A major Chinese bank for Russian importers, Chouzhou Commercial Bank, ceased operations with Russian and Belarusian companies, the Russian Vedomosti newspaper reported Wednesday.
In addition to Chouzhou Commercial Bank, Vedomosti reported that other Chinese and Hong Kong banks are tightening regulations around transactions with Russia to ensure they comply with Western sanctions. The Kremlin has acknowledged the instability of relations between Russian companies and Chinese banks.
Kremlin spokesperson Dmitry Peskov said Russia’s government is “working” with the Chinese government to resolve the commercial problems between the two nations.
Since the West’s initial sanctions on Russia in February 2022 after its invasion of Ukraine, Chinese banks have become key commercial partners for Russian companies, facilitating increased Sino-Russian trade.
Vedomosti reported that Chouzhou’s decision was related to U.S. President Joe Biden’s December 22 executive order, which strengthened sanctions on financial institutions that aid the Russian military.
Ali Wyne, a senior research and advocacy adviser for U.S.-China at the nonprofit International Crisis group, said the move was a sign that sanctions are working.
“The United States is working harder to dissuade financial institutions from assisting Russia’s efforts to circumvent sanctions. Chinese lenders are taking note and maneuvering to avoid secondary sanctions,” Wyne told VOA in a statement.
Russian analysts said Chouzhou’s decisions, which coincide with the major Lunar New Year holiday season in China, would lead to short-term logistical delays.
“All the troubles are superimposed on the Chinese New Year, so the Russians will not be able to start solving this problem until the beginning of March,” Russian freelance economic journalist Maxim Blunt said to VOA Russian.
“This will not stop mutual trade, but it will certainly add to the problems on the railways and in the ports. Logistics chains between Russia and China are already overloaded, and now this is compounded by overstocking of warehouses and other problems.”
Blunt said Russian consumers would most likely face shortages or inflation as a result.
“Since China is Russia’s main trading partner, we should expect either a shortage or a rise in the price of a wide range of goods, from industrial equipment to wide ports,” Blunt said. “Another brick has been laid in the wall that separates Russia from the civilized market.”
Despite the increased costs, Chouzhou’s decision will not be paralyzing for Russia, according to Russian Sinologist Aleksei Chigadaev of Leipzig University.
“Of course, the Russian economy will not collapse from this,” Chigadaev told VOA Russian. “The main segment that the bank serves seems to be small and medium-sized businesses. There is no exact customer data in the public domain.
“But judging by where it is located and which Russian companies are served in it, these are most likely small enterprises that are engaged in wholesale purchases of consumer goods, clothing, souvenirs and so on. Therefore, they will now record losses and come up with new payment schemes.”
Chigadaev said these tensions show that China is prioritizing its relationship with the U.S. over Russia.
“The Chinese do not mind making money on supplies to Russia, but as soon as it comes to choosing between the Russian market and the American market — and now the question often arises in this way — then, of course, they will choose the latter,” Chigadaev said. “This will be the end of any partnership.”
Wyne said, however, that Chouzhou’s decision does not necessarily reflect a recalibration in the Sino-Russian relationship.
“Whether one considers the frequent interactions between their presidents and defense ministers, the deepening of their military cooperation or the record trade that they posted last year, Beijing and Moscow are drawing closer, not drifting apart,” Wyne wrote.
“China appears to have concluded that it can simultaneously strengthen its ties with Russia and sustain the current thaw in its ties with the United States.”