The recent visit of US Secretary of State Anthony Blinken to China and the Bank of China's subsequent decision to restrict Russian bank clients’ transactions involving banks located in the EU, the United States, Switzerland and the UK, could be a coincidence.
It may, on the other hand, have been a PR exercise concocted in Beijing to appease Blinken over the ongoing war in Ukraine.
Or perhaps it could be a simple reflection of the diminishing role Russia actually plays in China’s strategic and economic thinking.
What we know
We know from Finam bank — as reported by Russian state broadcaster RBC and Frank Media, a Russian media outlet — that the Bank of China has started to terminate Russian transactions in Chinese yuan, US dollars, Hong Kong dollars, and euros through its correspondent accounts. UniCredit and Akibank also reported the move.
Under existing sanctions, banks in sanctioning countries are forbidden from transacting directly with sanctioned Russian entities, but banks and firms in third-party countries like China are not explicitly prohibited from doing business with Russians under sanctions.
The West has so far declined to impose secondary sanctions, which would seek to prohibit transactions between sanctioned Russian entities and those based in non-western countries.
Russia blames the west, while China pivots
Russia, of course, blames the west. "The decision was not made by China, but rather by the EU and the US. That is how they are trying to ramp up the sanction pressure by choking off alternative channels in the form of yuan," Pavel Semyonov, chairman of the board of Modulbank, said.
He may have a point.
Brussels in April proposed sanctions on Chinese companies for supporting "Russia’s war machine" for the first time since the war began. Some Chinese companies on the EU's list, such as electronics manufacturer King-Pai Technology, have already been placed under sanctions by the US.
Germany had been sanguine over the new measures , and China to date said it would maintain normal economic and trade relations with Russia.
In early June, Beijing said it would "follow closely" EU discussions on an 11th tranche of sanctions against Russia after the European Commission — for the first time — proposed limits on trade with third countries seen to be bypassing the existing sanctions.
China growing wary?
"I’d note that the Bank of China is not saying no to Russian accounts, but only restricting some activity when western banks are involved," Eric Hontz, director of the Center for Accountable Investment in Washington, told DW.
It is also a precautionary move, Robert Person, Associate Professor of International Relations at the United States Military Academy, believes. "It suggests China is concerned about the possible threat of secondary sanctions," he said.
Others, though, sense a deeper strategic motive.
"This is very significant," said Bill Browder, CEO and co-founder of Hermitage Capital. "It signals a worrying trend for Putin as he could potentially being losing one of his biggest backers," he told DW.
Former EU diplomat Albrecht Rothacher contends that Beijing is beginning to realize that the war is not in its best interests, "with economic stagnation in Europe and reduced purchasing power in Russia."
"After all, China's US, EU und UK business is infinitely more important to them than Russian business, except for oil, gas, wood and minerals shipments," Rothacher told DW.
Other routes for Russian businesses
Experts believe that sanctioned Russian entities could attempt to conduct transactions through banks in other countries that are willing to take on the risk.
"My hunch is that the top players in China want to leave the Russian business to second and third rated companies and banks, who can stay below the radar of sanction monitoring," said Rothacher.
He says they will likely use other, minor Chinese banks, or Turkish or Indian banks, or even Austria's Raiffeisen International, which will make transactions more costly and complicated.
Browder added to the list the UAE, Turkey, South Africa and Brazil.
Others agree that sanctions evasion has become well established.
"For example, we see trade and financial flows between Russia and Central Asia increasing significantly. Chinese banks have locations in Central Asia as well," Hontz said.
China and Russia best of frenemies
"China and Russia’s leaders have signaled a deepening strategic and economic partnership, but the reality hasn’t always matched the rhetoric," writes Maia Nikoladze, the assistant director at the Economic Statecraft Initiative, in a recent Atlantic Council blog.
China and Russia’s economic ties are limited by Beijing’s strategic interests, Nikoladze noted.
This is evidenced in a series of moves. UnionPay, a Chinese payment system once a lifeline for Russians after the exit of Visa and MasterCard in March 2022, cut its exposure to sanctioned banks in Russia, while leading Chinese bank ICBC and and two China-led development institutions — the New Development Bank and the Asian Infrastructure Development Bank — cut Russia's access to their financing in 2022.
Chinese banks have not become creditors to the Russian government. China has also hedged against dependence on Russian energy imports and has restricted the flow of advanced technology to Russia. "The 'no limits' partnership remains rhetorical," Nikoladze writes.
"Even if China mitigated the effects of sanctions on Russia, Beijing's actions have always been limited by its strategic interests and the fear of triggering secondary sanctions from the US," Nikoladze told DW.
