One of China’s top lenders has dealt Russia’s economy a significant blow by suspending transactions with Russian banks sanctioned by the U.S. over the invasion of Ukraine, according to Russian media.
The Russia division of the Bank of China, which focuses on payments denominated in yuan (RMB), has stopped processing payments in the Chinese currency starting Monday, Russian daily newspaper Kommersant cited financial sector sources as saying. The Russian and Chinese foreign ministries did not immediately respond to written requests for comment.
ICBC, China CITIC Bank, and most other Chinese banks have made similar actions in response to U.S. secondary sanctions introduced to punish entities doing business with Russian firms in sectors that could support the country’s military supply chain.
“This is not very pleasant news for the Russian market. There will be additional costs both in terms of time and cost of processing payments,” one of the sources said.
The source added that the most important problem would be that it further drives the shift among sanctioned Russian sectors toward non-banking actors for transactions, meaning less state control and a higher risk of fraud. “If the money is frozen, it will be returned in [Russian] rubles, but at what rate this will be done is unclear,” he said.
Alexey Fedoryaka, a partner at Sapozhnikov & Partners, told Kommersant it is the secondary sanctions against foreign banks’ subsidiaries in Russia that pose the largest threat.
The majority state-owned commercial bank is China’s fourth-largest bank in terms of global assets and the second-largest Chinese lender operating in Russia. Bank of China operates hundreds of branches overseas in over 60 countries, including the U.S.
Earlier this month, Washington expanded its 300 organizations and persons to its sanctions list, about 50 of which are in mainland China or Hong Kong, over their alleged role in exporting chips and other dual-use technology that could aid President Vladimir Putin‘s war machine.
The Chinese Foreign Ministry accused the U.S. of hypocrisy for continuing to provide Ukraine with weapons while “shift[ing] the blame of undermining peace” and stressed China-Russia trade is “inherently logical and resilient.”
Chinese trade, including purchases of Russian oil and natural gas, has helped buoy Russia’s isolated economy since the beginning of Moscow’s invasion more than two years ago.
Largely frozen out of the global financial system, Russia has been increasingly dependent on the Chinese yuan (RMB) for international transactions with Beijing’s trade partners. Experts say the arrangement has allowed China to experiment in its efforts to diversify from the U.S. dollar on a larger scale.
As of December 2023, the yuan accounted for about one-third of Russian trade.