Oil lubricates Beijing’s Russian tightrope

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

HONG KONG – Beijing is walking an increasingly slippery tightrope when it comes to Russia. China relies on crude from the now pariah state for nearly a fifth of total imports. Though the pair can sidestep Western sanctions on Moscow and settle most transactions in yuan, being too helpful could backfire on Beijing. Its banks will be caught in the crossfire either way.

The two countries have been deepening economic ties for years. Russia counts the People’s Republic as its biggest trading partner; its central bank holds 13% of foreign reserves in yuan assets, up from 0.1% in 2015. At the same time, China, which ran a $12 billion trade deficit with its northern neighbor last year, bought $40 billion worth of Russian oil in 2021, or 16% of total crude imports. Just last month, the two inked a 30-year contract to supply Russian gas to China via a new pipeline.

Western sanctions on Russia, which include kicking out certain banks from the SWIFT international payment system and curbing Moscow’s access to a huge part of its foreign currency reserves, will push the two economies even closer, thanks in part to bilateral payment networks already in place. In 2017, Beijing established a foreign exchange system for simultaneously settling yuan and ruble transactions. China has also established its own answer to SWIFT, known as the Cross-Border Interbank Payment System, to clear international claims in yuan. 

In practice, though, usage of CIPS has been limited. State lenders like the $266 billion Industrial and Commercial Bank of China, the world’s largest bank by assets and a major clearance bank for yuan trades in Russia, still heavily relies on SWIFT. Moreover, overtly assisting Moscow in undercutting sanctions could draw ire from the United States and allies. ICBC has stopped guaranteeing credit in dollar terms for bilateral trades with Russia, according to Bloomberg.

Beijing has options. Dedicating regional and smaller banks such as Hong Kong-listed Harbin Bank, based in the province bordering Russia, to specialise in bilateral trade might minimise risks for its larger banks that are more vulnerable to U.S. retaliation. But China’s balancing act is getting more precarious by the day.


– At least two of China’s largest state-owned banks are restricting financing for purchases of Russian commodities, Bloomberg reported on Feb. 25, citing people familiar with the matter. Industrial & Commercial Bank of China’s offshore units have stopped issuing U.S. dollar-denominated letters of credit for purchases of physical Russian commodities ready for export, the article said, citing two people familiar with the matter.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(Editing by Robyn Mak and Katrina Hamlin) ((For previous columns by the author, Reuters customers can click on CHEN/ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS https://bit.ly/BVsubscribe | yawen.chen@thomsonreuters.com; Reuters Messaging: yawen.chen.thomsonreuters.com@reuters.net))