Up to half of Russia’s payments to China are currently carried out with the help of intermediaries from countries friendly to the Russian Federation, Reuters reports, citing four sources, including trade consultants, bankers, importers and exporters.
According to the agency, Chinese banks have significantly limited their transactions with companies from Russia due to the threat of secondary US sanctions, and the only Russian bank with a branch in the Middle Kingdom, VTB, is under serious pressure due to the rush to open accounts. “There are many [российских] businessmen who simply go from bank to bank, opening current accounts,” one of the sources said. “If a payment doesn’t go through, they go to the next one.”
All this leads to long delays in making payments and shipping goods and forces businesses to turn to intermediaries, despite high commissions and the risk of confiscation of cargo in third countries. According to sources, the intermediaries are legal entities from countries “friendly” to the Russian Federation – Hong Kong, Kyrgyzstan, Kazakhstan, the United Arab Emirates and other states that have not imposed sanctions against Russia.
According to two Russian consultants who work with intermediaries, their services are used by about half of Russian companies trading with China. Major players, many of whom are already under sanctions themselves, established schemes for working with intermediaries a year ago. According to one of the Reuters interlocutors, only a fifth of Russian companies have full access to their accounts in Chinese banks, 30% have limited access.
Using intermediaries is risky and expensive, the agency notes. The intermediary’s commission for one transaction can amount to “several thousand dollars,” and there is also a risk of confiscation of goods if we are talking about third countries. Thus, one of the sources told the agency that a large batch of servers transported to Russia from China through Kazakhstan was confiscated because the goods were subject to US sanctions. In addition, Chinese banks may also refuse to process payments through intermediaries, and the less formal nature of the transactions means that Russian companies will find it difficult to get their money back.
According to customs data cited by Reuters, in 2023 the volume of supplies to Russia from China increased by 64.2% compared to 2021, and the total volume of trade between the two countries reached a record $240 billion. China supplies cars to Moscow, in particular and equipment and purchases Russian oil, payments for which are also delayed. Some companies are hoping President Vladimir Putin’s visit to China next month will help resolve the problem, sources said. “Perhaps something will change after the visit of the official Russian delegation to China,” one of the interlocutors said. Others are more pessimistic: one of the interlocutors told the agency that Russia is not a priority for Chinese banks, since China’s trade turnover with the United States and the European Union exceeds that of Russia-China. “They will not sacrifice their market for payments to Russian companies,” the Reuters source said.
In December 2023, the US Treasury announced that it would apply secondary sanctions against financial institutions that help Russia circumvent sanctions or finance military purchases. In particular, they will be prohibited from opening correspondent accounts in the United States or their use will be limited, and their property in the United States will be blocked. After this, payments through the largest Chinese banks, including Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and Bank of China, became significantly more difficult. At the end of April, The Wall Street Journal reported that the United States was working on sanctions against a number of Chinese banks.
Frightened by secondary sanctions, Chinese banks began to refuse Russian companies to open or service accounts, and also began to delay payments. As a result, companies have no choice but to contact VTB, which opened a branch in Shanghai in 2008 and is so far the only Russian bank with its own payment infrastructure in China. The latter, in turn, cannot cope with the rush that has arisen and companies have to wait six months to open an account, Reuters reported. The head of VTB himself, Andrei Kostin, also drew attention to the problem with payments and even declared his bank’s readiness “to become the main settlement bank in yuan.” “After the tightening of the secondary sanctions regime at the end of 2023, the number of refusals to make payments by compliance control without explaining the reasons increased sharply. This applies, first of all, to banks of friendly jurisdictions,” he said at the beginning of April 2024. — Payment terms are increasing, commissions are growing. The volume of requested documentation has increased, especially for critical product groups – electronics, computers, high-precision machines and equipment.”
The head of VTB emphasized that if a year ago banks were faced with the task of excluding SDN list participants from transaction routes and not using SWIFT, now the central problem is becoming a geographical factor, namely the presence of the Russian side in settlements. “As soon as the goods go from there or there, the “stop” light comes on, regardless of the “loyalty” of a particular bank or jurisdiction and the sanction status of the Russian participant in the transaction,” Kostin noted.
