A mobile screen with apps from the four Chinese technological giants – Baidu, Alibaba, QQ from Tencent and MI from Xiaomi. Photo: AFP / Riccardo Milani / Hans Lucas

Chinese exporters are being reminded by industry groups to check whether the banks of their Russian buyers have been sanctioned by the West following the February 24 launch of Russia’s invasion of Ukraine.

Several exporter groups have recently issued reminders to their members and suggested that they receive payments from Russian buyers before shipping their products. They said that even if Russian firms paid in renminbi through China’s Cross-border Interbank Payment System (CIPS), other payment and currency risks could still exist.

News media reported that several Chinese smartphone suppliers had halved their exports to Russia since February 24 due to the falling ruble. The United States also warned that Chinese chipmakers could face consequences for violating the US ban on exports to Russia. Analysts said it remained unclear whether China’s exports to Russia could maintain high growth this year.

After Russian troops began a full-scale invasion of Ukraine last month, the United States and the European Commission said they would ensure that selected Russian banks are removed from SWIFT. From March 12, SWIFT would disconnect seven designated Russian entities and their designated Russia-based subsidiaries from its system.

The sanctioned banks include Russia’s second-largest, VTB, as well as Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank and VEB. Russia’s largest lender, Sberbank, was escluded along with Gazprombank because they have been the main channels for EU countries’ payments for Russian oil and gas.

Guo Shuqing, the chairman of the China Banking and Insurance Regulatory Commission, said on March 2 that Chinese financial institutions would not impose sanctions on Russia. At the same time, China’s state media started promoting the use of CIPS in the China-Russia trade. They said China-Russia bilateral trade would continue to grow.

Last year, the bilateral trade between China and Russia grew 35.8% to US$146.9 billion from a year earlier, according to China’s General Administration of Customs. China’s exports to Russia surged 33.8% to US$67.6 billion while imports from Russia increased 37.5% to US$79.3 billion.

In the first two months of this year, China’s exports to Russia rose 41.5% year-on-year to US$12.6 billion, which represented about 2.3% of total exports of China during the same period.

On March 1, Commerce Minister Wang Wentao said China hoped to maintain normal trade with both Russia and Ukraine and called on all parties to resolve conflicts peacefully through dialogues.

Liu Huaqin, director of China Academy of International Trade and Economic Cooperation, a unit of the Ministry of Commerce, had told Xinhua in a previous interview that China’s exports of automobiles and related parts had increased significantly in recent years while Chinese smartphones had also provided new choices to Russian customers. He said Chinese e-commerce platforms had been building more and more warehouses and logistics networks in Russia.

On February 4, Chinese President Xi Jinping and Russian President Vladimir Putin met in Beijing and said in a joint statement that “friendship between the two States has no limits; there are no ‘forbidden’ areas of cooperation.” On the working level, the two governments signed 15 cooperation agreements, which covered energy, food, satellite, trade, diplomacy, sports and public health aspects. Among them, an agreement called “A road map on high-quality development in goods and services trade between China and Russia” outlined a plan to boost the two countries’ bilateral trade to US$200 billion by 2024.

According to news media reports, the two countries had planned a decade ago to boost their bilateral trade to US$200 billion by 2020. They missed the target although China took the initiative to buy more energy and food from Russia.

The Zhejiang provincial committee of the China Council for the Promotion of International Trade said in a recent statement that a lot of Chinese exporters would like to know whether they should receive renminbi from Russian customers after the SWIFT ban on Russian banks had been announced.

The committee reminded exporters to check whether their Russian customers are using banks that are subject to the SWIFT ban or the United States’ Office of Foreign Assets Control (OFAC) sanctions. It said even if Sberbank was still in SWIFT, it was sanctioned by the OFAC. It said if Russian buyers could pay in renminbi, Chinese exporters should beware of currency risks and consider other factors such as export tax refund.

It said Chinese firms’ local bank accounts could be frozen if they received renminbi from overseas underground banks. It said such a problem had been seen in some payments from Iran, Dubai, Saudi Arabia, Turkey, Bangladesh and Pakistan.

China Export & Credit Insurance Corporation said the 20% rate hike announced by the Russian central bank on February 28 could have hurt Russian companies’ ability to pay their overseas suppliers. It suggested that Chinese exporters settle their shipments in renminbi, avoid payment and logistic risks and seek help from export credit agencies if necessary.

Chinese smartphone markers including Huawei and Xiaomi are cutting their shipments to Russia by half at least, as the ruble has depreciated about 35% since the Ukraine war broke out, the Financial Times reported on Thursday.

A former Xiaomi executive said in the report that it would be politically sensitive for Chinese firms to openly announce a sales suspension in the Russian market.

Meanwhile, US Commerce Secretary Gina Raimondo told the New York Times on Tuesday that the Biden administration could cut off Chinese chipmakers’ access to US machines and software if they violated the United States’ export ban to Russia. Raimondo specifically named the Shanghai-based Semiconductor Manufacturing International Corporation (SMIC), which already has considerable experience with sanctions.

Mark Williams, chief Asia economist for Capital Economics, told the news media last month that China did not want to get so involved in Sino-Russia trade that it might end up suffering as a result of its support for Russia. Williams pointed out the fact that China’s trade with Russia in 2021 was less than one-tenth of China’s total US$1.6 trillion in trade with the US and European Union.

Read: China welcomes Russian firms to trade with RMB

Follow Jeff Pao on Twitter at @jeffpao3