Russia Suffers Punishing Fees to Trade with China: Report

Russian businesses are being punished with higher fees as Chinese banks try to avoid getting caught in the U.S. sanction regime enforced after the Kremlin attacked Ukraine, Hong Kong newspaper South China Morning Post (SCMP) has reported.

"In recent weeks, the 25th floor of the Shanghai Tower has been swarmed with Chinese exporters. Legions of businesspeople have flocked from all over the country to open a new account at VTB Bank—the only Russian bank currently operating within China's borders," SCMP wrote on Friday.

The U.S. has already put the VTB, Russia's second-largest bank, and its CEO, Andrey Kostin, on the sanctions list.

Major Chinese banks have turned away Chinese companies conducting business with Russian firms as they try to avoid U.S. sanctions imposed after the initiation of hostilities in the Russia-Ukraine war.

China-Russia bilateral trade rose to $240 billion last year, backed by Russian oil imports and Chinese exports of cars and electronics, adding $50 billion in trade turnover compared to 2022.

China hasn't officially backed Russia's invasion of Ukraine but has taken measures to support the Kremlin's defense industry by allowing the transfer of dual-use equipment. In April, U.S. Secretary Antony Blinken raised China's support for Russia's war effort with Chinese leader Xi Jinping during a visit to Beijing.

Last month, the U.S. warned its allies that Beijing was providing Moscow with satellite imagery that assisted with situation awareness in the Ukraine war.

Newsweek contacted the Chinese foreign ministry and the Russian foreign ministry for comment via email.

During Russian President Vladimir Putin's visit to Beijing earlier this month, he discussed with Xi the use of their local currencies to settle cross-border payments. China and Russia have started settling their bilateral trade in yuan or rubles rather than the U.S. dollar or the euro to avoid the sanctions. However, no clear explanation was offered on how the two countries will seek to conduct trade amid stringent U.S. sanctions as multiple businesses in both countries struggle with their financial payments.

According to Reuters, among China's big four banks, the China Construction Bank reported a 14 percent drop in its assets held by the Russian subsidiary last year, while the Agricultural Bank of China reported a 7 percent decline.

The Industrial and Commercial Bank of China is one of the four major Chinese banks that saw a 43 percent jump in assets from its Russian operation.

Meanwhile, Russian companies are using a shadow network of middlemen to conduct trade with China, which can incur an additional cost between 3 to 6 percent, according to SCMP.

"Transactions between China and Russia will increasingly go through underground channels," said a head of a trade body that represents Chinese business with a stake in the Russian market, Reuters previously reported.

Chinese businesses exporting to Russia are also lining up at rural banks in China's northeast border with Russia that continue to accept payments for business transactions, Reuters reported.

"But I think they have added some limitations to it. So "no limit," with limitation. And the specific term that has been used by senior Chinese officials is that there's no ceiling between Russia and China in terms of the relationship. But there is indeed a floor, which means that there are certain boundaries and certain bottom lines that China will not violate in terms of its relationship with Russia," said Yun Sun, Director of the China Program at the Washington think tank Stimson Center in an interview published by Washington think tank Brookings Institutions on May 22.

According to data from China's General Administration of Customs, Chinese exports to Russia fell by 15.7 percent in March and 13.6 percent in April.

Some Chinese businesses have given up on trading with Russian businesses as the frustration over payments grows.

"We eventually didn't receive more than 10 million yuan [$1.4 million] in payments from the Russian side, and we just gave up. The process of collecting payments is extremely annoying." a manager at the listed Guangdong company told Reuters.

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