Exclusive: Russia’s Payment Challenges with China Partners Intensified in August, Sources Indicate

Moscow – Delays and Rising Costs for Payments Between Russian and Chinese Firms

Some Russian companies are currently experiencing significant delays and increasing costs in transactions with their Chinese trading partners, leaving payments worth billions of yuan in a state of uncertainty, according to sources familiar with the situation.

In recent months, Russian firms and officials have reported ongoing issues with transaction delays following a crackdown by Chinese banks on compliance measures, influenced by Western threats of secondary sanctions against entities dealing with Russia. This problem has reportedly become more pronounced this month.

Chinese state banks are reportedly halting transactions with Russian counterparts "en masse," with substantial amounts of payments currently stuck, as noted by a government source who wished to remain anonymous.

China holds the position of Russia’s largest trading partner, accounting for nearly a third of the country’s foreign trade in the previous year. The trade includes crucial industrial equipment and consumer goods that help Russia mitigate the effects of Western sanctions. Simultaneously, China benefits from a variety of Russian exports, including oil, gas, and agricultural products.

Reports indicate that after the U.S. Treasury issued warnings in June regarding potential sanctions on Chinese banks, these institutions adopted a much stricter approach to transactions. A representative from a major Russian e-commerce platform, dealing in a wide range of goods from China, shared that all cross-border payments ceased at that time. While alternative solutions were eventually found, the process took approximately three weeks and resulted in a significant drop in trade volumes.

One workaround that emerged involved purchasing gold, transporting it to Hong Kong, selling it there, and then depositing the resulting cash in a local bank account.

Additionally, some Russian businesses have begun using networks of intermediaries in third countries to circumvent compliance checks imposed by Chinese banks. This has led to a surge in transaction processing costs, which have escalated to as much as 6% of the payment amount, compared to nearly zero prior to these developments.

Due to the sensitive nature of the matter, the sources requested anonymity. One government insider mentioned that such conditions have effectively put a stop to operations for many small businesses.

The Kremlin has acknowledged these challenges while emphasizing the importance of economic cooperation between the two nations, expressing confidence that solutions will be found. The spokesman noted that operational challenges are inevitable given the scale of trade and the current geopolitical climate.

Despite ongoing issues, senior Russian officials remain untroubled regarding transactions with China, stating that payments in key areas continue to proceed without complications, buoyed by political will from both parties. Major trading arrangements between large commodity exporters in Russia and technology exporters in China remain functional, while smaller firms engaged in consumer goods face the most difficulties.

Reports show that Russian exporters have not encountered significant problems in receiving payments for key commodities supplied to China, such as oil and grain. Official customs data indicates that bilateral trade between Russia and China increased by 1.6% to $137 billion in the first half of 2024, following a record high of $240 billion in 2023.

A spokesperson for the Chinese foreign ministry commented on the situation, stating that the normal trade between the two countries aligns with WTO rules and market principles, asserting the illegality of unilateral sanctions and promising to safeguard their legitimate interests.

Statistics show that imports from China to Russia dipped by over 1% to $62 billion during the first seven months of 2024, largely attributed to payment difficulties. Forecasts by Russia’s central bank suggest overall imports may decrease by up to 3% this year, with the expectation of improved conditions in the mid-term future.

After Russian President Vladimir Putin’s visit to China in May, some local banks in China that lack global dealings stepped in to manage bilateral payments, operating beyond the jurisdiction of Western sanctions. However, these banks are often hampered by outdated technology and insufficient staffing.

Additionally, it has been reported that cross-border couriers are transporting physical documents across the Russia-China border to obtain necessary signatures and stamps from Chinese bankers.

Experts suggest that until there are resolutions to payment issues at the governmental level, a substantial influx of investments from China remains unlikely. Recent research underscores the risks facing Russia’s industrial sector, particularly given China’s role as a leading supplier of essential industrial equipment, highlighting that current payment challenges could exacerbate existing vulnerabilities.

Concerns regarding the dependencies of large companies in China and India on American and European markets were also raised, noting that ongoing cooperation with Russia may jeopardize their market access.