China, despite claiming neutrality, has maintained a pro-Kremlin lean and is opposed to sanctions, stating that it will continue to trade with Russia as usual. But questions remain on how far China’s systems are able to cushion the blow of Western sanctions and how far Beijing is willing to go to help its economic partner.
Many buyers, services and systems to which Russia has lost access have Chinese substitutes. But those options often fall short when compared with Western equivalents and face daunting practical and political hurdles before they could work as a viable replacement for global systems.
“Even though China’s government probably wishes to assist Russia, it cannot shield its companies from the potentially crippling punishments for violating sanctions,” analysts at Gavekal Dragonomics, a research firm, wrote in a recent note.
Here are some of the Chinese alternatives that Russia can consider to make up for the financial services and technologies it has been denied.
Russian banks are turning to China’s UnionPay system as an alternative to Visa and Mastercard, both of which have suspended operations in the country. UnionPay says over 90 percent of ATMs in Russia are compatible with its cards, 3 million of which had been issued in the country as of 2021
Several Russian banks have announced in recent days that they will use the Chinese service, with some giving customers immediate access to virtual cards so they can get to their savings.
Given UnionPay’s widespread international availability, fewer Russian cardholders will be left unable to withdraw cash or make payments if their banks switch to the Chinese payment system. (It does little to resolve the ruble’s plunging value or long lines at ATMs.)
The sudden influx of users, however, is a challenge for UnionPay, which remains primarily a provider for Chinese clients. Only 1 percent of its expenditure was outside China in 2020, according to RBR, a consultancy.
The CIPS clearing system, which uses the Chinese yuan as its quote currency, could connect with Russia’s own version or simply expand its partner network in Russia to become a viable alternative to SWIFT.
But CIPS is far smaller, with a network about a tenth of SWIFT’s 11,000 financial institutions. There is only a single CIPS clearing center in Russia, the Moscow branch of ICBC, and transactions using the messaging system would need to be made in Chinese yuan, which has drawbacks because of Beijing’s strict capital controls that prevent large volumes of the currency leaving China.