Russia's economy worries – sanctions put China deal to the test

Chinese President Xi Jinping has been loyal to Vladimir Putin for years. But Western sanctions are clearly putting the economic relationship to the test.

Moscow – Russia's dependence on China brings Vladimir Putin At the moment there is nothing but good: as a result of Western economic sanctions, many credit institutions stop payment transactions with Russia. China's central banks also want to restrict trade with Russia – with disastrous consequences for Russia's economy.

Russia's economy is under pressure from Western sanctions

Over the years, Putin has made the Chinese currency, the yuan, Russia's main reserve currency. But recently, more Chinese companies have stopped accepting yuan payments from Russia. Russia actually wanted to continue doing business with China in the financial sector, but China is apparently declining in new negotiations. According to Russian Finance Minister Anton Siluvano, no agreement has yet been reached on borrowing in the Chinese currency, the yuan.

The Chinese yuan plays a key role in Russia's economy — and Putin's path to independence from the U.S. dollar. “80 percent of trade transactions between Russia and the People's Republic of China are carried out in rubles and yuan,” Putin said in 2023, according to the official English transcript of his speech at the annual meeting of the Shanghai Cooperation Organization (SCO). .

Effects on Putin's economy: Russia's trade with China is on hold

In a recent statement, Russia's central bank acknowledged limited options for its reserves other than the Chinese yuan. According to the Russian Central Bank, the role of the yuan as an international currency and its liquidity have increased “significantly” in recent years.

Russian companies borrowing in Chinese yuan have reportedly increased borrowing costs Bloomberg In the month of March. Borrowing costs for short-term yuan bonds rose to 15.7 percent on March 1 and fell to 4 percent a few days later. Businesses are already under pressure from higher domestic borrowing costs since the central bank decided in February to keep interest rates at 16 percent to combat high inflation. Higher interest rates cost corporate borrowers more than 1.2 trillion rubles in borrowing costs. This emerges from data from the Russian consulting firm Yakov & Partners.

Sanctions work: many banks let Putin cheat

Chinese banks are not the only ones feeling pressure from the West in the wake of sanctions. Turkey in particular severed some of its banking links earlier in the year. Major lenders in the United Arab Emirates (UAE) have also begun closing bank accounts of Russian citizens and restricting payment transactions with Russia, a business newspaper reported. Vedomosti Citing anonymous Russian business and government sources.

Russian oil companies also face months of payment delays or transaction denials, as some banks from Turkey, China and the United Arab Emirates fear secondary sanctions. The news agency reported this Reuters citing eight sources familiar with the circumstances. Banks require written assurances from their customers that money transfers will not end up going to an entity or person on the US sanctions list.

Western Sanctions Against Russia: Putin Loses Business Partners

Western secondary sanctions have proven particularly effective in recent weeks. “The US and Europe are now focusing on secondary sanctions to put pressure on these states and narrow the corridors,” explains military economist Markus Kueb of the ETH Zurich Military Academy. Weld.

Apart from China, Russia may also lose India as an important trading partner. India is considered one of the most important buyers of Russian crude oil. news agency Reuters According to Indian refiners, there is now concern over new Western sanctions. In its latest sanctions package, the US blacklisted Russia's shadow fleets.