As reported by the US news magazine “‘Newsweek’”, China’s state-owned banks are tightening the funding reins for Russian clients. This decision is made against the backdrop of additional sanctions introduced last month by the US Treasury Department, targeting foreign financial companies and banks that support Russia’s war efforts in Ukraine and assist Moscow in the procurement of military equipment.
At least two Chinese state banks have reviewed their relations with Russia in response in recent weeks. Even planning to completely end cooperation with customers on the US sanctions list. Citing insiders, “Newsweek” also reports that the banks intend to cease their financial support for the Russian military sector.
Expanded trade
Kremlin spokesman Dmitri Peskow described the matter as “very, very sensitive” for the affected companies, according to “Newsweek”, but not for the Russian government. Instead, Peskow referred to China as a “very important strategic partner” and emphasized that the trade relations between the two countries remained strong despite the emerging tensions. The bilateral trade volume with China even exceeded Russian expectations recently.
According to the US news magazine, Chinese lenders entered the Russian banking sector at a time when Western banks withdrew in response to the Russian invasion of Ukraine. Subsequent Western sanctions have weakened Russia and made it more dependent on China, as about half of its international reserves are inaccessible to the Russian Central Bank.
From Visa to China UnionPay
Subsequently, when Visa and Mastercard also ceased operations in Russia, Russian banks turned to China UnionPay, the Chinese credit card and payment system.
China is also now considered the largest importer of fossil fuels from Russia and has more than doubled its coal imports since 2020.
Relations as risk for both sides
Despite trade relations and diplomatic support for Putin, Beijing has never fully supported the war in Ukraine and has not pledged any particular military assistance to Moscow.
Thus, the current action of the Chinese state banks could also harm Russia and the Kremlin. Because although China has been on Moscow’s side since the start of the war in Ukraine, it seems that Beijing is also aware of the financial consequences that supporting the Kremlin could entail. Particularly now, after the new decision on sanctions by the US Treasury Department.
Chris Weafer, CEO of the consultancy firm Macro-Advisory Ltd., specializing in Russia and Eurasia, has already recognized the first signs of an increasing dependence of Russia on China in an interview with “Newsweek”. Although China buys a lot of energy and materials and sells its own goods to the Russian market, it operates mainly for its own benefit. Direct investments in Russia are rather small and cannot in any case compensate for the lost income from Western companies and investors since February 2022, Weafer explained.
