China firms go “underground” on Russia payments as banks pull back

An appliance maker in southern China is finding it hard to ship its products to Russia, not because of any problems with the gadgets but because China's big banks are throttling payments for such transactions out of concern over US sanctions.

To settle payments for its electrical goods, the Guangdong-based company is considering using currency brokers active along China's border with Russia, said the company's founder, Wang, who asked to be identified only by his family name, according to Reuters.

The US has imposed an array of sanctions on Russia and Russian entities since the country invaded Ukraine in 2022.

Now the threat of extending these to banks in China - a country Washington blames for "powering" Moscow's war effort - is chilling the finance that lubricates even non-military trade from China to Russia.

This is posing a growing problem for small Chinese exporters, said seven trading and banking sources familiar with the situation.

As China's big banks pull back from financing Russia-related transactions, some Chinese companies are turning to small banks on the border and underground financing channels such as money brokers - even banned cryptocurrency - the sources told Reuters.

Others have retreated entirely from the Russian market, the sources said.

"You simply cannot do business properly using the official channels," Wang said, as big banks now take months rather than days to clear payments from Russia, forcing him to tap unorthodox payment channels or shrink his business.