to fall by about 20 percent in 2014.

"On the one hand, they are being directly hurt by the sanctions imposed by the European Union or due to lacking clarity about how they should be implemented. On the other hand Russian firms that placed the orders are facing higher financing costs due to a credit crunch and ruble's devaluation," Treier explained.

On Tuesday, the German-Russian Foreign Chamber of Commerce (AHK) said that, based on a new survey of German businesses operating in Russia, the so-called Mittelstand companies (small-scale businesses that form the backbone of Germany's economy) were being hit badly by the fallout from Western sanctions, particularly in the industrial manufacturing sector.

"China is the distinct beneficiary" of Europe's sanctions policy toward Russia, AHK President Rainer Seele said, as quoted by The Wall Street Journal Tuesday.

Seele stressed that the Western sanctions are threatening long-standing economic ties between Germany and Russia.

Germany is Russia's biggest trading partner in the European Union. According to the Business Insider, there are about 6,200 German firms active in Russia with 20 billion euros invested. Last year, Germany sold about 36 billion euros of goods to Russia which is almost a third of the European Union's total, the Business Insider wrote Tuesday.

In view of the Western sanctions, Russian clients have started putting their European orders on hold, instead turning to China, South Korea or Japan for products like high-tech machinery and engineering systems.

On Monday, Russian Deputy Prime Minister Dmitry Rogozin announced that Russia and China plan on signing an agreement in October on a technical project for long-haul wide-bodied aircraft as a means to substitute foreign purchases.

Also on Monday, the European Union officially adopted a new round of sanctions against Russia, but delayed their implementation pending the assessment of the ceasefire regime agreed last week by Kiev authorities and Ukrainian independence supporters during the meeting of the Contact Group on Ukraine in Minsk.

A number of key Russian oil and defense industry companies and banks are expected to become subject to the new round of EU economic sanctions.

Brussels and Washington started to impose sanctions against Moscow following Crimea’s reunification with Russia in March, which the West considers illegal, and Russia claims to be fully legitimate. The latest round of restrictions has, in particular, limited the raising of capital in the European Union for a number of Russian banks. As a responsive measure, Moscow issued a one-year ban on the import of certain food products from the United States, the European Union, Australia, Canada and Norway.

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business, sanctions, Rainer Seele, Volker Treier
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