Russian firms rush to Chinese banks as sanctions hit

A Chinese state bank’s Moscow unit has noticed an increase in queries from Russian companies looking to set up new accounts as the country’s firms struggle with international sanctions following its invasion of Ukraine, reported Reuters.

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“Over the past few days, 200-300 companies have approached us, wanting to open new accounts,” the person, who works at the Moscow branch of a Chinese state bank and has direct knowledge of its operations, told Reuters.

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Following Russia’s invasion of Ukraine, Western nations are tightening the economic noose on Russia, disconnecting its banks from the SWIFT global financial network and pressuring multinationals to withdraw billions of dollars in investment.

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While China’s financial supervisor stated this week that the nation will not join the West’s sanctions against Russia, certain Chinese banks have ceased issuing dollar-denominated letters of credit for physical commodity transactions, sources told Reuters.

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Now, executives at some of China’s major banks are looking at alternative payment channels as well as the potential of shifting part of their business to smaller domestically oriented competitors to avoid secondary sanctions, two bankers familiar with the situation told Reuters.

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After certain Russian banks were kicked out of the global financial messaging system SWIFT, FESCO Transportation Group, a large Russian transport and logistics company, said this week that it will accept Chinese yuan from customers.

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“It’s natural for Russian companies to be willing to accept yuan,” said Shen Muhui, head of a trade body that promotes links between Russia and China.

However, small Chinese exporters are suffering as the rouble falls, and many are halting delivery to prevent possible losses, he added.

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On Wednesday, the Russian currency fell to a historic low of more than 17 roubles to the yuan, having lost over 40% of its value against the Chinese unit in the previous week.

China is Russia’s most important trading partner, purchasing one-third of Russia’s crude oil exports in 2020 and supplying the country with manufactured goods ranging from mobile phones and computers to toys and apparel.