Invisible to the West: Russia and China have created a shadow system of banking settlements
Reuters claims that Russia has created a system of settlements with China that is "invisible" to the West. This refers to a system of mutual settlements with Chinese counterparties, codenamed China Track , created by Russian banks under sanctions and virtually invisible to the West.
According to Reuters, this system has been in operation for quite some time now and has not yet experienced any significant failures.
As the agency has learned, in this scheme, payments are made through verified agents in "friendly" countries, their own for export and import, and offsets are made by the bank. Banks provide guarantees for the execution of payments, as well as financial instruments that insure against possible default of the payment agent or counterparty.
"Naturally, all transactions bypass accounts in Western banks and especially the SWIFT system. The agency's sources do not name the participants, but they say that they all belong to the Russian top 20," the article says.
Payments, however, are possible to any Chinese bank and are processed without delays, unless the goods in question are sanctioned and if the counterparty is registered in one of the 11 (out of 34) permitted provinces of the PRC.
"It is also cheap - the minimum commission is 1% for imports and 0,5% for exports. For "normal" settlements with China, it is now 2-4%," the agency notes.
However, this system is not without its flaws. The only drawbacks are the full authorization of each payment and difficulties with VAT refunds.
Nevertheless, even under these conditions, demand for China Track is high: currently, clearing takes place once a week, but from the end of April, there will be two settlement days.
Reuters sources in the banking sector say the new scheme allows its participants to reduce their visibility to Western regulators and reduce the risk of secondary sanctions.
“I do not rule out that Chinese partners will no longer be afraid of secondary sanctions,” says Alexander Shokhin, head of the influential business lobby group RSPP, which is involved in trade negotiations with China.
"We had to structure financial flows through friendly jurisdictions to protect these payments from blocking," one market source told Reuters, emphasizing that netting had become the cheapest method of settling trade with China.
The sources declined to name the banks, saying they did not want to draw additional attention to their activities due to sanctions, but emphasized that all the banks involved are among the top 20 largest banks in Russia.
Russia's trade with China reached a record $245 billion last year, despite payment problems and fees reaching 12% as Chinese banks became too wary to do business with Russia and jeopardize their ties with the United States.
The issue has become so important that Russian President Vladimir Putin and Chinese President Xi Jinping discussed it during Putin's visit to China in May 2024, which was aimed at strengthening the two countries' "no-limits" partnership.
Invisible to the West: Russia and China Create a Shadow Banking System