Russia’s ‘economic isolation’ seen benefiting China amid fresh US sanctions

While trade between China and Russia may be affected in the short term, Beijing’s leveraging power in future negotiations is getting stronger, analysts say

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China could gain more leverage in negotiations with Russia surrounding development of the Power of Siberia 2 natural gas pipeline. Photo: Reuters

Published: 9:00pm, 25 Nov 2024

The US Treasury’s latest round of sanctions to further curtail Russia’s use of the international financial system is likely to hinder Russia’s trade with China in the short term, according to analysts who also say that it will give Beijing greater leverage in negotiating terms for the Power of Siberia 2 natural gas pipeline in the long term.

Aleksei Chigadaev, a former visiting lecturer with the Higher School of Economics in Moscow, noted that “what’s more critical” in this escalation is the sanctions against the systems for the transfer of financial messages – namely Russia’s Sistema Peredachi Finansovykh Soobshcheniy (SPFS), which is an alternative to Swift international banking system, as well as the Chinese branch of Russia’s VTB Bank.

“A significant share of payments is processed through VTB China – it’s a crucial bank for business,” he added. “Trade will grind to a halt until the new year, [which] will genuinely affect Russia-China trade in the short term.”

London’s Knightsbridge Strategic Group said that, to overcome sanctions, “China will almost certainly explore enhancing” payment methods such as the Cross-Border Interbank Payment System, the use of offshore yuan markets, and the creation of specialised Chinese financial institutions and regional banks that are not connected to Western international systems, as well as bartering.

“The increased economic isolation of Russia further skews the economic relationship in China’s favour, and China will likely continue to impose stringent conditions on pricing and supply agreements,” added Finley Grimble, founder of Knightsbridge Strategic.

The US Department of the Treasury’s Office of Foreign Assets Control expanded its sanctions by issuing an alert describing risks related to Russia’s SPFS, which the US department said, in a statement on Thursday, “the Kremlin created and uses to evade sanctions”.