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

• Fearful of the US' secondary sanctions, nearly all Chinese banks are refusing payment transfers from Russia.
• Russia has used smaller banks and non-US dollar currencies to bypass sanctions since the Ukraine invasion.

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 payments company Impaya Rus, told the pro-Kremlin Izvestia media outlet.

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

This comes on the back of recent news that about 80% of bank transfers made in the Chinese yuan were bouncing back with no explanation after being stalled for weeks, while banks decide whether they could transact, Russian media outlet Kommersant reported last month.

Razumovsky said the payment challenges with Chinese banks could contribute to supply chain difficulties and inflation in Russia, per Izvestia.

Doors between Russia and China banks 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.

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

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

Poroshin said Chinese banks aren't keen on doing business with Russian companies through financial institutions in Hong Kong, a Special Administration Region under China.

Russian companies are still send yuan to China via Russian bank branches on the mainland, there's a 5% markup, Ekaterina Kizevich, CEO of Atvira, a Russian foreign trade consultancy, told Izvestia.

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 like conducting transactions through "friendly" third-party countries.

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

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

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," wrote Webster.