Russian firms' efforts to make payments for goods in China as secondary sanctions fears spook local banks have generated a flourishing market for middlemen, four sources told Reuters, with up to half of transactions now handled by intermediaries.
The U.S. Treasury has warned it could apply sanctions on those facilitating transactions with Russia, calling on foreign banks to boost compliance.
Deterred by the threat, Chinese banks are limiting their dealings with Russian companies, which in turn are rushing to open accounts at the only Russian lender with a Chinese branch, causing a bottleneck at VTB (VTBR.MM) Shanghai.
The sources, including trade consultants, bankers and importers and exporters who all requested anonymity to share sensitive information, said long transaction and shipment delays have seen businesses turn to intermediaries in spite of high fees and risks of shipment seizures in third countries.
"There are a lot of (Russian) businessmen who just go from bank to bank, opening current accounts," said one of the sources. "If their payment doesn't go through, they go to the next one."
Another source said many firms had switched to using payment agents and creating chains of temporary companies, enabling payments to be processed much more quickly.
The intermediaries are legal entities from Hong Kong, Kyrgyzstan, Kazakhstan, the United Arab Emirates and other jurisdictions considered "friendly" to Russia, the sources said, using Moscow's term for countries that have not imposed sanctions over the Ukraine conflict.
Two Russian consultants working with intermediaries said around half of these Russian companies utilise their services, while larger Russian businesses - many under Western sanctions - had already established schemes with middlemen a year ago.
One consultant said just a fifth of Russian entities have full access to their Chinese bank accounts, while 30% have limited access.
RISK-REWARD STRATEGY
The use of intermediaries can create its own problems. They can charge several thousand dollars in commission for each transaction, the sources said, and there is a risk of goods being confiscated when third countries are involved.
One of the sources said a large shipment of servers being transported to Russia from China via Kazakhstan was confiscated as the goods in question fell under the scope of U.S. sanctions.
Payments handled by intermediaries can still be refused by Chinese banks and the less official nature of the transactions means Russian firms may struggle to get their money back.
One Russian importer told Reuters it has been missing an undisclosed amount of yuan it had been trying to send to China for nearly a month.
However, a Russian textile company said it was able to open an account in China with the help of an intermediary and successfully transfer funds from Kyrgyzstan, thus avoiding onerous compliance procedures.
PUTIN IN CHINA
Chinese shipments to Russia were 64.2% higher last year compared with 2021, according to customs data, while overall trade between the two countries ballooned to a record $240 billion.
China is supplying Moscow with cars and machinery in particular and buying more Russian oil, payments for which have also been delayed.
"As far as international payments are concerned...we see the risk of secondary sanctions increasing and payments becoming more complicated," Bank of Russia Governor Elvira Nabiullina said on Friday. "We are in contact with our partners to look at ways to facilitate payments."
Some businesses, the sources said, are hoping that President Vladimir Putin's visit to China next month will help resolve the issue.
"Something may change after the official Russian delegation's visit to China", one person said.
Others are more pessimistic, with one saying Russia was not a priority for Chinese banks as, despite booming trade between the two countries, China's trade turnover with the United States and the European Union remains much larger.
"They will not sacrifice their market for the sake of payments to Russian companies," the person said.
