The effects of Western sanctions seem to be getting worse for Russia.
Currently, 98 percent of Chinese banks, including smaller regional banks, refuse to accept direct remittances from Russia to China, Alexei Razumovsky, commercial director at payments company Impaya Russ, told pro-Russian media outlet Izvestia.
The problems appear to have intensified over the past three weeks, as Chinese small lenders continued to process payments to Russia in May and June, Izvestia reported.
This follows recent news that around 80 percent of bank transfers made in yuan were stuck for weeks and returned without explanation while banks decided whether to proceed with the transactions, Russian media outlet Kommersant reported last month.
According to the Izvestia news agency, Razumovsky said payment problems with Chinese banks could lead to difficulties in Russia’s supply chain and inflation.
Doors between Russian and Chinese banks close
Since the invasion of Ukraine, Russia and its trading partners have circumvented sanctions by using smaller banks and other payment methods, or currencies other than the U.S. dollar, to get around Western measures that have banned some Russian banks from the widely used SWIFT messaging system.
But the door to such workarounds is closing since December, when the United States approved secondary sanctions targeting financial institutions that supported Russia.
Alexei Polosin, president of investment and consulting firm First Group, told Izvestia news agency that some Chinese financial institutions have started refusing to make payments in rubles.
Polosin said Chinese banks were not keen to do business with Russian companies through financial institutions in Hong Kong, a special administrative region under Chinese rule.
Ekaterina Kizevich, CEO of Russian foreign trade consultancy Atvira, told Izvestia that Russian companies are still transferring yuan to China through Russian bank branches in mainland China, which charges a 5 percent fee.
Many Chinese companies will still refuse to take payments from Russian bank branches in mainland China, Impaya Rus’s Razumovsky told the paper.
Russia rushes to develop alternative payment mechanisms
Russian companies still have options, such as conducting business through “friendly” third countries.
Russia is also rushing to introduce alternative payment systems, including cryptocurrencies, to facilitate trade.
Russia and China are even planning to revive their ancient barter trade to circumvent Western sanctions, Reuters reported on Thursday.
If Russia has trouble paying its Chinese suppliers, it will sever a vital pillar of its war with Ukraine, Joseph Webster, a senior fellow at the Atlantic Council think tank, wrote in a June report.
“While Russian exports are helping to finance the war effort, at least in the short term, industrial imports are far more important in sustaining the economic, political and military aspects of the war,” he wrote.
“Russian imports prevented shortages and stabilized living standards, thereby maintaining political support for the war effort and, in some cases, strengthening the military,” Webster writes.
