Half of the payments made by Russia for goods from China took place through intermediaries

Efforts by Russian firms to make payments for goods in China amid fears of secondary sanctions by local banks have created a thriving market for middlemen, with up to half of transactions now handled by them, four sources told Reuters, according to News .ro.

The US Treasury has warned it could impose sanctions on those who facilitate transactions with Russia, asking foreign banks to increase compliance.

Undeterred by this threat, Chinese banks are limiting their transactions with Russian companies, which in turn are rushing to open accounts with the only Russian lender with a Chinese branch, causing a deadlock at VTB Shanghai.

Several sources consulted by Reuters, including trade consultants, bankers, importers and exporters, who all requested anonymity to share sensitive information, said long delays in transactions and deliveries had led firms to turn to intermediaries, despite high taxes and risks of confiscation of shipments in third countries.

“There are a lot of (Russian) businessmen who just go from bank to bank, opening current accounts,” said one of the sources. If the payment does not take place, I move on to the next one”.

Another source said many firms have switched to using payment agents and creating chains of temporary companies, allowing payments to be processed much more quickly.

The intermediaries are legal entities from Hong Kong, Kyrgyzstan, Kazakhstan, the United Arab Emirates and other jurisdictions considered “friendly” to Russia, the sources said, using Moscow’s term for countries that have not imposed sanctions over the Ukraine conflict.

Two Russian consultants who work with intermediaries said that about half of these Russian companies use their services, while larger Russian enterprises – many under Western sanctions – already established schemes with intermediaries a year ago.

One consultant said only a fifth of Russian entities have full access to bank accounts in China, while 30% have limited access.

Risk vs. I earn

Using intermediaries can create its own problems. They can charge fees of several thousand dollars for each transaction, the sources said, and there is a risk that assets will be seized when third countries are involved.

One of the sources said a large shipment of servers being transported to Russia from China via Kazakhstan was seized because the goods in question fell under US sanctions.

Payments handled by intermediaries can still be refused by Chinese banks, and the less official nature of the transactions means Russian firms may struggle to recover their money.

A Russian importer told Reuters that an undisclosed amount of yuan he had been trying to send to China for nearly a month was missing.

However, a Russian textile company said it was able to open an account in China with the help of an intermediary and successfully transfer funds from Kyrgyzstan, thereby avoiding onerous compliance procedures.

Putin is going to China

Chinese shipments to Russia were 64.2 percent higher last year compared to 2021, according to customs data, while total trade between the two countries rose to a record $240 billion.

China supplies Moscow in particular with cars and machinery and buys more Russian oil, for which payments have also been delayed.

“In terms of international payments… we see the risk that secondary sanctions will increase and that payments will become more complicated. We are in contact with our partners to look for ways to facilitate payments”, said the governor of the Bank of Russia, Elvira Nabiullina, on Friday.

Some companies, the sources said, hope that President Vladimir Putin’s visit to China next month will help solve the problem.

“Something may change after the visit of the official Russian delegation to China,” said one person. Others are more pessimistic, with one saying that Russia has not been a priority for Chinese banks because, despite expanding trade between the two countries, China’s trade turnover with the United States and the European Union remains much larger.

“They will not sacrifice their market for the sake of payments to Russian companies,” the person said.

Publisher: BP

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