China’s exposure to the Russian banking sector has significantly increased in the past 14 months, as Western lenders retreated from the country, according to a report by the Kiev School of Economics cited by the Financial Times on Sunday. The data reveals that the Industrial and Commercial Bank of China (ICBC), Bank of China, China Construction Bank, and Agricultural Bank of China raised their combined exposure to Russia from $2.2 billion to $9.7 billion during this period.
At the same time, the proportion of Russian banking assets held by foreign lenders decreased from 6.2% to 4.9% from March 2020 to March 2021. The four Chinese banks’ moves are part of Beijing’s strategy to boost the global presence of the renminbi, the report noted.
Andrey Onopriyenko, the deputy development director at the Kiev School of Economics, explained to the Financial Times that the loans provided by Chinese banks to Russian banks and credit institutions largely involve the yuan replacing the dollar and euro. He believes that these loans demonstrate the effectiveness of the sanctions imposed on Russia.
Before the conflict in Ukraine and the ensuing sanctions, less than 1% of Russia’s export payments were made in Chinese yuan, while more than 60% were settled in “toxic currencies” like the dollar and euro. However, Western currencies now only account for less than half of export payments, while the renminbi’s share has been steadily growing.
The Bank of Russia’s latest data reveals that Russia has increasingly embraced alternative currencies in transactions, with President Vladimir Putin endorsing the use of the Chinese yuan in trade with China and other countries in Africa and Latin America. This indicates the yuan’s emerging prominence in Russia’s foreign trade.
These developments highlight China’s expanding influence in the Russian banking sector, filling the void left by Western lenders. The Western institutions’ withdrawal is likely a result of geopolitical tensions and sanctions imposed on Russia.
As China strengthens its economic ties with Russia, it aims to enhance the role of the renminbi in the global financial market and reduce its reliance on traditional Western currencies. The four major Chinese banks’ increased exposure to Russia reflects China’s determination to establish the renminbi as a viable alternative to the dollar and euro in international transactions.
In conclusion, China’s exposure to the Russian banking sector has quadrupled in the past 14 months, while Western lenders have scaled back their operations in Russia. This trend is part of China’s broader strategy to promote the renminbi and reduce dependence on Western currencies in global financial transactions. The increasing presence of the renminbi in Russia’s foreign trade signals a shift away from traditional Western currencies.