Because of the threat of US sanctions, numerous Chinese banks are now withdrawing from their Russian business - and Moscow is looking for a way out.
Beijing – A few days ago, Russian Foreign Minister Sergei Lavrov visited China. Beijing and Moscow used the minister's trip to Russia as an opportunity to reaffirm their desire to strengthen the partnership between the two countries. Since the Ukraine war, the relationship between China and Russia has become increasingly closer. But when it comes to money, the friendship apparently ends: In order to avoid US sanctions, more and more important banks in China are now restricting transactions to Russia.
China's major banks restrict transactions: The background
Shortly after the Russian attack on Ukraine, the EU excluded Russian and Belarusian banks from the SWIFT payment system. Under the pressure of impending US sanctions, numerous Chinese banks recently restricted their acceptance of payments from Russia. These include the Industrial and Commercial Bank of China (ICBC), the world's third-largest bank, as well as China CITIC Bank, Industrial Bank Co. and Bank of Taizhou,
Newsweek
reported on Wednesday (April 17).
The Zhejiang Chouzhou Commercial Bank had already withdrawn from financial transactions with Russia in February - the institution was previously popular with Russian businessmen because of its lax approach to Western sanctions. “We are in close dialogue with our Chinese friends and will solve all [...] problems,” Kremlin spokesman Dmitry Peskov told journalists at the time, according to AFP. The withdrawal of Chinese banks is the biggest, but not only, problem in the Russian financial market: According to
the Wall Street Journal,
financial institutions in the United Arab Emirates, Turkey and Austria are also withdrawing
from Russia due to fears of sanctions.
The decision is no coincidence: Last December, US President Joe Biden tightened the thumbscrews on institutions that enable transactions that support the military-industrial complex in Russia and thus Putin's war machine. “We expect that financial institutions will make every effort to ensure that they do not knowingly or unknowingly enable avoidance and evasion measures,” said US Treasury Secretary Janet Yellen, commenting on the measure. Also in December, the EU decided on its twelfth sanctions package against Russia.
Moscow speaks of a “trade war” with the West
The tightening of US sanctions had direct consequences for Moscow. By the end of March, up to 80 percent of Russian transfers had been repaid, the Russian pro-government newspaper
Izvestia
reported, citing an unnamed businessman. The West has imposed thousands of sanctions against China in order to harm the competitiveness of Russia and China, Russian Foreign Ministry spokeswoman Maria Zakharova commented
on Wednesday (April 17), according to
Izvestia
. A real “trade war” is being waged against Moscow and Beijing, Zakharova continued.
An increasing number of financial institutions have stopped accepting Russian numbers in Chinese yuan altogether, Alexey Egarmin, the general director of the Russian Chamber of Commerce and Industry, said, according to
Newsweek
. The Bank of China has also already restricted its business with Russian customers, it said. Uncertainty is particularly affecting trade. Because it usually works like this: transfers initially remain unprocessed for a while. The financial institutions then demand further information from the customers, and in the end the banks then reject the transactions to China without giving reasons, explained Alexei Razumowsky from the payment service provider Impaya Rus.
Russia is apparently looking for alternative ways to make payments to China
Nevertheless, Moscow continues to find ways to circumvent Western sanctions. Russia's gross domestic product continues to grow undeterred - also thanks to increasing military spending. In April, the International Monetary Fund (IMF) revised its forecast for Russia upwards: this year, experts are predicting growth of 3.2 percent (January: 2.6 percent), next year it will only be 1.8 percent ( January: 1.1 percent). This is because “the impact of high investment and robust private consumption, supported by wage growth in a tight labor market, is fading,” said the IMF.
The good relationship between Beijing and Moscow is also unbroken. During his visit to Beijing, Foreign Minister Lavrov emphasized that relations between Russia and China had reached an unprecedented high level. Beijing rejected criticism from the USA. “China and Russia have the right to conduct normal economic and trade relations,” Mao Ning, a Foreign Ministry spokeswoman, said last week. Moscow is now apparently looking for ways to process payments to China through Russia-friendly third countries, as Alexey Poroshin from the consulting firm First Group told
Newsweek
. It is not unrealistic that this could succeed: Moscow is already pursuing a similar tactic when importing semiconductors that are actually sanctioned.