The ongoing Russia-Ukraine war, lasting for more than 2 years, would find it challenging to sustain without the support of China and Chinese enterprises. With the tightening of US sanctions, the flow of funds for China-Russia trade has become increasingly difficult due to the assistance provided by major Chinese banks. Chinese enterprises have also encountered obstacles in conducting business with Russia. Some Chinese enterprises have resorted to “underground” payment methods in Russia, posing risks in their operations.
According to an exclusive report by Reuters on April 28th, a home appliance manufacturer in Guangdong, China, faced difficulties in shipping products to Russia due to concerns about US sanctions. Mr. Wang, the founder of the company who only disclosed his surname, mentioned that to settle payments for electronic products, the company is considering using currency brokers active on the China-Russia border.
Since Russia invaded Ukraine in 2022, the United States has imposed a series of sanctions on Russia and Russian entities. US Secretary of State Antony Blinken, during a meeting with high-ranking Chinese officials in Beijing on April 26th, strongly expressed America’s view on China’s support for Russia’s invasion of Ukraine. He directly pointed out that without China’s support, Russia’s attack on Ukraine would be difficult to sustain.
The Wall Street Journal reported that before Blinken’s visit to China, US officials aimed to persuade the Chinese government to make changes by warning about the possibility of cutting off USD channels for Chinese state-owned banks and the risks to China-Europe trade relations. These banks act as crucial intermediaries for China’s commercial exports to Russia, handling payments, and providing credit for trade transactions of client companies.
Sources informed Reuters that with China’s major banks retracting financing for transactions related to Russia, some Chinese enterprises have turned to underground financing channels such as border banks and currency brokers, and even started using prohibited cryptocurrencies.
“You can’t conduct business through official channels normally anymore,” Wang said, noting that large banks now take months instead of days to clear payments from Russia. As a result, he is now utilizing non-traditional payment channels or downsizing his business operations.
A manager of a listed electronics company in Guangdong stated that since early March, almost all major Chinese banks have halted settlements with Russia.
Wang mentioned that a manager from a large state-owned bank he previously used informed him that the bank is concerned about potential US sanctions for handling transactions with Russia.
An anonymous banker from one of China’s top four state-owned banks revealed that they have intensified reviews of business related to Russia to avoid sanction risks.
The head of a trade organization representing Chinese enterprises with interests in Russia from a southeastern province expressed, “Trade between China and Russia will increasingly shift towards underground channels.” However, these methods come with significant risks.
Chinese banks are deeply apprehensive of US sanctions. Multiple sources informed Reuters last month that Chinese banks, along with Turkish and UAE banks, are becoming more cautious regarding US secondary sanctions. They have begun requesting written assurances from clients to ensure that the beneficiaries of related transactions or payments are not individuals or entities listed on the US ‘Specially Designated Nationals and Blocked Persons’ (SDN) blacklist. This has led to delays and even refusals in payments to Russian oil companies for crude oil and fuel. The Kremlin confirmed the payment issues at that time.
Some village banks along the China-Russia border in Northeast China still accept payments, but there are bottlenecks. Some traders reported waiting for months to open accounts.
A chemical machinery company in Jiangsu Province, trying to open an account with a commercial bank in a rural area of Jilin Province, has been waiting for three months. Liu, an employee of the company, mentioned that the bank has blocked payments from their Russian clients since February.
The manager of the listed electronics company in Guangdong stated, “We are giving up on the Russian market.” He added that they eventually did not receive over 10 million RMB (about 1.4 million USD) in payments from Russia, and the payment collection process was extremely troublesome.
Wang is reconsidering his Russian business operations.
“I may gradually scale back our business in Russia because the slow payment process hampers the company’s liquidity management,” he said. “Moreover, you never know what might happen in the future; the channels could be completely shut one day.”
During his meeting with high-ranking Chinese officials, Blinken also hinted at the US and Europe losing patience with Beijing’s refusal to stop supporting Russia.
“As I said, we are also looking at actions if we don’t see change; we’re prepared for that,” Blinken stated. “We have, in the case of the United States, sanctioned over a hundred Chinese entities, export controls, etc. We are prepared to take additional actions, take more steps.”