Chinese Banks Fill Gap Left by Western Banks in Russia Amidst Ukraine Conflict

After the Russian attack on Ukraine, numerous western banks left Russia. Financial institutions from China have filled this gap: They have quadrupled their commitment.

While Western financial institutions withdrew from Russia because of the attack on Ukraine, Chinese banks have made significantly more money available to the country. According to calculations by the Kyiv School of Economics for the “Financial Times”, China’s lending to the Russian banking sector has quadrupled by the end of March 2023.

The Industrial and Commercial Bank of China (ICBC), Bank of China, China Construction Bank and Agricultural Bank of China increased their combined exposure to Russia by $2.2 billion to $9.7 billion in the 14 months after the invasion dollar, according to data from the Central Bank of Russia. The ICBC and the Bank of China alone account for around 8.8 billion dollars.

Western sanctions are having an effect

Chinese lenders have taken the place of Western banks, which are no longer supporting Russia due to international sanctions and domestic pressure. “Chinese banks’ loans to Russian banks and credit institutions, where the yuan largely takes the place of the dollar and euro, show that the sanctions are having an impact,” said Andrii Onopriienko, deputy director for development at the Kyiv School of Economics compiled the data.

However, some institutes from Europe are still active. About the Austrian Raiffeisen Bank. The foreign bank with the largest exposure to Russia increased its assets by more than 40 percent to $29.2 billion by the end of March this year. Since then, the money house has reduced its assets back to $25.5 billion and says it is currently looking for ways to withdraw from the country.

China wants to break dollar dominance

Meanwhile, the actions of four of China’s largest banks are part of Beijing’s efforts to promote the yuan as an alternative world currency to the dollar, the Financial Times reported. The share of the yuan in global payment transactions is only 2.5 percent. For comparison: According to SWIFT, the company for global financial telecommunications, the dollar share is 39.4 percent and the euro share is 35.8 percent.

Deals with Russia in Chinese currency are said to play a role in the plan to limit this dominance of Western currencies. Trade between Russia and China reached a record $185 billion last year. The yuan now accounts for 16 percent of this, the newspaper said.

According to the Russian central bank, before the Ukraine war, more than 60 percent of exports were paid for in currencies that the country’s authorities today describe as “toxic.” These include, for example, dollars and euros. The yuan, on the other hand, accounted for less than one percent.