Guangdong, China – A dilemma is facing an appliance manufacturer in southern China as they struggle to ship their products to Russia. The issue does not stem from faulty gadgets, but rather from the reluctance of big Chinese banks to facilitate payments for such transactions due to concerns over U.S. sanctions.
In light of difficulties settling payments for their electrical goods, the Guangdong-based company is contemplating turning to currency brokers operating along China’s border with Russia, according to the company’s founder, Wang. The United States has imposed various sanctions on Russia and Russian entities since the country’s invasion of Ukraine in 2022, prompting fears of potential extensions to Chinese banks financing transactions with Russia.
The financial strain impacting even non-military trade from China to Russia is proving to be a significant challenge for small Chinese exporters, as indicated by insights from seven trading and banking sources familiar with the situation. With China’s major banks retracting from financing Russia-related transactions, some Chinese companies are resorting to alternative payment methods such as small border banks and underground channels, including cryptocurrency despite the ban in China.
The shift towards unofficial payment channels has become a necessity for many businesses, as official banking routes are becoming increasingly cumbersome due to prolonged processing times. Big banks now take months to clear payments from Russia instead of days, compelling businesses like Wang’s to seek unconventional payment solutions or scale back operations.
Concerns over potential U.S. sanctions are driving heightened scrutiny of Russia-related transactions by Chinese banks, with some financial institutions either intensifying checks or ceasing business altogether to mitigate sanctions risk. The implications of this financial crackdown are pushing transactions between China and Russia towards clandestine channels, leading to heightened risks in the payment process.
Despite the challenges posed by the evolving financial landscape, the Chinese government maintains that it is not aware of the practices described by businesspeople to arrange payments or of any payment settlement issues through major Chinese banks. The lack of acknowledgment from Chinese authorities raises questions about the impact on Chinese companies and the necessity of exploring alternative payment avenues in the face of shifting financial dynamics between the two countries.