Several major Russian commodity exporters say trade with China has become a "game of chance" as direct payments in yuan are increasingly frozen or delayed after the U.S. widened criteria for sanctions in June, reports Bloomberg.
After the latest round of U.S. restrictions, it has become very difficult or even impossible to make direct payments from China to Russia, even in yuan, said top executives at three commodity exporters, who spoke on condition of anonymity.
Some Chinese buyers of Russian agricultural products this month also faced problems with payments, said an employee of an agricultural trading firm in the Russian Federation.
The problem affects not only goods such as metals and agricultural products, but also other industries. Last week, the Russian Association of Automobile Dealers warned that imports of cars and auto parts from China, which is now Russia's main supplier, could stop due to settlement problems.
The delays come after the US expanded the parameters for determining whether to impose secondary sanctions in June. In particular, the definition of the military-industrial base of the Russian Federation has become broader.
The situation illustrates how tougher sanctions against Russia are slowly affecting its economy. In the July report on macroeconomic and financial trends, the Central Bank of the Russian Federation stated that there is a decrease in the degree of openness of the Russian economy, which is expressed in a decrease in the share of imports and exports in GDP, as well as in an increase in the role of domestic demand and production.
Since late last year, Russia has also faced difficulties in dealing with other major trading partners, including the United Arab Emirates and Turkey, as US pressure on creditors slows down transactions. Trade with India also has problems, because the rupee is not fully convertible.
Although China has not joined the West in imposing sanctions against Russia, payments between the two countries have faced obstacles since December, when the US threatened to introduce secondary sanctions against banks that facilitate the supply of goods to the Russian military industry. In June, Russian companies said the problem had been resolved with the help of small regional banks, after Vladimir Putin met with Chinese leader Xi Jinping in May, but the US then expanded the sanctions criteria.
"US sanctions and the threat of secondary sanctions have already led to an increase in the number of banks in China that do not want to make payments and foreign trade settlements with Russia." — said Alexander Potavin, an analyst at Finam in Moscow.
Those who run into problems often find alternative ways to pay, including using cryptocurrencies or routing transactions through former Soviet republics such as Kazakhstan or Uzbekistan, although this increases costs.
"We do not yet see a clear collapse of imports due to delays, but imports in rubles have already begun to decline." Dmitriy Polevoy, director of investments at Astra Asset Management, a Moscow-based company, said.
Imports in rubles as a share of GDP decline significantly after the recovery in 2023.
Some traders are still able to make yuan payments to Russia, but only through a limited number of large state-owned banks. Smaller or local lenders are no longer an option — following the expansion of sanctions criteria.
However, some exporters stated that they had no problems making payments. According to the top manager of one of the companies, the transaction of a large Chinese energy exporter denominated in yuan this month went without problems, even though some banks stopped cooperation with the Russian Federation.
Trading is still happening, but it is definitely more expensive due to the significant increase in the cost of making payments.
China has become an important pillar and main trading partner of Russia since the Kremlin's full-scale invasion of Ukraine in February 2022 and the introduction of extensive sanctions against the Russian Federation. Since then, trade between the two countries has grown by more than 60% to $240 billion in 2023. Russia has overtaken Germany, Australia and Vietnam in the list of Beijing's largest trading partners, according to Chinese customs data. Yuan currently accounts for about 40% of export and import payments of the Russian Federation.
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