According to The Wall Street Journal, Chinese banks will not help Russian business partners get out of the financial crisis. Although the Chinese government is capable of minimizing the negative impact of crippling Western sanctions on the Russian economy, it is not making much progress, analysts note.
It is quite difficult for Russian and Chinese authorities to bypass the greenback used in the international financial system. However, China has repeatedly helped other nations evade sanctions, trying to push back against the so-called dollar hegemony. This experience has proven useful, especially when the trade war with the United States escalated.
The two countries trade with each other without using dollars. This enables Russia to sell oil, gas, and other products, overriding the US financial system. However, the WSJ believes that large Chinese banks will not come to Russia’s rescue. According to Professor Zhiwu Chen, chair of finance at the University of Hong Kong’s business school, one of the reasons is that Chinese financial institutions are not keen on providing banking services to Russian clients.
Another major cause is a 2017 law that allows the US to penalize foreign entities that trade with sanctioned organizations and countries. “Chinese financial institutions are taking these sanctions seriously and being very careful about understanding what the risks are,” Chen Zhu, a spokesman for Morrison & Foerster LLP, said.
Due to the Western actions, “there’s now less room for Chinese companies and financial institutions to be doing business with Russian counterparts.” At the same time, China’s Cross-Border Interbank Payment System, or CIPS, which was supposed to become an analog of SWIFT, is not fit for this purpose. As of the third quarter of 2021, CIPS processed an average of just 13,000 transactions a day, while SWIFT handled more than 40 million. If Western countries continue to impose severe sanctions on Russia, its economy will suffer a steep contraction. This, in turn, will damage the strategic interests of China. However, Beijing will find a way out and probably use intermediaries to cooperate with Russia, experts believe.
