Russia-China Trade Hamstrung by US-Fueled Bank Issues

The Western sanctions campaign against Russia is complicating business between Russian entities and China, which for Moscow has become a vital marketplace, given Kremlin economic isolation during its war on Ukraine.

The Moscow Times reported on Tuesday—citing Russian Central Bank data—that both exports and imports between the two neighboring markets are decreasing. The issue appears to be linked to the refusal of Chinese banks to engage with some Russian clients, the online newspaper said, for fear of falling foul of Western sanctions.

Newsweek has contacted the Russian Ministry of Trade and Industry to request comment.

Russia and China have been conducting more trade in yuan since Moscow launched its invasion of Ukraine in February 2022 and was met with unprecedented sanctions from its Western rivals. Moscow was cut off from the SWIFT worldwide payment system and unable to settle trade in dollars. Russia then adopted the yuan for many of its international transactions.

However, a recent falling share of imports and exports conducted in yuan is notable. For export revenues, the share of the yuan decreased to just over 30 percent in the March data, compared with just over 40 percent in January. For import revenues, the yuan share fell from 38.5 percent in January to 32.3 percent in the March data release.

Russian foreign trade has been complicated by President Joe Biden’s December 2023 order for the Treasury Department to begin imposing secondary sanctions on foreign banks helping Moscow circumvent sanctions.

Some major Chinese banks have already stopped processing Russian payments. Others have resorted to taking payment through third parties, making trade more costly and time-consuming.

Reuters reported last week that Russian companies are facing delays of up to six months as concerns over secondary sanctions cause Chinese banks to tighten controls. But there are still thousands of banks in China with no presence in the U.S. market—and therefore no exposure to potential sanctions.

Still, any hint of trade trouble with the Chinese may be of concern to the Kremlin. China is by far Russia’s largest trade partner, with business between the two neighbors expanding to a record high of around $240 billion in 2023.

China has largely refused to back Western sanctions on Russia and has been cool on Ukrainian appeals to exert more pressure on Moscow to end its invasion.

Beijing has framed itself as a neutral arbiter in the conflict, but Western and Ukrainian officials have cited its continued economic and political cooperation with Russia as evidence of China’s de facto support for the Kremlin’s operation.