Get free updates on Chinese business and finance.
Stay up to date with the latest Chinese business and finance news by subscribing to our myFT Daily Digest email, delivered every morning.
The eighties sitcom The Golden Girls had a schmaltzy theme song called “Thank You For Being a Friend.” Ironically, this theme could be applied to China’s extensive lending to Russian banks. Due to the invasion of Ukraine, most Western countries have severed financial ties with Russia, leaving the country in need of external financial partners.
However, while China sees lending to Russia as an opportunity to promote the renminbi as a global currency, it could end up harming Chinese banks.
China’s exposure to Russia’s banking sector has quadrupled in the past 14 months, reaching $9.7bn from $2.2bn. Major Chinese banks like Industrial and Commercial Bank of China, Bank of China, China Construction Bank, and Agricultural Bank of China have increased their lending to Russia.
While the West and Asian democracies have imposed sanctions on Russia, China has avoided participating. Smaller Chinese banks have even strengthened their ties with Russian clients.
Previously, big Chinese banks had distanced themselves from Russia, with some ceasing lending altogether. Some Chinese lenders even restricted transfers from Russia when Russian companies started using the renminbi to bypass Western sanctions.
China’s growing loan exposures to Russia are likely driven by official policy imperatives. China resents the dominance of the US dollar as the global reserve currency and has been working to boost the renminbi’s presence in global trade to establish it as a reserve currency as well.
Last year, the renminbi surpassed the US dollar as the most traded currency in Russia, leading to a decrease in dollar settlement for Russian exports and a record-breaking $185bn trade volume with China. This has increased China’s hopes that Russia might adopt the renminbi as a reserve currency.
Chinese loan exposure to Russia is currently less than $10bn, which would have minimal impact in the event of any defaults. The Industrial and Commercial Bank of China alone has total assets of around $5.7tn, making it the world’s largest bank.
However, Chinese businesses dealing with Russia face a potential risk of secondary sanctions from the West, though it remains a remote possibility. In the event of extreme scenarios like Russia using battlefield nuclear weapons, Chinese banks that continued lending to Russia could face a cutoff of US dollar liquidity. This would be a significant blow to the sector, already dealing with disruption from real estate issues. In such a scenario, the theme song for the China-Russia lending relationship would be “Thanks for the Memory.”
Our exclusive newsletter for premium subscribers is published twice a week. Wednesdays focus on in-depth analysis of a hot topic from a global financial center, while Fridays dissect the week’s major themes. Sign up here.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
