China’s major state-owned banks are taking precautionary measures amid escalating sanctions against Russia by halting payments from sanctioned Russian financial institutions, according to reports.
Compliance Measures
Reports suggest that three of China’s prominent banks — the Industrial and Commercial Bank of China, China Construction Bank, and Bank of China — have suspended transactions with sanctioned Russian entities since the beginning of 2024. This move follows concerns about the repercussions of being implicated in the West’s sanctions regime against Russia.
Triggering Factors
The decision to halt transactions with sanctioned Russian firms was reportedly prompted by increased scrutiny and compliance checks following the imposition of new sanctions by the European Union and the United States in December. The threat of secondary sanctions targeting financial institutions aiding Russia in circumventing sanctions further contributed to Chinese banks’ caution.
Trade Imbalance Concerns
Alexey Poroshin, the general director of investment and consulting firm First Group, highlighted the disparity in trade balance between China and Russia compared to China and the US. Chinese banks are reportedly wary of risking their extensive trade ties with the US by engaging in transactions with sanctioned Russian entities.
Impact of Sanctions
The tightening of sanctions against Russia comes amid efforts by Western nations to apply economic pressure on the country in response to its invasion of Ukraine. Despite Russia’s efforts to pivot its trade towards the East, particularly with China and India, Western sanctions continue to pose significant challenges to its economy.
Dependency on Chinese Institutions
Russian firms engaged in international trade have increasingly relied on Chinese institutions and the Chinese yuan, particularly after some Russian banks were disconnected from the SWIFT global financial-messaging system. This dependency has made them vulnerable to disruptions caused by sanctions targeting entities conducting business with Russia.
Diplomatic Engagement
Acknowledging the issues surrounding Chinese bank transactions, the Kremlin has indicated that efforts are underway to address the matter through diplomatic channels. Dmitry Peskov, a spokesperson for the Kremlin, stated earlier this month that authorities are actively engaging with Beijing to resolve the challenges related to banking transactions.
In summary, the cautious approach adopted by Chinese banks reflects the complex interplay between economic interests, compliance with international sanctions, and diplomatic relations amidst the evolving geopolitical landscape.
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