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Turkey welcomes Russian oligarch money — but it’s risky for its economy

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Eclipse, the private luxury yacht of Russian billionaire Roman Abramovich, anchors at Cruise Port in Marmaris district of Mugla, Turkiye on March 23, 2022.

Anadolu Agency | Anadolu Agency | Getty Images

Russian oligarch wealth is on the hunt for a new home, and Turkey is quickly establishing itself as a welcome host.

Turkish Foreign Minister Mevlut Cavusoglu told CNBC Saturday that he’d welcome sanctioned Russian oligarchs into the country as both tourists and investors, as long as their business dealings adhered to international law.

It came a day after President Recep Tayyip Erdogan said that “certain capital groups” could “park their facilities with us,” in what was seen as a direct reference to the recent arrival of several Russian-owned luxury assets in Turkey, including two luxury yachts and a private jet belonging to billionaire Roman Abramovich.

The comments have sparked speculation that Turkey — a non-EU country but a NATO member — may be actively encouraging investment from blacklisted billionaires as it seeks to shore up its embattled economy. Already, wealthy Russians are actively seeking investments there, according to Reuters reports.

But any prospective gains could be short-sighted for a country orchestrating a delicate balancing act between Russia and the West.

“Attracting Russian money could hurt Turkey in the long-term,” Defne Arslan, a senior director at the Atlantic Council in Turkey and former economist for the U.S. Embassy in Ankara, told CNBC.

Striking a fine balance

Turkey is seeking to tread a fine line in the ongoing war in Ukraine.

While strongly criticizing Moscow’s unprovoked invasion, it has stopped short of implementing sanctions like those imposed by the U.S., EU, U.K. and others, saying it opposes them on principle.

Instead, it has adopted the role of a neutral mediator, facilitating peace talks between Russia and Ukraine. Negotiations in Istanbul on Tuesday appeared to raise hopes of a breakthrough after Moscow agreed to cut its military assault on Kyiv and Chernihiv, while Ukrainian negotiators proposed adopting neutral status in exchange for security guarantees.

If they’re parking their yacht, that’s OK. But Ankara will be very cognizant about Turkey becoming grounds for sanctions.

Emre Peker

director and Turkey specialist at Eurasia Group

Turkey’s stance of nominal neutrality is largely understood given its close economic and diplomatic ties with Russia, particularly regarding energy, defense, trade and tourism. As such, Western allies have not pressured Turkey to join sanctions, nor are they likely to punish it for not doing so.

That makes it a legitimate outpost for assets belonging to sanctioned Russians. Indeed, an influx of foreign investment and luxury assets could provide a boon for the beleaguered Turkish economy, which slipped into crisis mode last September as unorthodox interest rate cuts pushed already spiraling inflation higher.

However, Western tolerance is likely to wane should Turkey begin actively soliciting sanctioned wealth, according to Emre Peker, director and Turkey specialist at political risk consultancy Eurasia Group.

“If they’re parking their yacht, that’s OK,” Peker said. “But Ankara will be very cognizant about Turkey becoming grounds for sanctions and will be careful to prevent that.”

The Turkish Embassy in London did not respond to CNBC’s request for comment.

A flailing economy

Turkey can scarcely afford to be hit with secondary sanctions given the pressure that the war and resultant Russian sanctions have already inflicted on its economy.

Last month, inflation soared to a 20-year high of 54.4% amid a crash in the lira and soaring commodity prices. Data fully reflecting the impact of the war are yet to be released.

“Russia’s attack on Ukraine is making Turkey’s economic situation more precarious,” Peker said.

“The ramifications are clear,” he continued. “Inflationary pressures are higher, destabilizing the Turkish economy. The fallout of sanctions will curtail or halt tourism from Russia and Ukraine, which accounted for about one-third of inbound tourism. And it will affect Turkish investment into Ukraine and Russia.”

Meantime, Erdogan is keen to uphold Turkey’s reputation as an independent mediator in the ongoing conflict, seeking to win favor both at home and abroad ahead of elections in 2023.

“Erdogan is desperate to get through to the elections next year,” Timothy Ash, senior emerging markets sovereign strategist at BlueBay Asset Management, told CNBC.

An advertisement for Starbucks seen on the motorway near Istanbul on Tuesday, 17 October 2017.

Nurphoto | Getty Images

Still, there are opportunities for Turkey to shore up its economy and benefit from the movement of wealth from Russia without drawing political and economic ire.

That includes attracting investment from some of the 450 Western brands that have so far withdrawn from Russia, according to the Atlantic Council’s Arslan.

“If it plays it right, I think it can be a huge opportunity for Turkey, not only staying in line with Western allies but potentially attracting investment from foreign companies,” she said, highlighting the similarities between Russian and Turkish geography and production lines among other factors.

Indeed, Erdogan said last week that Turkey’s “door is open” to companies looking to relocate their business outside of Russia.

“Not only American companies, but also many brands and groups from around the world are leaving Russia. Of course, our door is open to those who come to our country,” he said.



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Pressure on China’s factories grows as U.S. demand falls

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Employees work on an electronics production line on Feb. 2, 2023, at a factory in Longyan, Fujian province in China.

China News Service | China News Service | Getty Images

BEIJING — For some factories in China, it’s not full steam ahead after the end of zero-Covid.

All the factories that U.S. toy maker Basic Fun works with in China — about 20 of them — told workers not to return immediately after the Lunar New Year holiday, said CEO Jay Foreman.

That’s because of a flood of inventory in the first half of last year, which didn’t get sold as consumer prices in the U.S. surged over the summer and into the fall, he said. Basic Fun’s products include Care Bears and Tonka Trucks.

The official Lunar New Year holiday in China ended Jan. 27, but the travel period runs until Feb. 15. The festival is typically the only time each year that migrant workers — more than 170 million people in China — can visit their hometowns.

“Every factory I spoke to said they’re going to have less people employed this year than last year,” Foreman said. He expects U.S. consumer demand to pick up later this year.

We are long on China, says Deutsche Bank

China’s exports to the U.S. in the toys, games and sports category account for about 6% of all exports to the country, according to China customs data accessed through Wind Information. That category of toy exports to the U.S. saw a slight drop in 2022, the data showed.

“Retail, anything consumer discretionary, they were hit quite hard. It was really a combination of high inventory and demand dropping quite a lot for the export markets,” said Johan Annell, partner at Asia Perspective, a consulting firm that works primarily with Northern European companies operating in East and Southeast Asia.

He said consumer electronics was seeing a similar situation.

“For other industries, the picture is much better. Some are struggling to keep up with trailing orders and catch up with everything they had to deliver last year,” he said.

China abruptly ended its zero-Covid policy in December. But restrictions on business activity were tight for most of 2022, including a lockdown of Shanghai for about two months in the spring.

U.S. demand slows

Retail sales in the U.S. — China’s largest trading partner on a single-country basis — have slowed in the last few months. China’s exports to the U.S. barely grew in 2022, and the U.S. economy is expected to slow further in 2023.

That’s on top of tariffs and bilateral tensions, which have escalated over the last several years.

“We expect we will continue to grow, but the pressure is very great,” Ryan Zhao, director of Jiangsu Green Willow Textile, said in Mandarin, translated by CNBC.

“What I heard about the market, 2023 will be very hard. U.S. demand is declining. The Russia-Ukraine war hasn’t ended.”

Read more about China from CNBC Pro

Some U.S. clients’ orders have disappeared.

Zhao said his company was working with a high-end bedding and textile brand in New York that filed for bankruptcy last year. To survive in the “shrinking” market, he said the company is shifting to lower-priced products popular with younger consumers.

That means in order to grow revenue, Zhao has to sell more items than before – and he plans in the next few months to hire 10 more workers locally for his factory of 30 people in China.

How China came to dominate the U.S. in smartphone manufacturing

When asked by CNBC in January, China’s customs administration acknowledged the pressure on China’s exports from slowing external demand, and noted rising risks of a global recession.

Trade data show demand for Chinese goods is going up in other markets, such as Southeast Asia.

Since China’s Covid wave ended, employers have increased the share of part-time positions and manufacturers are increasingly paying workers every week, instead of once a month, according to Qingtuanshe, a job search platform within the Alipay mobile app.

While there’s no clear change in wages since the reopening, Qingtuanshe noted the pay range for factory jobs declined sharply during the pandemic.

Skills mismatch

For China’s domestic economy, the drop in overseas demand reveals a more widespread employment problem: lack of highly skilled factory workers.

“It’s generally becoming more difficult to find workers and to find the right workers,” Annell said.

“You have some high youth unemployment and there is a pool of labor, but when you start looking into it in a specific city, it’s hard to find both the qualified supervisors” and technical workers, he said.

Manufacturing accounts for 18% of China’s labor force, and construction workers another 11%, said Dan Wang, Shanghai-based chief economist at Hang Seng China. However, the majority only have at best a middle school education, making it hard for them to change to another industry, she added.

She expects there will be more than 1 million unemployed people in rural areas — who are not counted by official statistics on urban unemployment. She attributed it to the decline in exports and a push for automation in China, while the real estate sector’s demand for construction workers declines.

Lackluster growth in consumption also limits how much the services sector can absorb new workers, as it had prior to the pandemic, Wang said.

“It looks like the ultimate solution is still on some government-sponsored training. As time goes by, more of those workers need to be trained to actually earn a living.”



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FTX bankruptcy fees near $20 million for 51 days of work

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The FTX logo on a laptop screen.

Andrey Rudakov | Bloomberg via Getty Images

FTX’s top bankruptcy, legal, and financial advisors have billed the company more than $19.6 million in fees for work done in 2022, according to Tuesday bankruptcy court filings. More than $10 million of that was for work done in Nov. 2022, as Sam Bankman-Fried’s crypto empire entered bankruptcy protection in Delaware.

The firms will initially only be paid a little over $15.5 million, or 80% of the value of their work, under a court-ordered interim compensation plan.

The law firms that billed FTX are Sullivan & Cromwell, Landis Rath & Cobb, and Quinn Emanuel Urquhart & Sullivan. Professional advisor Alvarez & Marsal and financial advisor AlixPartners also billed the company.

Some of the work that the firms billed for involved meetings with other companies that also were billing FTX for their time, or involved corresponding with former and current executives, including Caroline Ellison, the former CEO of Bankman-Fried’s hedge fund, Alameda Research.

Landis Rath & Cobb and Sullivan & Cromwell, FTX’s primary legal firms, billed the company a combined $10.7 million for over 8,400 hours of work. Landis Rath & Cobb billed $1.16 million for work done between Nov. 11 and Nov. 30.

Sullivan & Cromwell, a target for both lawmakers and Bankman-Fried over their pre-petition work with FTX, sought over $9.5 million in compensation for over 6,500 billable hours, in the period between Nov. 12 and Nov. 30. Over a third of those billable hours, totaling over $4.8 million, were for the work of partners, who typically charge the highest hourly rate.

Sullivan & Cromwell assigned over two dozen partners to FTX’s case, according to the filings. Jim Bromley, a partner at Sullivan & Cromwell and a lead attorney on the case, billed over 178 hours for the weeks between Nov. 12 and Nov. 30.

The legal filings offer a glimpse into the ferocious work done by advisors to untangle FTX’s complex web of accounts and slipshod accounting standards. Sullivan & Cromwell lawyers spent over 1,900 hours in November alone on work related to analyzing and recovering FTX’s global asset base, according to the filings.

Alvarez & Marsal, an advisory firm, billed $1.9 million for over 2,300 hours of work on “business operations,” meeting with lawyers, FTX executives, analyzing FTX’s holdings using blockchain explorers, and reviewing “cybersecurity scenarios.” Those operations included multiple hours in November corresponding with and calling Ellison, 5.3 hours in a single day imaging iPad files and other electronic devices, and a first-day hearing conference call that lasted 2.5 hours.

Quinn Emanuel, which billed over $1.5 million for work done between November and December, assigned over a dozen lawyers to the case, nine of whom were partners. One of those partners, Sascha Rand, billed over $13,000 for a single day’s work in November, corresponding and reviewing first-day issues. Another Quinn lawyer filed for over $17,000 on a “non-working travel” day trip beginning Nov. 21, returning on Nov. 22.

AlixPartners, a financial consulting firm, billed $1.1 million for work done over the course of a little more than a month, from Nov. 28 to Dec. 31.

FTX’s advisors aren’t entitled to their full fees yet. Under an interim compensation order, professional advisors are paid 80% of their filed fees, provided that no objection is filed. Full compensation for legal and advisor fees will not occur until a final fee application is filed, whenever FTX’s bankruptcy saga concludes.

That doesn’t mean that advisors won’t get their due, however. A 2019 Federal Reserve study said professional and consulting fees in Lehman Brothers’ bankruptcy were over $2.56 billion.

Lawyers for Sullivan & Cromwell did $40,000 worth of work just to appear in FTX’s first bankruptcy hearing on Nov. 22, based on court filings of hours billed and hourly rates.

Prosecutors say Sam Bankman-Fried's contact with FTX employees suggests witness tampering



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ByteDance testing food delivery service via Chinese version of TikTok

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ByteDance’s Douyin has been trialing a food delivery service since December as it looks to expand its business beyond advertising.

Jakub Porzycki | Nurphoto | Getty Images

ByteDance told CNBC on Wednesday that it has been testing a type of food delivery service in China via its short video app Douyin, potentially pitting itself against major e-commerce companies like Alibaba and Meituan.

And the company is now considering extending the service beyond the trial.

Douyin is the Chinese version of TikTok which are both owned by ByteDance.

A Douyin spokesperson said that the company has been “testing a feature in Beijing, Shanghai and Chengdu that enables merchants to promote and sell ‘group-buying’ packages to Douyin users in these select cities and have them delivered.”

Restaurant owners often livestream on Douyin to market their business. While doing this, they can offer discounts and coupons for their food to users watching the videos. Multiple users can then purchase that offer and choose a time within two days for the food to arrive.

The model is very different from Meituan and Alibaba’s Ele.me which are both on-demand food delivery services, much like Uber Eats.

“We would consider expanding the feature to more cities in the future depending on the testing results. There is no detailed timeline yet,” a Douyin spokesperson said.

The company has been testing the feature since December.

China’s food delivery industry is dominated by Meituan and Ele.me.

But ByteDance’s tentative steps into the market suggests it wants a slice of the market, which was worth $66.4 billion in 2022, according to research firm IMARC Group.

ByteDance has been dipping its toes into different areas of online shopping. Last year, the company launched a fashion website called If Yooou outside of China.



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