China and Russia turn to underground payments as banks reject deals

China's major banks are refusing to finance transactions related to Russia. Some Chinese companies are turning to underground financing channels, such as currency brokers at the border, and even to banned cryptocurrencies.

This is reported by Reuters.

The United States has imposed a series of sanctions on Russia and Russian organizations since the invasion of Ukraine in 2022. Now the threat of these measures is spreading to banks in China.

This poses a problem for small Chinese exporters, seven trade and banking sources familiar with the situation told Reuters. Others have left the Russian market entirely, the sources said.

"You simply cannot do business properly using the official channels," Wang said, as big banks now take months rather than days to clear payments from Russia, forcing him to tap unorthodox payment channels or shrink his business.

The manager of a large state-owned bank he used to use told Wang that the lender was concerned about possible US sanctions on Russian transactions.

A banker at one of China's Big Four state-owned banks said the bank has tightened controls over its Russia-related business to avoid the risk of sanctions. "The main reason is to avoid unnecessary trouble," said the banker, who asked not to be named.

According to the sources, since last month, Chinese banks have tightened controls over Russia-related transactions or stopped doing business altogether to avoid US sanctions.

"Transactions between China and Russia will increasingly go through underground channels," said the head of a trade organization in a southeastern province that represents Chinese businesses with Russian interests. "But these methods carry significant risks".

According to a Moscow-based Russian banker, making payments in cryptocurrency, which has been banned in China since 2021, may be the only option, as "it is impossible to pass KYC (know your customer) in Chinese banks, big or small".

Author – Anastasiya Glotova, 29/04/2024