People’s Republic takes a closer look
Russia probably has payment problems in trade with China
30.08.2024, 12:18
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China is one of Russia’s few remaining partners, but has to fear secondary sanctions when doing business with Moscow. According to insiders, Russian companies are therefore having difficulties doing business with the People’s Republic. The problem has worsened this month.
Russian companies are facing delays and rising costs for their payments to trading partners in China, according to insiders. This has left transactions worth billions of yuan hanging in the balance, according to people familiar with the matter in Russia. Chinese banks have been taking a closer look at business with their neighbor for some time after the West threatened secondary sanctions on deals with Russia. This has exacerbated the problem this month, they said.
According to reports, Chinese state banks have suspended transactions with Russia on a massive scale. This has stopped payments worth billions of yuan, said an insider close to the government who wished to remain anonymous. The People’s Republic is Russia’s largest trading partner, accounting for a third of foreign trade last year. It supplies industrial equipment and consumer goods, among other things. These are helping Russia to survive the Western sanctions imposed because of the war against Ukraine. China is also an important sales market for Russian export hits such as oil, gas and agricultural products.
“Means closure for many small businesses”
The US Treasury Department threatened sanctions against banks in China and other countries for doing business with Russia in June. Since then, Chinese banks have taken a stricter stance, said a representative of a leading Russian e-commerce platform. “At that time, all cross-border payments to China were stopped,” he says. “We found solutions, but it took about three weeks, which is a very long time. The trading volume dropped drastically during that time.” One alternative was to buy gold and take it to Hong Kong to sell it there and deposit the money into a local bank account.
According to insiders, some Russian companies have hired intermediaries in third countries to help them process the deals and thus circumvent the controls carried out by Chinese banks. However, this has increased the costs of processing the transactions to as much as six percent of the total. Previously, they were almost zero. “For many small companies, this means a complete shutdown,” said another insider. The government in Moscow acknowledged problems. However, it stressed that economic cooperation is important for both countries and that solutions will be found.
Kremlin spokesman praises “spirit of partnership”
“With such volumes and in such an unfriendly environment, some problematic situations cannot be avoided,” said Kremlin spokesman Dmitry Peskov. “However, the truly cooperative spirit of our relations allows us to discuss and resolve current problems constructively.” The bilateral agreements for large companies, such as Russia’s raw material suppliers and China’s exporters of important technologies, are reportedly still working well.
According to the report, smaller companies that trade in consumer goods are particularly struggling. According to official Chinese customs data, bilateral trade between Russia and China grew by 1.6 percent to 137 billion US dollars in the first half of 2024, after reaching a record high of 240 billion US dollars in 2023.