Russians Look to Chinese Financial System For Relief From Sanctions Imposed Over Ukraine War

A man walks past the stock market building in downtown Moscow. (Photo by Natalia Kolesnikova/AFP via Getty Images)

A man walks past the stock market building in downtown Moscow. (Photo by Natalia Kolesnikova/AFP via Getty Images)

Moscow ( – Russian banks, companies, and ordinary citizens are increasingly looking to China’s financial system for relief from Western sanctions.

Since Russia’s invasion of Ukraine on February 24, the U.S. and the European Union have imposed sanctions against Russia’s central bank and other major financial institutions, significantly limiting the ability of Russian banks to process cross-border transactions and raise money in foreign markets.

On Saturday, Visa and Mastercard announced that they will entirely halt their operations in Russia. Their cards issued in Russia will no longer work abroad and those issued abroad will no longer work in Russia.

In response, several of Russia’s largest banks – Sberbank, Tinkoff, Alfa-Bank, and Moscow Credit Bank – announced that they have begun working on issuing cards with China’s UnionPay network.

UnionPay is the largest payment system in China and reports on its website that its cards are supported in more than 180 countries around the world. In Russia, a growing number of stores have begun accepting UnionPay cards since 2014 in an effort to accommodate Chinese tourists and business people visiting the country.

Between 200 and 300 Russian companies have in recent days reached out to Chinese state banks with branches in Moscow to express interest in opening new accounts, Reuters reported on Monday.

There are also signs that Moscow is exploring potentially using the Chinese yuan as an instrument of safeguarding its trade activities from Western sanctions. According to a statement by the Association of Suppliers of Kyrgyzstan on Tuesday, Russian exporters have offered their Kyrgyz partners to conduct settlements in yuan instead of dollars. 

A similar proposal was aired by Dmitry Medvedev, former Russian president and deputy head of the Security Council, a month before the invasion of the Ukraine. Medvedev told reporters at the time that in the event of new Western sanctions, Russia would move to fully replace the use of dollars and euros with yuan in international transactions.

He said the yuan was “a new, very promising reserve currency, given the size of the economy of the People’s Republic of China.’

In recent days, numerous articles have appeared in Russian media urging readers to consider converting part of their savings into yuan as a way of protecting themselves from inflation.

Mikhail Kogan, an economic analyst at the Higher School of Financial Management, told the Moskovsky Komsomolets newspaper that the yuan was a good choice due to its potential to become “a full-fledged alternative to the dollar” and the likelihood that Beijing’s importance as a trading partner for Russia will increase because of the sanctions.

“Consequently, there will be much more direct conversion between the ruble and the yuan – for example, bilateral payments for gas have long been carried out in the yuan instead of dollar,” he said “Therefore, we can predict an increase in demand for the yuan as a result of this currency’s growing commercial use by the Russian Federation.”

China has been Russia’s largest trading partner since 2010 and the turnover between the two reached a record high of $146.88 billion last year, according to data from China’s General Administration of Customs.

During the first two months of 2022, Russia-China trade turnover amounted to $26.43 billion, an increase of 35.8 percent compared to the same period last year.

Although China has avoided directly endorsing Russia’s war in Ukraine, it has refused to condemn Moscow’s actions and accused the West of helping to cause the conflict.

China’s Banking and Insurance Regulatory Committee said last week Beijing would not join sanctions against Russia and planned to maintain “normal trade, economic, and financial ties” with both Moscow and Kyiv.

Chinese Foreign Minister Wang Yi on Monday called Russia his country’s “most important strategic partner” and described the friendship between the two countries as “rock solid.”

Some Chinese business people have responded to these political statements by deepening their financial ties with Russia. CNN reported on Tuesday that over the past week, Chinese small investors have flocked to stocks associated with companies that either do business with Russia or help facilitate trade between the two countries.

Bloomberg reported that Chinese-state owned firms were looking to acquire ownership stakes in large Russian energy and commodities companies, including gas conglomerate Gazprom and aluminum giant Rusal.

“For many Chinese business people, the Ukraine war is shaping up as an opportunity to make money trading with sanctioned Russia,” Artyom Lukin, a professor at the Far Eastern Federal University, wrote on Twitter.

Some major Chinese financial institutions have indicated concern about running afoul of Western sanctions, however. Last week, the Chinese-led Asian Infrastructure Investment Bank and the Shanghai-based New Development Bank announced they would be suspending their operations in Russia.

The Biden administration has sought to downplay China’s ability to help Russia ease the economic pain from the sanctions.

White House press secretary Jen Psaki told reporters on Monday that “there’s not a way, just based purely on their place in the economic marketplace, for China to completely backfill the impact of the G7 and others in the world.”

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