Sanctions Disrupting Russian Trade: Chinese Banks Cautious Amid Threat of US Penalties
As a result of sanctions on Russia, Chinese banks are now conducting lengthy compliance checks on yuan-denominated transactions from Russia, which is slowing down trade and leading to fluctuations in the yuan exchange rate between Moscow and Shanghai. Banks are showing heightened caution so that they don't inadvertently violate US sanctions by processing transactions originating from sanctioned entities. Artem Gergun, a fellow with the Wilson Center’s Kennan Institute, provides an overview of why these compliance checks are significant. He covers the resulting delays in imported goods into Russia, the potential for black markets in China, how China is leveraging the situation by getting oil and gas deals from Russia, and the impact of sanctions on the war in Ukraine.
Transcript of Video
Sanctions Disrupting Russian Trade: Chinese Banks Cautious Amid Threat of US Penalties
Major Chinese banks want to stay away from trade with Russia because they have balances nominated in American dollars. That means that American authorities can cancel any transaction any time, if they are not compliant with the sanctions regime.
Chinese banks are running severe compliance checks, associated with these transactions, and this means that the imports of everyday goods most Russians use is severely delayed and potentially it could end up in, black markets for Chinese imports in Russia, like Iran has.
I think that China is leveraging this situation to its benefit, because PSC actually doesn't have policy of internationalization of yuan, so yuan liquidity is very tight and that means the Chinese can leverage their deals with Russians in terms of buying oil and gas, to their benefit, quite significantly. And they already have demanded internal prices for Russian oil and gas.
Unfortunately, no sanction regime is able to stop the war by itself. At least there are no historical precedents for it. But sanctions can significantly degrade the economy, which supports the war effort and we are already seeing tangible efforts, effects of sanctions. Russian economy is already overheating at 8% of military expenditure of GDP.
But this is not even close to 46% of military expenditures to GDP that, for example, US did at the time at World War Two. So it means that sanctions are really effective. They won't allow Russia to carry on the war for like ten years more. Now, the time horizon is about a year or two.
Guest
Artem Gergun
Advisor to Chairman of the Economic Affairs Committee MP Dmytro Natalukha, Verkhovna Rada, the Parliament of Ukraine
Hosted By
Kennan Institute
The Kennan Institute is the premier US center for advanced research on Eurasia and the oldest and largest regional program at the Woodrow Wilson International Center for Scholars. The Kennan Institute is committed to improving American understanding of Russia, Ukraine, Central Asia, the South Caucasus, and the surrounding region though research and exchange. Read more
