According to sources, some Russian companies are facing increasing delays and rising costs when making payments to Chinese trade partners, leading to transactions worth hundreds of billions of Chinese yuan being in jeopardy.
In recent months, Russian companies and officials have indicated that China’s banking sector has tightened compliance measures in response to Western countries imposing secondary sanctions on Chinese financial institutions, resulting in transaction delays. The situation has worsened this month.
In June this year, the U.S. announced sanctions on foreign financial institutions engaging in transactions with sanctioned Russian entities to prevent foreign banks from cooperating with Russia’s military-industrial complex.
Insiders familiar with the situation told Reuters that Chinese state-owned banks are “massively” halting transactions with Russia, causing payments worth billions of Chinese yuan to be delayed.
Following Russia’s invasion of Ukraine, Western countries imposed sanctions on Russia. Against this backdrop, mainland China has become Russia’s largest trading partner.
Last year, trade between Russia and mainland China accounted for one-third of Russia’s foreign trade. China not only provides crucial industrial equipment and consumer goods to Russia but also serves as a significant consumer market for many Russian export products, including oil, natural gas, and agricultural goods.
A source from a major Russian e-commerce platform revealed that cross-border payments between Russia and China sharply decreased after the U.S. announced secondary sanctions on financial institutions.
“At that time, all cross-border payments to China were halted. We eventually found a solution, but it took about three weeks, during which trade volume plummeted drastically,” the source said.
The source disclosed that a viable solution was to buy gold, transfer it to Hong Kong, and then sell it there to deposit cash into local bank accounts.
Multiple sources informed Reuters that some Russian companies have been using third-country intermediaries to process transactions with China to bypass compliance checks by Chinese banks. As a result, transaction processing costs have surged from nearly zero to 6% of the payment.
Another source closely related to the Russian government stated, “For many small companies, this means complete closure.”
Kremlin spokesperson Dmitry Peskov said in a statement to Reuters, “With such a massive volume of transactions in such an unfriendly environment, it is inevitable that some issues would arise.”
However, a banking industry insider told Reuters that transactions with China did not receive particular attention from Russian top officials as payments in priority areas were proceeding smoothly, and both sides had political willingness.
Another source close to the Russian government told Reuters that Russian exporters have not encountered difficulties in receiving payments from China, such as for exports like oil or grain.
According to Chinese customs data, following a record $240 billion bilateral trade volume in 2023, trade between China and Russia in the first half of 2024 grew by 1.6% year-on-year to reach $137 billion. However, official Chinese statistics show that due to payment issues, Russia’s imports from China decreased by over 1% from January to July 2024, falling to $62 billion.
The Russian Central Bank predicts that this year, Russia’s total imports from around the world will decrease by as much as 3%.