China will not follow the western world to impose sanctions on Russian banks but will welcome Russian companies to settle their trade in renminbi, according to Chinese officials and state media.
State media said China-Russia bilateral trade would continue to grow with the increasing use of China’s Cross-border Interbank Payment System (CIPS) and Russia’s System for Transfer of Financial Messages (SPFS) amid the SWIFT ban on Russian banks. They said China is willing to buy Russia’s oil and gas and pay for it in renminbi.
The comments came after some Russian companies, including Gazprom Neft, the third-largest oil producer in the country, planned to accept Chinese currency in payments while several Russian banks started issuing credit cards that link to China’s UnionPay system.
Some Chinese researchers said, however, that it’s not easy for China to use this opportunity to internationalize the yuan as the coverage of the West’s sanctions against Russia could expand.
Since Russian troops entered eastern Ukraine on February 21 and began a full-scale invasion of Ukraine on February 24, the United States and European Commission have imposed several rounds of sanctions on Russian officials, oligarchs, banks and the central bank.
On February 26, the European Commission, supporting the Ukrainian people’s to resistance against Russia’s invasion, said it is committed to ensuring that selected Russian banks are removed from SWIFT.
On March 2, SWIFT said it would disconnect seven designated Russian entities and their designated Russia-based subsidiaries from the SWIFT network starting March 12. The sanctioned banks include Russia’s second-largest VTB, Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank and VEB.
Russia’s largest lender Sberbank and Gazprombank were excluded because they are the main channels for EU countries’ payments for Russian oil and gas.
China’s financial institutions will not join sanctions against Russia, Guo Shuqing, the chairman of the China Banking and Insurance Regulatory Commission, said in a media brief on March 2 before the opening of the “two sessions,” the term for the annual meetings of the Chinese People’s Political Consultative Conference and the National People’s Congress.
China opposes all “unilateral” sanctions, he added, reiterating the Ministry of Foreign Affairs’ argument that such sanctions would not effectively address problems,
“We disapprove of imposing financial sanctions on Russia, especially unilateral sanctions, as they don’t work well and don’t have much legal basis,” Guo said.
“We will continue to maintain normal economic and financial exchanges with all sides. The sanctions’ economic and financial impact on China is not significant for now and requires further observation. But we believe the overall impact will not be huge because the Chinese economy and finance demonstrate tremendous stability and strong resilience.”
Last week, China’s state media started promoting the use of CIPS in the China-Russia trade. They said CIPS together with SPFS would continue to grow and become an important global interbank payment system.
On Monday, the International Finance News, a unit of the People’s Daily, published a commentary entitled “Several Russian banks turn to UnionPay! Is Russia’s de-dollarization accelerating?”
The article said several major Russian banks including Sberbank, Alpha Bank and Tinkoff had announced over the weekend that they would consider using the Chinese credit-card system, Union Pay. It said some Russian banks including Pochta, Gazprombank and Promsvyazbank had already started linking to UnionPay.
Besides, it said, more and more Russian firms, including logistics company Fesco and energy supplier Gazprom Neft, would accept yuan payments.
Citing an unnamed Chinese banker, the article said the proportion of trade settled in yuan to all international trade would increase due to the growing trade between China and Russia.
Zhang Hanhui, the Chinese Ambassador to Russia, said on February 23 that 17.5% of the China-Russia cross-border trade was settled in yuan in 2020, up from 3.1% in 2014. Zhang said China was looking forward to seeing more Chinese and Russian companies trade in renminbi.
Last Sunday, Sberbank and Tinkoff told users that all cards using the Visa or Mastercard systems would stop working after Wednesday, whether for purchases on foreign websites or for transactions abroad. The two banks said they were considering the possibility of payment cards powered by UnionPay.
UnionPay cards are accepted at physical stores in 180 countries and regions and at online stores in 200 countries and regions, according to the organization’s website.
Meanwhile, Chinese media reported on March 2 that all Russian food products had been sold out at the Russia State Pavilion, a virtual shop on Chinese e-commerce platform JD.com, after 1.9 million Chinese people followed the shop’s account to support Russia’s attack on Ukraine.
They said the shop is a China-foreign joint venture set up by a legal representative called Sergey Batsev, a China representative for Business Russia, an organization representing the country’s small and medium entrepreneurs outside the commodities sector, while the online shop is the sole sales channel approved by the Russian Embassy to China.
In a video, Batsev thanked the Chinese consumers for their support of Russian products but he also called on shoppers to make their purchases rationally. The shop cannot deliver its products until April or May.
On March 4, Russian news outlet Sputnik also reported that 200,000 Chinese netizens had recently shopped at the Russia State Pavilion.
While China-Russia bilateral trade is expected to grow, Tan Yaling, director of China Forex Investment Research Institute, cautioned that it will take time for the world to push forward “de-dollarization” as the US dollar has so far remained a dominant trading currency.
Tan said sanctions against Russia, a large economy, will not be limited to the country’s financial system but may expand to many other sectors. She said it’s inevitable that SWIFT and other interbank systems will continue to coexist and cooperate in future.
In January, renminbi were used in 3.2% of global trade settlement, up from 2.7% last December, according to SWIFT. About 39.9% of global trade was settled in US dollars, 36.6% in euros and 6.3% in British pounds.
Last year, the Chinese currency replaced the Japanese yen to become the fourth largest currency for global trade settlement.
Read: China media goads Russia to use CIPS over SWIFT
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