It appears that Russia is encountering payment issues in its trade dealings with China.
Russia's business dealings with China are faced with challenges due to issues with Russian companies, as reported by sources within the Russian community. These companies are reportedly facing payment delays and increased costs in their transactions with China, which have stalled transactions worth several billion yuan. This situation has emerged due to Chinese banks scrutinizing deals with Russia, following threats of secondary sanctions from the West.
According to a confidential informant close to the Chinese government, numerous transactions between China and Russia have been halted, with payments worth billions of yuan being held up. China is Russia's largest trading partner, accounting for a third of its foreign trade last year. The relationship is essential for Russia, as China provides industrial facilities and consumer goods to help Russia cope with Western sanctions due to the conflict in Ukraine. China is also a significant market for Russian exports such as oil, gas, and agricultural products.
The U.S. Treasury Department threatened sanctions against banks in China and other countries for conducting business with Russia in June. Since then, Chinese banks have adopted a more strict approach, which resulted in a halt of all cross-border payments to China. According to a representative of a leading Russian e-commerce platform, it took about three weeks to find a solution, leading to a significant decrease in trading volume during that time. An alternative was to buy gold and transport it to Hong Kong for sale and deposit the funds into a local bank account.
To overcome these challenges, some Russian companies have reportedly hired intermediaries in third countries to facilitate their business and bypass controls by Chinese banks. However, this has increased the cost of transaction processing to up to six percent, from nearly zero before. For many small businesses, this situation means closing their operations.
The Moscow government acknowledged the issues but emphasized the importance of economic cooperation between the two countries and the need to find solutions. Kremlin spokesman Dmitry Peskov praised the "partnership spirit" of the relationship and emphasized that despite problematic situations, bilateral agreements for large companies are still functioning well. Smaller companies trading in consumer goods are reportedly the ones facing the most significant challenges. Bilateral trade between Russia and China increased by 1.6 percent to $137 billion in the first half of 2024, according to official Chinese customs data, after reaching an all-time high of $240 billion in 2023.
The European Union has expressed concerns over China's close business relationship with Russia, as it could potentially undermine its own sanctions against Russia due to the conflict in Ukraine. The European Union and its members are significant trade partners with China, and any disruptions or changes in China's trade relations with Russia could have ripple effects on European markets.
Recent reports suggest that the European Union is discussing potential policies to monitor and possibly limit Chinese investments in critical European infrastructure, given the potential security risks associated with Chinese companies in key sectors.
