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Bank of China suspends cooperation with banks in Russia for fear of American sanctions

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On Monday, the Russian branch of Bank of China announced the suspension of cooperation with all banks in Russia that have been subject to sanctions by the United States, the Russian daily Kommersant reported. As experts point out, the decision will increase the risk of bank fraud and limit state control over the banking sector.

The Russian branch of Bank of China specializes in handling payments in yuan in inter-trade exchanges China and Russia. It is the second largest branch of Chinese banks in Russia, and the value of its assets in spring 2024 was USD 6.7 billion.

Experts interviewed by “Kommersant” said that Bank of China's decision is likely to increase the risk of bank fraudgiven that Chinese and Russian entities will try to bypass sanctions by making payments and will therefore use “opaque” intermediaries.

– This is not good news for the Russian market – said one of the daily's interlocutors. “There will be additional costs (of trading), both in terms of time and costs of making payments,” he explained.

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– But the most serious problem will be that payments will go beyond the banking sector, which will mean that the state will have less control over them – added the expert.

China wants to avoid US sanctions

Last week, Reuters reported that after the May visit Vladimir Putin in China, an alternative channel for bilateral business operations has been created, in which payments are to be made through small regional banks located near the Russian-Chinese border. Reuters pointed out, however, that this method of bypassing sanctions will only work for a short time, because the US Ministry of Finance is already developing ways of including smaller banks supporting the Russian armed forces with restrictions.

China became after the invasion of Ukraine Russia's most important economic partner, a the Chinese yuan is used to pay for more than a third of all Russian exports, while before the war it was 0.4 percent. payments.

Russia subject to additional sanctions

Less than two weeks before Monday's decision by the Bank of China USA announced that they are introducing a broad package of additional sanctions aimed at Russia's “war economy”, which are intended to increase the risk of secondary sanctions for entities doing business with Russian banks, the arms industry and other key sectors of the local economy. This also applies to China, which plays the main role in circumventing current restrictions.

Among other things, sanctions were extended to Russia's largest state-owned banks, including Sberbank, Vnesheconombank and VTB, in relation to all their significant transactions, including with their branches in China and India. White House National Security Advisor Jake Sullivan he then stated that the new retaliations are a signal to Beijing and other countries supporting the Russian war machine that they also “are now exposed to a serious risk of falling under the sanctions regime.”

Main photo source: JHVEPhoto/Shutterstock

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