An appliance maker IN southern China is having difficulty shipping its products to Russia, not because of problems with the gadgets, but because China’s big banks are limiting payments for such transactions for fear of American sanctions.
To settle payments for its electrical products, the Guangdong-based company plans to use foreign exchange brokers operating along China’s border with Russia, said company founder Wang, who asked be identified only by their last name.
The United States has imposed a series of sanctions on Russia and Russian entities since the country invaded Ukraine in 2022.
The threat of extending these sanctions to Chinese banks – a country that Washington accuses of “fueling” Moscow’s war effort – chills the finance that lubricates even non-military trade between China and Russia.
This poses a growing problem for small Chinese exporters, said seven trade and banking sources familiar with the situation.
As big Chinese banks withdraw from financing Russia-linked deals, some Chinese companies are turning to smaller border banks and underground funding channels such as silver brokers – and even banned cryptocurrencies – the sources told Reuters.
Others have pulled out of the Russian market altogether, the sources said.
“You simply cannot do business properly using official channels,” Wang said, because big banks now take months instead of days to clear payments from Russia, forcing it to to use unorthodox payment channels or to reduce their activities.
IN CLANDESTINITY
An official at a large state Bank he previously used told Mr. Wang that the lender was concerned about possible U.S. sanctions in connection with the Russian deals.
A banker at one of China’s big four state banks said it had increased oversight of Russia-linked companies to avoid sanctions risks. “The main reason is to avoid unnecessary problems,” said the banker, who asked not to be named.
Since last month, Chinese banks have stepped up their monitoring of Russia-linked transactions or ceased operations altogether to avoid being targeted by U.S. sanctions, the sources said.
“Transactions between China and Russia will increasingly go through clandestine channels,” said the head of a trade body in a southeastern province that represents Chinese companies with interests in Russia. “But these methods carry significant risks.
Making payments in crypto, banned in China since 2021, could be the only option, said a Russian banker based in Moscow, because “it is impossible to go through KYC (know-your-customer) in Chinese banks, large or small.
The sources spoke on condition of anonymity due to the sensitivity of the matter. Reuters could not determine the extent of the transactions that moved from big banks to more obscure channels.
China’s Foreign Ministry is not aware of practices described by businessmen in arranging payments or difficulties settling payments through major Chinese banks, said a spokesperson, who referred questions to “competent authorities”.
The People’s Bank of China and the National Financial Regulatory Administration, the country’s banking sector regulator, did not respond to Reuters requests for comment.
WARNING ON SANCTIONS
US Secretary of State Antony Blinken, after meeting with Chinese Foreign Minister Wang Yi for five and a half hours in Beijing on Friday, said he had expressed “serious concerns” that Beijing was “supporting the war of Russia’s brutal aggression against Ukraine.
Nonetheless, his visit, during which he met with President Xi Jinping, is the latest in a series of measures that have helped temper the public acrimony that has driven relations between the world’s largest economies to new lows. historically low last year.
Although officials have warned that the United States is prepared to take action against Chinese financial institutions that facilitate trade in goods with dual civil and military applications and the United States has preliminarily discussed sanctions against some Chinese banks, a U.S. official told Reuters last week that Washington did not yet have a plan to implement such measures.
The Chinese Foreign Ministry spokesperson said: “China does not accept any illegal and unilateral sanctions. Normal trade cooperation between China and Russia is not likely to be disrupted by any third party.”
Asked about Reuters’ findings that Chinese banks were limiting payments from Russia and the impact of those measures on some Chinese companies, a State Department spokesperson said: “Feeding the base Russia’s defense industry threatens not only Ukraine’s security, but also that of Europe.
“Beijing cannot improve its relations with Europe while supporting the greatest threat to European security since the end of the Cold War,” the spokesperson said.
Mr. Blinken made it clear to Chinese officials “that ensuring transatlantic security is a fundamental interest of the United States,” the spokesperson added. “If China doesn’t tackle this problem, the United States will.
Almost all major Chinese banks have suspended settlements from Russia since the beginning of March, said an official at a listed electronics company in Guangdong.
Some of the largest state banks have reported a decline in their Russia-related business, reversing the trend of increasing assets after the Russian invasion.
Among the big four banks, China Construction Bank saw a 14% drop in assets at its Russian subsidiary last year and Agricultural Bank of China saw a 7% drop, according to their latest filings.
In contrast, Industrial and Commercial Bank of China, the country’s largest lender, reported a 43% increase in assets at its Russian unit. Bank of China (BOC), the fourth largest lender, did not give a breakdown.
CHANNEL CAN BE CLOSED
The four banks did not respond to requests for comment regarding their operations in Russia or the impact on Chinese businesses.
Some rural banks in northeast China along the Russian border can still collect payments, but that has caused a bottleneck, with some businessmen saying they have been queuing for months to open accounts.
A chemical and machinery company in Jiangsu province has been waiting for three months to open an account at Jilin Hunchun Rural Commercial Bank in the northeastern province of Jilin, said Liu, who works at the bank. company and who also asked to be identified by his last name.
Calls to the bank for comment went unanswered.
The BOC has blocked a payment from Liu’s Russian clients since February, and a credit officer at the bank said companies exporting heavy equipment face stricter scrutiny to receive payments, Liu said.
The head of the Guangdong-listed company said his company had opened accounts at seven banks since last month, but none had agreed to receive payments from Russia.
“We have abandoned the Russian market,” the director said. “We ultimately did not receive more than 10 million yuan ($1.4 million) in payments from the Russians, and we simply gave up. The process of collecting payments is extremely boring.”
Wang also has doubts about his activities in Russia.
“It is possible that I will gradually reduce my activities in Russia, because the slow process of collecting money is not good for the company’s liquidity management,” he said.
“Also, you don’t know what will happen in the future. The canal may be completely closed one day.”
