Following the suspension of Visa and Mastercard services in Russia, at least three Russian banks have announced plans to use China’s UnionPay system to continue their financial operations.
Analysts say that Russia’s strategy of evading Western sanctions through the Chinese financial system puts the Chinese Communist Party (CCP) at risk of consequences as well.
‘Only China’s Big Banks Will Comply With Russia Sanctions’
Albert Song, a senior Chinese financial analyst, says the CCP is in a dilemma over its economic ties with Russia, as some banking giants in China are going against the CBIRC pledge and are restricting financing of Russian commodities.“Those with international financial operations—the four largest banking institutions in China—are more vulnerable to potential sanctions from the West, as they are part of the U.S. dollar-based global financial system,” Song told The Epoch Times.
Those banks want to avoid being implicated in not complying with Western sanctions, that’s why they have complied with past U.S. sanctions against Iran and the Hong Kong authorities, he said.
Other than the four banking giants, the Beijing-based Asian Infrastructure Investment Bank (AIIB) also announced on March 3 that it has suspended “all activities relating to Russia and Belarus.”
As one of the founding members of the 6-years old AIIB, Russia holds 6 percent of the voting power, the third-biggest after China and India.
It’s also noteworthy that the AIIB was founded as part of Xi Jinping’s “Belt and Road Initiative” to reduce the United States’ leadership status in the World Bank and the IMF.
“Smaller banks, those that only operate domestically in China, are immune to the sanctions imposed by the West. So the big banks will transfer the Russian-related business to these smaller banks as a way to evade the sanctions,” Song said.
International Financial Systems Depend on US Technology
As outlined in the 2021 periodical published by China’s Institute of Russian, Eastern European and Central Asia Studies: “The Cross-Border Interbank Payment System (CIPS) for international RMB transactions is heavily dependent on U.S. equipment, software, and the SWIFT banking system. As a result, all cross-border transactions are monitored by the United States. China’s UnionPay also relies on the U.S.-based BMC software services for overseeing algorithms in its payment system and the production of credit cards.”The dependence of financial systems on U.S. technologies also applies to Russia’s national payment system, as the American financial technology company PSC CartStandard provides services to over 100 banks in Russia. The periodical also stated that “All Russian and Chinese financial institutions try to avoid financial sanctions for violating the ‘long-arm jurisdiction’ policy of the United States.”
White House press secretary, Jen Psaki, at a press briefing on March 7, emphasized the United States’ capability “to take steps” if China refuses to abide by the financial sanctions imposed on Russia.
Psaki also said that Russia has been strengthening its ties with China before the invasion of Ukraine, and China cannot “completely backfill the impact of the G7 and others” as the G7 accounts for 50 percent of global GDP.
