Chinese firms doing business with Russia circumvent sanctions through ‘underground payments’

Major Chinese banks limit payments for transactions with Russia. The reason is the fear of US sanctions. The website informs about it Reuters.

The United States imposed a number of sanctions on Russia in response to its aggression in Ukraine. The current threat of their extension to banks in China chills the finances that underpin non-military trade from China to Russia. This poses an increasing problem for smaller Chinese exporters.

As major Chinese banks pull back from financing Russia-related transactions, some Chinese companies are turning to small border banks and underground financing channels. It can be money brokers, or even banned cryptocurrencies.

Avoid unnecessary problems

“We can’t trade properly through official channels,“ said Mr. Wang, one of the representatives of the Chinese companies affected by the sanctions. Indeed, it now takes months rather than days for large banks to clear payments from Russia, forcing these firms to use unorthodox payment channels or shrink their businesses.

A banker at one of China’s big four state-owned banks said his institution has tightened controls on Russia-related deals to avoid the risk of sanctions. “The main reason is to avoid unnecessary problems,“ says the financier.

Since last month, Chinese banks have stepped up scrutiny of Russia-related transactions or halted business entirely to avoid US sanctions.

Making payments in cryptocurrencies, which have been banned in China since 2021, may be the only option, an unnamed Russian banker from Moscow said in response to the situation. With Chinese banks, whether big or small, it is not possible to go through KYC (know-your-customer). Despite its best efforts, Reuters was unable to determine the extent of transactions that moved from major banks to more obscure routes.

Easing tension

After a more than five-hour meeting with China’s top diplomat Wang Yi in Beijing on Friday, US Secretary of State Antony Blinken said he expressed “serious concern” that Beijing was “supporting Russia’s war against Ukraine”. Still, his visit, which included a meeting with President Xi Jinping, was the latest in a series of steps to ease tensions in relations between the world’s largest economies.

US officials have warned that the United States is prepared to take action against Chinese financial institutions that facilitate trade in dual-use civilian and military goods. The US has even tentatively discussed sanctions against some Chinese banks. However, a US official told Reuters last week that Washington does not yet have a concrete plan to introduce such measures.

Author: Petr Pláteník