China dealt a big blow to Russia this week, with three of the largest banks in the country announcing that they will no longer accept payments from financial institutions in Russia that have been sanctioned by western nations.
On Wednesday, the Russian newspaper Izvestia reported that the China Construction Bank, the Bank of China, and the Industrial and Commercial Bank of China all made the decision to stop accepting these payments due to the “risks of secondary sanctions” that could be handed down on them by the United States.
The three banks rank fourth, second and first in terms of total assets in China, respectively, according to the report.
The newspaper further reported that transactions with banks in Russia that haven’t been sanctioned by the U.S. and others are still happening.
Late last year, the White House threatened to block from its financial system any foreign bank that conducted business with a company or entity that supported the defense industry in Russia.
Only a few days before Russia invaded Ukraine in February of 2022, Moscow and Beijing announced that they had a “no limits” partnership in place. The two countries have remained very close throughout the entirety of the war, and China hasn’t criticized the decision by Russian President Vladimir Putin to invade and carry out the war.
Not long after the invasion began, the economy in Russia took a big hit, as more than 13,000 restrictions went into place. When they did, Russia quickly became the most-sanctioned country in the world, the Carnegie Endowment for International Peace reported.
Russia was cut off from the banking system known as the Society for Worldwide Interbank Financial Telecommunication, or SWIFT. Plus, all foreign exchange reserves were frozen.
Alexey Poroshin, who serves as investing and consulting company First Group’s general director, told the Russian newspaper that the three Chinese banks notified their clients in Russia that they’d no longer accept payments from them at the beginning of last month.
Earlier in February, the Zhejiang Chouzhou Commercial Bank stopped operating in Russia. That was a big blow, as it was the top bank that Russian importers used.
That move alone was very telling for how afraid many Chinese companies were of breaking sanctions that the U.S. has put into place.
Russian lawyer Pavel Bazhanov, who represents clients who own Russian businesses in not just China but the wider region, told Newsweek:
“Chinese banks strive to comply with U.S. sanctions, therefore, to reduce their own risks, settlements in U.S. dollars in trade with Russia have practically ceased and have been replaced by Chinese yuan settlements.”
An executive order that President Joe Biden issued in December, “creates a new risk of secondary sanctions” for China’s financial institutions. He added
“Chinese banks are suspending operations to assess the new risks and update their compliance requirements.”
That means that it’s possible these financial institutions could resume doing business with Russian firms in the future if they determine they’d be safe from U.S. secondary sanctions.
