The US’ tightening sanctions against those aiding Russia’s war efforts are really spooking some Chinese banks.
Not only are they refusing to process trade transactions with Russia, some are even returning payments for goods that have been shipped, according to the pro-Kremlin Izvestia news outlet on Friday.
These Chinese banks would return the money if they cannot confirm if the goods fall under the trade restrictions, Ekaterina Kizevich, the CEO of Atvira, a Russian foreign-trade consultancy, told Izvestia.
The Chinese banks are so fixated on compliance that some payments have been returned even after goods have reached Russian shores, she told the media outlet.
The news came a week after the US Treasury and State Department announced fresh restrictions against 400 individuals and entities for supporting Russia’s war efforts in Ukraine. They include companies in China and Hong Kong.
China has said it’s “strongly dissatisfied” and “firmly opposed” to the new restrictions.
Trade snarls add to logistics costs
Even so, Chinese banks would rather be safe than sorry to not run afoul of US secondary sanctions.
It’s unclear how Chinese exporters and their Russian clients are resolving issues of bounced and returned payments if goods have already been shipped and delivered. But imported goods are spending more time at ports and warehouses, adding to higher logistics costs, Kizevich told Izvestia.
Now, Chinese exporters would only ship goods to new customers in Russia after payment is confirmed, said Nikolai Dunaev, the vice president of Opora Russia, an organization for small and medium businesses, per Izvestia. Pre-paying for imports typically increases risks and affects cash flow for buyers.
But Russian businesses have bigger problems because some Chinese banks are so fearful of restrictions that they are, at times, not processing payments for non-sanctioned goods, Dunaev told the newspaper. They are also paying more attention to payments from Russia going through third countries.
The Kremlin has acknowledged the business community’s difficulties surrounding payment transactions with China.
Dmitry Peskov, a Kremlin spokesperson, said on Thursday that Moscow and Beijing are working on the payments issues that are affecting trade, per TASS state news agency.
“Trade and economic relations are copious. With such volumes and with such an unfriendly environment, it’s impossible to avoid some problematic situations,” said Peskov.
Russia’s payments whack-a-mole
Since the invasion of Ukraine, Russia and its trade partners have skirted sanctions by using smaller banks and other payment modes or non-US-dollar currencies to circumvent the West’s ban of some Russian banks from the widely-used SWIFT messaging system.
But the doors have been closing for these workarounds since December, when the US approved secondary sanctions targeting financial institutions that were helping Russia.
Russia is now rushing to set up alternative payment systems, including crypto, to facilitate trade.
Russia and China were even planning to revive the age-old practice of barter trade to get around Western sanctions, Reuters reported earlier this month.
