Why China is Turning Its Back on Putin and Russia

Western Sanctions and Russia’s Economic Struggle

Following the Russian invasion of Ukraine, Western nations and the United States have progressively tightened sanctions with the primary goal of making it increasingly difficult for Russia to engage in trade with other countries.
However, China remains an exception, maintaining open doors as the flow of goods and cash has continued, or even intensified.

In December of the previous year, President Joe Biden introduced a framework that allows for the blacklisting of non-Western banks aiding Russia in evading these sanctions.
By June, the pressure escalated further, with the U.S.
and European Union explicitly targeting China regarding these sanctions.

A Closer Scrutiny on China

Aaron Forsberg, head of the economic sanctions policy at the U.S.
State Department, stated, “We must be very honest with ourselves.
Putin is a highly capable adversary, willing to adapt and find willing partners.” This revelation has caused significant apprehension among Chinese bank executives.

To mitigate the risk of being sanctioned, an increasing number of Chinese banks have started to deny transactions involving Russia.
According to the pro-Kremlin outlet Izvestia, 98% of Chinese banks have declined payment requests from Russian companies over the past month.
Even small regional banks, with minimal international exposure, have ceased their operations with Russian firms wishing to transfer money, whether in yuan or rubles.

This situation complements previous reports by the Moscow Times, which reported that the Bank of China suspended all operations in Russia out of fear of sanctions, citing the Russian economic daily Kommersant.
A source noted, “This is not good news for the Russian market.
There will be additional costs concerning both time and transaction processing.” Kommersant further revealed that 80% of bank transfers to China have been blocked without any clear rationale.

Challenges Ahead for Russia

These payment challenges could severely hinder Putin’s capacity to persist with the ongoing conflict in Ukraine.
While Russia’s exports contribute to financing its military efforts, imports play an even more crucial role in sustaining the economic, political, and military dimensions of the war, particularly in the short term.

China has become essential for Russia since the imposition of Western sanctions, with trade reaching a record high of $240 billion in 2023, according to Reuters.

A Potential Trade Agreement

As Chinese banks increasingly distance themselves from Russia, both nations are reportedly working towards a barter system designed to circumvent the sanctions.
This system would facilitate the exchange of goods and services without financial transactions, reminiscent of practices before the Soviet Union’s collapse.

Such a system could alleviate payment issues, minimize the visibility of transactions to Western regulators, and mitigate currency risks.
Russian authorities are currently formulating regulations for this barter system, with credible sources suggesting that China is doing the same.
In February, the Russian Ministry of Economy also issued guidelines to assist companies in executing barter agreements while highlighting pitfalls to avoid.

The Chinese Reaction

China has expressed considerable frustration at the latest U.S.
measures targeting banks facilitating Russian sanctions evasion.
In June, a spokesperson for the Chinese Ministry of Foreign Affairs asserted that trade between Russia and China remains resilient, benefitting the interests of both nations.

Lin Jian stated, “China is resolutely opposed to unilateral sanctions.
Normal economic and trade interactions between China and Russia should not be restricted or interrupted, nor used as a tool to malign or constrain China.” He further emphasized that sanctions do not resolve underlying issues and pose significant risks globally.
“China neither created nor is involved in the Ukrainian crisis, and we will not accept coercion or pressure,” Lin concluded.