Saturday, May 18, 2024

Chinese firms navigate payment hurdles amid Russia trade troubles

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Chinese businesses, struggling with challenges in conducting transactions with Russia amid concerns over US sanctions, are resorting to unconventional methods to facilitate payments.

Heightened scrutiny from major Chinese banks, wary of possible repercussions from Washington, has led to delays and restrictions in settling payments for goods destined for Russia.

As a result, companies are exploring alternative channels, including currency brokers along the China-Russia border and even banned cryptocurrency, to overcome these payment hurdles.

Reuters spoke with multiple sources familiar with the situation, who provided insight into the present Sino-Russian trade relations.

The reluctance of China’s major banks to process transactions related to Russia has prompted small Chinese exporters to seek alternative avenues for payments.

Accompanied by fears of being targeted by US sanctions, these banks have tightened scrutiny on Russia-related businesses, complicating trade finance for Chinese exporters.

The delays in payment clearance have prompted concerns among businesses, with some opting to scale back operations in the Russian market or explore unconventional payment methods to mitigate financial risks.

As reported by Reuters, transactions between China and Russia are increasingly being routed through underground channels, including currency brokers and even banned cryptocurrency, as mainstream banking channels face heightened restrictions.

However, these alternative channels also carry inherent risks, raising concerns about the long-term sustainability of such practices.

Chinese banks, particularly rural banks along the China-Russia border, have emerged as alternatives for processing payments to Russia.

However, the influx of businesses seeking to leverage these banks has resulted in bottlenecks, with some businesses reporting lengthy delays in opening accounts.

Despite efforts to explore these alternative options, challenges persist, with some companies encountering obstacles in accessing banking services or receiving payments from Russian clients.

The impact of restricted payments from Russia extends beyond individual businesses, affecting China’s financial institutions and trade relations with Russia.

Major Chinese banks have reported declines in Russia-related business activities, reversing previous growth trends.

Notably, China Construction Bank and Agricultural Bank of China have experienced drops in assets attributed to their Russian subsidiaries.

As Chinese companies grapple with payment delays and uncertainty in conducting business with Russia, concerns persist about the sustainability of alternative payment channels and the potential for further disruptions.

Some businesses have already begun reconsidering their presence in the Russian market, citing liquidity management concerns and the unpredictability of future developments.

(With inputs from Reuters)

Shashwat Sankranti

Breaking and writing stories for WION’s business desk. A literature nerd, closeted poet and a novelist (in the making). 

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