Nearly all Chinese banks are refusing to process payments from Russia, report says

• Nearly all Chinese banks are refusing payments from Russia, a report from the Russian outlet Izvestia says.
• Russia has been using smaller banks and non-US-dollar currencies to bypass Western sanctions.
• But doors to alternative transfer methods are closing fast; Russia is now looking to crypto and barter trade.

The impact of the West's sanctions just seems to be getting worse and worse for Russia.

Now, 98% of Chinese banks — even small regional ones — are refusing to accept direct Chinese payment transfers from Russia, Alexey Razumovsky, the commercial director of the payments company Impaya Rus, told the pro-Kremlin media outlet Izvestia .

Such issues appear to have intensified over the past three weeks, as smaller Chinese financial companies were still processing Russian payments in May and June, Izvestia reported.

Last month, the Russian outlet Kommersant reported that about 80% of bank transfers made in the Chinese yuan were bouncing back with no explanation after being stalled for weeks while banks decided whether they could transact.

Razumovsky told Izvestia the payment challenges with Chinese banks could contribute to supply-chain difficulties and inflation in Russia.

Doors between Russia and Chinese banks are closing

Since the invasion of Ukraine, Russia and its trade partners have skirted sanctions by using smaller banks and other payment modes or non-US-dollar currencies to circumvent the West's ban of some Russian banks from the widely-used SWIFT messaging system.

But the doors have been closing for these workarounds since December, when the US approved secondary sanctions targeting financial institutions that were helping Russia.

Alexey Poroshin, the general director of the investment and consulting firm First Group, told Izvestia that some financial institutions in China were even starting to reject payments in the ruble.

Poroshin said Chinese banks weren't keen on doing business with Russian companies through financial institutions in Hong Kong, a special administrative region under China.

Ekaterina Kizevich, the CEO of Atvira, a Russian foreign-trade consultancy, told Izvestia that Russian companies were still sending yuan to China via Russian bank branches on the mainland, but there was a 5% markup.

Many Chinese companies would still refuse payments from the Russian bank branches on the mainland, Impaya Rus' Razumovsky told the newspaper.

Russia is rushing to set up alternative payment mechanisms

Russian businesses still have alternatives, such as conducting transactions through "friendly" third-party countries.

Russia is also rushing to set up alternative payment systems , including crypto, to facilitate trade.

Reuters reported on Thursday that Russia and China were even planning to revive the age-old practice of barter trade to get around Western sanctions.

Russia's problems with paying Chinese suppliers would cut off a crucial pillar of support for its war against Ukraine, Joseph Webster, a senior fellow at the Atlantic Council think tank, wrote in a June report.

"While Russia's exports help finance its war effort, its imports of industrial goods are vastly more important for sustaining the economic, political, and military dimensions of its war effort, at least in the short term," he wrote.

"Russia's imports prevent shortages, maintain political support for the war by stabilizing living standards, and, in some cases, facilitate military capabilities," Webster added.