“This is a signal”: why Chinese banks refuse to cooperate with Russian ones

Economist Maslennikov: “It is necessary to make payments through structures that are not under sanctions”

Two resonant financial news concerning the Russian Federation came from China almost simultaneously – bad and good. The three main, systemically important banks of this country have stopped accepting payments from Russian sanctioned banks. Moreover, regardless of the transfer system – international SWIFT, domestic SPFS or Chinese CIPS. However, Bank of China, which is part of this trinity, reported that it continues to accept payments in rubles and yuan.

That is, transactions take place, but only from those credit institutions in Russia who at one time escaped the restrictions of the American Ministry of Finance. The consolation, we note, is weak. The situation seriously tightened after December 22, when US President Joe Biden signed a decree according to which foreign banks could be subject to secondary sanctions for helping with transactions with sanctioned entities and supplies to the Russian military-industrial complex. Chinese banks began to refuse to accept payments in dollars from Russia, since they are easily tracked by the Office of Foreign Assets Control (OFAC) of the US Federal Treasury. Today, OFAC is conducting “outreach” with banks around the world, strictly warning them against cooperation with Russian clients.

Today, out of more than three hundred Russian banks, 36 – the largest and most reputable – are under sanctions. The toughest (blocking) ones affected those included in the SDN list (Specially Designated Nationals). This is a list of individuals and organizations with which Americans are prohibited from doing business. A bank with such a “black mark” is prohibited from conducting settlements in dollars with any American counterparties, and its assets in the United States are frozen.

As for the largest Chinese banks, at the beginning of January they notified their “sanctioned” partners in the Russian Federation that they would stop accepting payments. We are talking about Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and Bank of China. These players occupy the first, second and fourth places in terms of assets in the PRC. And some financial organizations in the country began to block any transactions from Russia, regardless of the source of origin. For example, Zhejiang Chouzhou Commercial Bank announced such a decision.

“The reasons for this behavior are clear: Chinese banks are based on their own pragmatic interests,” says Nikita Maslennikov, a leading expert at the Center for Political Technologies. “In essence, this is a confirmation of how significant the risks of secondary sanctions are for them, which are also fraught with problems for the domestic market, the financial stability of the country and the assets of individuals. We must not forget: the trade balance between China and the United States is many times higher than the same figure in Chinese-Russian trade. We have nothing to oppose this yet.”

It is clear that China does not particularly believe in the scenario of fragmentation of the world economy, in the weakening of the positions of America and Europe. These two pillars of the global economy were his absolute priority and remain so. At the same time, MK’s interlocutor argues, it cannot be said that Beijing has abandoned Russia to its fate: it maintains a friendly attitude towards our country, it is still interested in building payment and settlement relations with it. Evidence of this is the statement of the Bank of China, according to which banks still accept payments in rubles and yuan. This is, in essence, a proposal to build much more cunning and accurate schemes for trade and financial interaction. And at the same time, this is a signal to us: gentlemen and comrades in Russia, please make payments through structures that are not under sanctions.

“In general, events of this kind have happened before,” recalls Maslennikov. – In 2014, against the backdrop of the “Crimean” sanctions, Chinese banks introduced the so-called compliance (verification of payments and settlements) for partners in the Russian Federation. Their procedures were more stringent and lengthy than, for example, in Italian banks. Then relations began to level out again, restrictions were lifted. So there is no need to panic. In Russia, dozens of banks have avoided sanctions and are able to make payments to China. In addition, legislative decisions are expected to develop our branch networks of banks from friendly countries. If they work, the West will have to accept new packages of restrictions.”

Meanwhile, the price of the issue is very high. If only because the share of the yuan in Russia’s foreign trade turnover is about 40%, says Alexey Vedev, director of the Center for Structural Research at RANEPA. In general, according to him, the situation is not entirely transparent and requires, at a minimum, a comment from the Russian Central Bank. It is clear that when the conditions of payment and settlement transactions become more stringent, commissions increase. One might suspect Chinese banks of some kind of commercial intent, but the likelihood of this is negligible. It seems that it’s all about the risks of secondary sanctions.