Chinese state banks have significantly reduced their financial transactions with Russia, leading to delays in payments amounting to billions of yuan. This development has had a substantial impact on Russian businesses and the broader economy, forcing the country to seek alternative methods for conducting financial transactions. The stringent measures by Chinese financial institutions followed threats from Western countries to impose additional sanctions for dealing with Russia.
Transaction Delays: A New Challenge for Russian Businesses
Russian companies and officials have been facing transaction delays with China for several months. These delays emerged after Chinese banks tightened their requirements due to the threat of new sanctions from the U.S. and EU. According to Reuters, the situation became critical in September when almost all cross-border payments to China were halted.
“When the West threatened to impose stricter sanctions, all cross-border payments to China stopped. We found a solution, but it took about three weeks, which is a long time. During this period, trade volumes dropped significantly,” an anonymous Reuters source said.
Gold as a Solution: How Russians are Navigating Sanctions
Due to increased sanctions, Russian companies have resorted to unconventional methods for making payments to China. Specifically, they have started using gold as a medium of exchange. Following the U.S. Treasury’s threat in June to impose additional sanctions on Chinese banks and other countries for dealing with Russia, Chinese financial institutions became extremely cautious.
One workaround involved buying gold, transporting it to Hong Kong, selling it there, and depositing the proceeds into a local bank account. Although this method works, it is highly complex and inefficient in the long run.
Chinese Banks Without Global Business: A Temporary Solution
After President Vladimir Putin’s recent visit to China, some local Chinese banks without global operations began handling bilateral payments with Russia. These institutions are not subject to sanctions, making them attractive to Russian companies. However, due to outdated IT systems, the payment process remains extremely cumbersome, requiring couriers to physically transport documents across the Russian-Chinese border to obtain physical stamps and signatures from Chinese bankers.
Conclusion: The Future of Russian-Chinese Financial Relations
Russian-Chinese financial relations are under significant strain due to Western sanctions. As noted by Kirill Babaev, head of the Russian Institute of China and Contemporary Asia at the Russian Academy of Sciences, until payment issues are resolved at the state level, Russia cannot expect a dynamic influx of investments from China.
These challenges compel Russia to seek new avenues for cooperation and adapt to changing conditions. However, whether Russia and China can establish an effective financial partnership amid sanctions remains an open question.
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