About Chouzhou Commercial Bank’s decision to stop agreements with Russian and Belarusian customers, reported Vedomosti newspaper cited three business sources, financial advisors and business associations.
A strategist from the investment company noted that Chouzhou Commercial Bank’s refusal to conclude deals with Russian clients is rather “negative news”, given that we are talking about yuan – a currency that Chinese and Russian market participants have begun to actively use. Sergey Suverov, Associate Professor at the Financial University of the Government of Russia, in an interview with socialbites.ca “Arikapital”.
Rising import prices and rising prices
According to the Central Bank of Russia, the share of yuan in Russian imports is 36% as of November 2023. For this reason The inability to make payments in yuan affects a significant part of imports.
“China is now Russia’s main foreign trade partner and a supplier of a wide range of goods to our country, from clothing to cars; difficulties may be encountered in the supply of these goods,” Suverov said.
More than 58% of all goods from China (according to the General Administration of Customs of the PRC, imports to Russia amounted to $ 110.97 billion in 2023) are divided into three categories:
- equipment and mechanical devices (import volume – $ 25.24 billion or 22.7% of imports to the Russian Federation);
- ground transportation ($22.52 billion or 20.3%);
- electrical machinery and electrical equipment ($17.08 billion or 15.4%).
“These categories of goods may get stuck at the border and have the greatest impact on Russian production and consumers. The biggest impact on the Russian economy may come from the difficulty of importing equipment from China. Following the imposition of Western sanctions, domestic manufacturers suffered due to rising prices or their inability to purchase new imported equipment and consumables,” said Daniil Bolotskikh, a leading analyst at Digital Broker.
According to him, the process of replacing and retraining employees is not a one-year affair. Most of the special equipment has been replaced with Chinese analogues.
“Therefore, the risk of possible settlement impossibility may lead to an increase in prices of final products in Russia, from the agricultural sector to metal mining,” Bolotskikh concluded.
Evaluating the possibility of abandoning payments in yuan and switching to rubles or other currencies, the analyst emphasized that the return to the so-called “poisonous currencies” in import payments is fraught with increased demand for such currencies and increased volatility in foreign currencies. Exchange.
“You can try to pay in rubles, whose share of all foreign trade activity is 32 percent. In this case, the interest of foreign trade partners in receiving rubles for their products and services is unclear. “In the short term, payments in rubles are likely to cause a slight increase in the cost of imports and increase the attractiveness of such payments,” admitted Bolotskikh.
The analyst added that such a risk is therefore very important for Russian importers in the long term.
Increasing logistics costs and foreign exchange trap
Suverov added that the Chinese bank Zhejiang Chouzhou Commercial Bank, which rejected the deal with Russia, was small by Chinese standards. This is a non-publicly traded bank with no international credit rating, with assets of $43 billion, ranked 78th in the end-2021 ranking of Chinese banks.
“In other words, what can we expect from leading Chinese banks that are much more integrated into the global financial system, even if such a bank rejects Russian customers? “Given the political ties between Russia and China, most likely the counterparties of our countries will have the opportunity to conduct transactions through other banks, but this will have two negative consequences for Russian trade,” he emphasized.
First result — Increased business risks for Russian exporters and importers due to the need to make payments through less transparent Chinese banks.
second result – An increase in supply chain costs, on the one hand, will increase inflation, change the timing of the Bank of Russia’s transition to lowering interest rates, and on the other hand, divert part of exporters’ foreign exchange liquidity, which will affect the exchange rate of the ruble not only against the yuan, but also against the dollar.
Maxim Osadchiy, head of the analytical department of BKF bank, admitted: The same but much bigger foreign exchange trap that Russian companies find themselves in in India could emerge: They received Indian rupees in exchange for their overstocked goods (primarily oil) “through the roof”.
“Meanwhile, the rupee is not a freely convertible currency and exchanging it for other currencies is problematic. Having completed its “turn to the East”, Russia has accumulated huge reserves of Chinese currency: as of February 1, for example, 227.5 billion yuan ($32 billion) had accumulated in the National Welfare Fund. Individuals’ yuan-denominated deposits in Russian banks reached $7.3 billion as of December 1, 2023, the analyst said. But the yuan is also not freely convertible,” he explained.
According to him, considering the negative changes in the Chinese economy, (crisis of the construction industry, mass bankruptcy of contractors, collapse of the stock market, deflation) Over-reliance on it creates increased risks.
^^^There is a way out^^
Aleksandr Dushkin, asset manager at the Private International Investment Fund, urged people not to panic. He told socialbites.ca that Russian importers will not have problems with goods getting stuck during the Chinese New Year holidays (February 10-17).
“Chinese New Year is no problem as all companies plan their deliveries and payments in advance. Moreover, rumors have been circulating for two years that Chinese banks were rejecting payments. The main problem is that China’s main trading partners are still Europe and the USA, but the share of trade with them is decreasing, and the share of trade with other partners is increasing,” the expert said.
According to Andrei Loboda, BitRiver’s economist and communications director, it is too early to talk about the losses of Russian companies.
“It is certain that exported goods will come to Russia, but for importers this may reduce net profit or make less profit than expected. The situation will likely continue until February 21, the Chinese New Year holiday, but will be followed by a long weekend in Russia, so the situation will likely be resolved in March“said Loboda.
According to him, there may be different ways out of this situation; for example, instead of increasing the volume of parallel imports through other friendly countries and making payments through banks with branches and premises in unfriendly countries.
“It would be even better to eventually create a supranational BRICS currency or launch the digital ruble as soon as possible and start cross-border agreements with China on the digital ruble and digital yuan,” the economist said.