Growing Payment Delays for Russian Companies with China

MOSCOW (Reuters) – Some Russian companies are encountering increased payment delays and costs with trading partners in China, impacting transactions worth billions of yuan.

Russian companies and officials have noted transaction delays as Chinese banks have tightened compliance following threats of secondary sanctions from the West. This issue has reportedly intensified in recent weeks.

Chinese state banks are reportedly shutting down transactions with Russia en masse, leading to substantial payment delays. One anonymous source close to the government indicated that billions of yuan worth of payments are currently held up.

China is Russia’s largest trading partner, accounting for a third of Russia’s foreign trade last year. It supplies crucial industrial equipment and consumer goods that aid Russia in navigating Western sanctions. Moreover, China provides a major market for Russian exports such as oil, gas, and agricultural products.

In June, after the U.S. Treasury threatened secondary sanctions on banks in China and other nations dealing with Russia, Chinese banks adopted stringent measures regarding transactions. A source from a leading Russian e-commerce platform noted that all cross-border payments to China ceased temporarily before alternative solutions were found, which took about three weeks and drastically reduced trade volumes during that period.

To circumvent compliance checks by Chinese banks, some Russian businesses have resorted to using intermediaries in third countries, resulting in transaction costs rising to as much as 6%.

For many small companies, the ongoing issues have become detrimental, with some facing complete shutdowns, according to a government source.

The Kremlin acknowledged these challenges, emphasizing the importance of economic cooperation. Kremlin spokesman Dmitry Peskov noted that while problematic situations arise, the partnership spirit facilitates constructive discussions and solutions.

Transactions with China do not raise concerns for top Russian leadership because payments in priority sectors are reportedly proceeding smoothly, with political cooperation from both sides. Bilateral trade between the countries increased by 1.6%, reaching $137 billion in the first half of 2024, following a record high of $240 billion in 2023.

China’s foreign ministry reiterated that normal trade is consistent with WTO rules and is not influenced by external coercion. They oppose unilateral sanctions and will safeguard their rights and interests.

Unfortunately, Russia’s imports from China saw a slight decline (over 1%) due to payment issues, and forecasts indicate an overall 3% drop in Russia’s total imports this year.

Despite some local Chinese banks stepping up to facilitate payments post President Putin’s visit to China, many lack modern systems and resources to efficiently handle transactions.

Until payment issues are resolved at the state level, the influx of Chinese investments is unlikely to increase. Research indicates that ongoing payment problems heighten risks for Russia’s industrial sector, heavily reliant on Chinese suppliers.

Many large companies in China and India remain cautious due to their dependence on American and European markets, where they face pressures regarding their dealings with Russia.