Cracks emerge between Beijing and Moscow as two Chinese banks restrict lending
Two Chinese state-owned banks will restrict financing for Russian commodity purchases in a sign that cracks may be emerging between Beijing and Moscow as the Kremlin faces harsh international sanctions.
Offshore units of Industrial & Commercial Bank of China have stopped issuing dollar-denominated letters of credit for Russian physical commodity exports, while Bank of China has also cut down on funding, Bloomberg reported.
The move comes after Russia’s invasion of Ukraine prompted a wave of sanctions aimed at shutting the country out of financial markets.
Moscow and Beijing are frequently geopolitical partners against the US, and have formed increasing ties over recent years, with Russia a key supplier of energy to China.
China’s biggest banks hold billions of assets in Russia and have provided tens of billions of dollars in credit to Russia as part of Beijing’s belt-and-road strategy.
However, China has far greater economic relationships with the Western countries that control access to the international financial system.
The Chinese leader, Xi Jinping, spoke with Vladimir Putin on Friday, urging the Russian president to resolve its conflict with Ukraine through “balanced negotiations”.
In the first publicised meeting between the leaders since Mr Putin visited Beijing for the Winter Olympics last month, Mr Xi said Beijing respects the sovereignty and territorial integrity of all countries.
Officials in China have played down the scale of the conflict in Ukraine, and state media has echoed Mr Putin’s claims that he does not intend to occupy the eastern European country.
Chinese banks have complied with Western sanctions over Iran and North Korea in the past to maintain access to dollar clearing.
Some European banks have already begun to clamp down on financing commodities trade linked with Russia.
Major Dutch lenders ING and Rabobank have both introduced restrictions on financing such deals.
The commodities industry is highly reliant on short-term finance, which underpins the costs of moving materials around the world.
Ukraine’s ports have already been closed due to the conflict, with Russian forces blockading access to the Black Sea.
The conflict has sent prices higher for commodities including aluminium and wheat as traders brace for increased scarcity and further disruption to global supply chains.
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