The financial sanctions that have been imposed on Russia by the West will have a significant effect on China’s dealings with Russia but there’s little Beijing can do to soften their impact on its ally, without damaging its own economic and financial position.
That’s according to Mark Williams, Chief Asia Economist at Capital Economics, who says it’s highly unlikely China will take the risk of lending an economic helping hand to its long-time close partner after wide-ranging sanctions were imposed over its invasion of Ukraine.
He also suggested claims China’s own international payments system (CIPS) could provide a practical alternative for Russian banks banned from the established SWIFT set-up were misguided.
“In practice, because CIPS is limited to payments in yuan, it is only currently used for transactions with China,” said Williams. “Banks elsewhere are unlikely to turn to CIPS as a SWIFT workaround while Russia is an international pariah.”
More importantly, he added, unlike SWIFT, CIPS is a payments processor as well as a messaging service. That means it is also subject to Western sanctions on transactions involving Russian banks.
Williams added: “While the CIPS payments system doesn’t touch the US banking system, payments through it that were deemed to be intended to circumvent US sanctions could trigger sanctions for those involved. That effectively limits the use of CIPS to bilateral transactions between Russia and China.”
However, in his note Williams also pointed out that the energy trade that made up two thirds of China’s imports from Russia last year has not been sanctioned.
He said: “This trade can continue using SWIFT and in any currency – although Chinese banks still seem nervous about financing it while the sanctions situation is in flux.
“But CIPS does not provide Russian banks with a way to bypass Western sanctions and trade with the world beyond China.”
- By Sean O’Meara