People's Republic takes a closer look
Russia probably has payment problems with China trade
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China is one of Russia's few remaining partners, but has to fear secondary sanctions when doing business with Moscow. According to insiders, Russian companies are therefore having difficulties trading with the People's Republic. The problem has worsened this month.
According to insiders, Russian companies are facing delays and increasing costs for their payments to trading partners in China. That would leave transactions worth billions of yuan in limbo, Russian people familiar with the matter said. Chinese banks have been taking a closer look at business with their neighbor for some time now, after the West threatened secondary sanctions for deals with Russia. As a result, the problem has worsened this month, they said.
Accordingly, Chinese state banks have stopped transactions with Russia on a massive scale. This has held up payments worth billions of yuan, said a government source who spoke on condition of anonymity. The People's Republic is Russia's largest trading partner, accounting for a third of foreign trade last year. It supplies, among other things, industrial equipment and consumer goods. These help Russia to survive the Western sanctions imposed because of the war against Ukraine. China is also an important sales market for Russian export hits such as oil, gas and agricultural products.
“This means closure for many small businesses”
The U.S. Treasury Department in June threatened sanctions against banks in China and other countries over business with Russia. Since then, Chinese banks have taken a stricter stance, said a representative of a leading Russian e-commerce platform. “At this point, all cross-border payments to China have stopped,” he says. “We found solutions, but it took about three weeks, which is a very long time. Trading volume dropped drastically during that time.” An alternative was to buy gold and bring it to Hong Kong to sell it there and deposit the money into a local bank account.
According to insiders, some Russian companies have used intermediaries in third countries. They are intended to help process transactions and thus circumvent the controls imposed by Chinese banks. However, as a result, the costs for transaction processing increased to up to six percent of the total. Previously they would have been almost zero. “For many small businesses, this means a complete shutdown,” said another insider. The government in Moscow admitted problems. However, she emphasized that economic cooperation is important for both countries and that solutions will be found.
Kremlin spokesman praises “spirit of partnership”
“With such quantities and in such an unfriendly environment, some problematic situations cannot be avoided,” said Kremlin spokesman Dmitry Peskov. “However, the truly collaborative spirit of our relationships allows us to constructively discuss and resolve current issues.” The bilateral agreements for major companies, such as Russia's raw materials suppliers and China's key technology exporters, are reportedly still working well.
Smaller companies that trade in consumer goods are particularly having problems. Bilateral trade between Russia and China grew 1.6 percent to $137 billion in the first half of 2024, according to official Chinese customs data, after reaching a record high of $240 billion in 2023.
