While China’s banks and its homegrown payments system could offer Russia a much-needed respite from crippling Western sanctions, Beijing has been toeing a careful diplomatic line between trying to maintain ties with Moscow in the public eye, while quietly also distancing itself from the nearly collapsed Russian economy.
In the past, China has helped other nations evade sanctions, and both countries share an interest in weakening the dollar’s hold on the international financial system.
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As Russia’s economic isolation grows, China’s support has become a vital lifeline for the Kremlin during this perilous time. So far, Beijing has seemingly obliged, at least in the public eye.
The Chinese Communist Party (CCP) has been careful not to publicly condemn Moscow’s invasion, calling it a “special military operation” instead, and abstained in several U.N. and NATO actions concerning the conflict.
On the day that the invasion began in the early hours of Feb. 24, China announced the lifting of all import restrictions on Russian wheat – an agreement signed between Russian President Vladimir Putin and Chinese leader Xi Jinping prior to the start of the Beijing Winter Olympics. China has also declined to join in on the growing list of sanctions placed against Russia’s economy.
“Chinese financial institutions are taking these sanctions seriously and being very careful about understanding what the risks are,” said Chen Zhu, a Hong Kong-based partner at Morrison & Foerster LLP. Due to the broad Western actions, “there’s now less room for Chinese companies and financial institutions to be doing business with Russian counterparts,” he said.
Russia’s growing financial turmoil
On March 5, Visa and Mastercard announced that any transactions initiated with their cards issued in Russia will no longer work at ATMs or merchants inside the country starting March 10. Cards issued outside of Russia will also no longer work inside the country or for online purchases, the firms said.
In a statement, Mastercard described Russia’s invasion of Ukraine as “shocking and devastating,” and confirmed that it would continue to support its more than 200 staff members there.
On March 6, American Express also said it would be suspending operations in Russia as well as Belarus. The moves are “in addition to the previous steps we have taken, which include halting our relationships with banks in Russia impacted by the U.S. and international government sanctions,” the bank said.
Sberbank, Russia’s largest lender, said it is now looking at the possibility of issuing cards using Russian payments system Mir and China’s UnionPay after Visa and Mastercard suspended operations over the weekend.
The move could allow Russians to make some payments overseas, with UnionPay operating in 180 countries and regions. Cards issued by domestic banks will continue to work in Russia using its payment system and Sberbank said it would announce timescales later.
Farida Rustamova, an independent journalist who left Russia because of the invasion, criticized Visa and Mastercard’s decision, saying it would cut off people like her from life-saving funds.
“Now thousands of people, including not only journalists but opposition activists and even common people who are scared of Putin’s regime and are running from war will be cut from whatever little money they had.
“And the sad thing is this is exactly what Putin wants to happen,” she said.
Will China extend more sizable support?
Sweeping sanctions announced by the U.S. and its Western allies targeted the National Wealth Fund of the Russian Federation and the Ministry of Finance of the Russian Federation. On March 1, U.S. President Joe Biden announced that Russian flights would be banned from U.S. airspace, following similar decisions by the EU and Canada.
Key Russian banks have also been barred from the SWIFT international payments system, (which stands for Society for Worldwide Interbank Financial Telecommunication,) preventing them from accessing secure international communication and ostracizing them from most of the world’s financial system.
Since the invasion began, the Russian ruble has plunged more than 30 percent and hit an all-time low of 109.55 against the dollar last week. Russian stocks have also seen massive sell-offs and the Moscow stock exchange has remained closed since March 2 as authorities looked to stem the bleeding in local asset prices and increase interest rates in hopes of encouraging the public to leave their cash in Russian banks.
China has long been concerned about what it calls “dollar hegemony,” especially as the trade war with the U.S. worsened. In recent years, China and Russia have significantly bolstered diplomatic ties including upping military cooperation and conducting joint maritime exercises, raising major alarms in Washington and within its Western allies.
The two countries have also increasingly traded with each other without using dollars, giving Russia an important outlet for selling oil, gas and other products without utilizing the U.S. financial system. Just over a third of Russia’s exports to China were settled in dollars as of last September, according to official customs data — down from 96 percent in 2013.
But these numbers now pale in comparison to other markets that will likely remain shut off to Russia’s nearly collapsed economy. And while Beijing has been vocal in its recent opposition to sanctions targeted against the country’s oligarchs and against Putin himself, experts believe key Chinese banks aren’t likely to come to Russia’s rescue as the international community further pressures Beijing to condemn Moscow’s invasion.