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Chinese Banks Halt Payments from Sanctioned Russian Institutions, Straining Russia-China Relations

Russia faces a significant setback as three of China’s largest banks have ceased accepting payments from sanctioned Russian financial institutions, citing concerns over potential secondary sanctions from the United States.

This development deals a blow to the traditionally close relationship between the two nations.

Chinese Banks’ Decision

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The Industrial and Commercial Bank of China, China Construction Bank, and Bank of China, ranking among China’s top financial institutions, have opted to halt transactions with sanctioned Russian banks due to perceived risks of facing secondary sanctions from the U.S., according to a report by Russian newspaper Izvestia.

Continuation of Transactions

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Despite the cessation of payments from sanctioned entities, transactions with non-sanctioned Russian banks continue as usual, as per the report.

U.S. Threats and Sanctions

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In December, the U.S. issued warnings of potentially blocking foreign banks conducting business with entities supporting Russia’s defense industry from accessing its financial system.

This move follows the increasing isolation of Russia in the global economic sphere, particularly after its invasion of Ukraine in February 2022.

Russia-China Relations Amid Sanctions

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Despite mounting economic pressures and sanctions on Russia, China has maintained a close relationship with Moscow, refraining from publicly criticizing President Vladimir Putin’s decisions, including the invasion of Ukraine.

Impact on Russia’s Economy

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Russia’s economy has been severely affected by the imposition of sanctions, with over 13,000 restrictions placed on the country, making it the most-sanctioned nation globally.

These sanctions have included freezing foreign exchange reserves and disconnecting Russia from the SWIFT banking system.

Notification to Russian Clients

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According to Alexey Poroshin, general director of investment and consulting firm First Group, Chinese banks informed their Russian clients of the decision to cease payments at the beginning of January.

Previous Banking Halts

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This move by Chinese banks follows Zhejiang Chouzhou Commercial Bank’s decision to halt operations in Russia earlier this month, reflecting the growing fear among Chinese firms of violating U.S.-led sanctions.

Compliance with U.S. Sanctions

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Legal expert Pavel Bazhanov highlighted the efforts of Chinese banks to comply with U.S. sanctions, with settlements in U.S. dollars decreasing in favor of transactions in Chinese yuan to mitigate risks.

Biden’s Executive Order

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Bazhanov pointed to Executive Order 14114 issued by President Joe Biden in December 2023, which he stated introduced new risks of secondary sanctions for financial institutions in China.

Suspension for Risk Assessment

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In response to the evolving regulatory landscape, Chinese banks have suspended operations to assess new risks and update compliance requirements, Bazhanov added.

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