News about Chouzhou Commercial Bank stopping agreements with Russian and Belarusian customers came from Vedomosti, which cited three business sources, financial advisers and business associations.
A strategist from an investment firm described the bank’s decision to refuse Russian clients as negative for the yuan, a currency that Chinese and Russian market participants have begun to use more actively. Sergey Suverov, an associate professor at the Financial University under the Government of the Russian Federation, commented on this in an interview with socialbites.ca for Arikapital.
Why is this bank notable for Russia?
Chouzhou Commercial Bank has become a popular choice among domestic importers because of its relatively lenient compliance checks. This means the bank evaluates an existing or potential customer rather than imposing strict barriers. Its headquarters are in Yiwu, a key logistics hub for China’s exports to Russia.
Rising import costs and currency choices
Russia’s central bank data show that the share of yuan in imports reached 36 percent as of November 2023. The inability to settle payments in yuan therefore touches a large portion of imports.
China is now Russia’s main foreign trade partner, supplying a wide range of goods from apparel to automobiles. Any disruption in yuan payments could complicate the supply of these goods, according to Suverov.
More than 58 percent of Chinese goods entering Russia, based on data from the General Administration of Customs of the PRC, amounted to 110.97 billion dollars in 2023. Three broad categories dominated: equipment and machinery at 22.7 percent, ground transportation at 20.3 percent, and electrical machinery and equipment at 15.4 percent.
These categories of goods could face border delays and have the greatest impact on Russian production and consumer prices. The head analyst at Digital Broker, Daniil Bolotskikh, warned that the ongoing shift affects domestic manufacturers that had to replace or upgrade equipment with Chinese equivalents after sanctions. He noted that retraining and replacing equipment is a long process, not something that can be completed quickly.
He also cautioned that a risk of settling in yuan not materializing could push prices higher for final products across sectors from agriculture to mining. If Russia considers using rubles or other currencies, the return to currencies once called unsafe could raise demand and currency volatility in the near term. Bolotskikh said that paying in rubles might temporarily raise import costs and make ruble settlements more attractive to some partners, but the long term effect remains uncertain.
The analyst underscored that this risk is significant for Russian importers over the long run.
Rising logistics costs and currency traps
Suverov pointed out that Zhejiang Chouzhou Commercial Bank, which declined to do business with Russia, is a relatively small player by Chinese standards. The bank is privately held, without an international credit rating, and held about 43 billion dollars in assets as of late 2021, ranking 78th among Chinese banks in that year’s assessment.
In other words, what can be expected from larger Chinese banks that are more deeply integrated into the global financial system if a Russian deal is rejected by a smaller lender remains a question. Given strong political ties, counterparties in both countries may still complete transactions through other banks, though this could bring two downsides for Russian trade, such as greater risk and less transparent payment chains.
The first consequence would be higher business risk for exporters and importers who must route payments through less transparent Chinese banks. The second would be an uptick in supply chain costs, which could feed inflation, influence the pace of any Bank of Russia policy shift, and push a portion of exporters’ foreign exchange liquidity into different currencies. This shift would affect the ruble not only against the yuan but also against the dollar.
Maxim Osadchiy, head of the analytics department at BKF Bank, described a scenario where a much larger forex trap could emerge. He compared it with India, where rupees for oil sales caused a rapid currency cycle. He noted that the rupee is not freely convertible, making currency exchanges more challenging. Russia has accumulated substantial reserves of Chinese currency after turning toward the East, including significant yuan holdings in state funds and retail deposits, though the yuan remains not freely convertible. He warned that negative shifts in China’s economy could raise risks for Russia, including in construction, financial markets, and overall deflationary pressures.
There is a possible way out, according to Aleksandr Dushkin, an asset manager at a private international investment fund. He advised calm for Russian importers, pointing out that Chinese New Year holidays are not a major disruption because deliveries and payments are planned in advance. He noted that rumors of banks rejecting yuan payments have persisted for years, while Europe and the United States remain China’s largest traders. Yet the share of trade with other partners has grown, reducing the dominance of those traditional markets.
Andrei Loboda, BitRiver economist and communications director, cautioned that it is premature to declare losses for Russian companies. He said that exports will still reach Russia, but imports may earn less profit or even incur losses. He expected the situation to remain until the Chinese New Year, followed by a long Russian holiday, with improvement likely in March. He also suggested alternatives such as boosting parallel imports through friendly nations or engaging banks with a broader presence in unfriendly regions. He proposed considering a supranational BRICS currency or advancing the digital ruble and digital yuan to facilitate cross-border settlements with China.
These perspectives collectively emphasize that the evolving currency and banking landscape will shape Russia’s trade and pricing dynamics in the near term, even as firms explore practical ways to navigate disruptions and maintain flow across borders. Attribution for quoted insights: industry analysts and financial professionals who followed the topic closely.