Since Russia’s invasion of Ukraine, Western countries have been imposing wave after wave of sanctions on Russia. After being kicked out of the global SWIFT system, Russia has turned to conducting massive trade with China and settling in Renminbi. However, under the second round of sanctions imposed by the United States, Russia cannot further rely on Renminbi, and due to payment issues, imports of Chinese cars to Russia have been obstructed.
For the past two years, Russia has been importing Chinese cars, and Russia is currently China’s largest export market, with Chinese manufacturers filling the void left by other car manufacturers who exited after Russia’s invasion of Ukraine.
According to Chinese customs statistics, from January to May this year, Chinese car exports to Russia increased by 36% year-on-year, reaching $4.86 billion.
On July 10, Reuters reported that the chairman of the Russian Automobile Dealers Association stated that the US sanctions have caused payment issues between China and Russia, posing a serious problem for importing Chinese cars.
In December of last year, the White House issued an executive order authorizing the Treasury Department to impose sanctions on foreign financial institutions assisting Russia’s military-industrial base. In February of this year, China’s three largest banks – Industrial and Commercial Bank of China, China Construction Bank, and Bank of China – stopped accepting payments from Russian financial institutions sanctioned by the US.
As a result, China and Russia have resorted to complicated procedures, trying to avoid payment delays, including using alternative methods involving small regional Chinese banks.
However, on June 12, the US Treasury Department announced a significant expansion of secondary sanctions against Russia, whereby any foreign financial institution conducting transactions with sanctioned Russian entities would be seen as directly cooperating with Russian military-industrial bases.
These secondary sanctions have effectively curbed the further use of Renminbi in Russia by suppressing bilateral trade and payments between China and Russia.
Alexei Podshchekoldin, chairman of the Russian Automobile Dealers Association, told Reuters that this issue is particularly severe for small importers, who have already seen payments being rejected.
As a result, the quantity of Chinese cars exported has decreased, while Russian importers have lost business and may face additional costs.
“Even if Russian banks (in China) provide services for Ruble accounts, they can no longer trade with China,” Podshchekoldin said. “The Ruble is just sitting in the bank with no further action.”
“Previously, only major banks from Russia and China were involved in Sino-Russian trade, but they have gradually been blocked and placed on the sanctions list, with all funds now being transferred to second- and third-tier banks,” he said.
The latest sanctions in June are aimed at preventing small banks, especially Chinese banks, from providing war funds and technology to Russia. US Treasury Secretary Yellen said on June 13, “I think the big Chinese banks are very, very mindful of agency relationships, and these banks are not our most pressing concern.” She added, “It’s the small banks that are more worrying,” and despite this, “some of these banks also hope to handle dollar payments and not be excluded from the US financial system.”
“The problem is major, even our largest domestic producers, such as manufacturers purchasing spare parts, are facing this issue,” Podshchekoldin said, referring to payments. He hopes to find a solution through joint banks or some electronic remedy measures.
He also suggested the idea of barter trade but stated that while bargaining for basic raw materials is possible, it’s impractical for cars and spare parts.
“For commodities like oil, wheat, sugar, and natural gas, it’s possible. But for cars, how is that possible? It’s very difficult, almost impossible,” he said.