Date
12 December 2017
China owns about 30,000 sq km of farmland in Ukraine. Photo: Bloomberg
China owns about 30,000 sq km of farmland in Ukraine. Photo: Bloomberg

Chinese firms step in where US now won’t tread in Russia

Chinese firms could be in for a bonanza as Moscow starts feeling the pinch from US sanctions imposed on Russia over the crisis in Ukraine.

Last week, in the name of defending Ukraine’s sovereignty, the United States froze the assets of seven government officials and 17 companies, including three small banks, linked to President Vladimir Putin’s inner circle.

In March, Visa and MasterCard stopped processing some Russian transactions, a big problem for Russians going abroad, and a surefire way to stem the tide of foreign visitors.

Big American banks are pulling out of Russia as well, with Citigroup and JPMorgan Chase reducing their exposure by 9 percent and 13 percent to US$9.4 billion and US$4.7 billion, respectively, according to the Financial Times. Bank of America cut its exposure to the country by 22 percent to US$5.2 billion.

Meanwhile, Chinese banks are ready to pick up the slack, especially with President Xi Jinping’s mandate for closer relations with Moscow a foreign policy priority.

“We don’t have any problem with Russia,” one senior executive with a mainland Chinese bank in Hong Kong told the South China Morning Post on Monday. “If American banks can’t take any Russia-related clients, then I will definitely welcome them to do business with us.”

According to the International Business Times, at least three major Chinese banks are already operating in Russia. Last summer, China’s second-largest bank by assets—China Construction Bank—opened a subsidiary there to expand its Russian business. Other banks operating in the country include Bank of China (Eluosi) and Industrial and Commercial Bank of China.

In response to the first round of US sanctions, which led to Visa and MasterCard halting services to four major Russian banks including Bank Rossiya, the head of the parliament’s Financial Markets Committee, Anatoly Aksakov, told Prime News that banks may respond by moving to the China UnionPay system, China’s domestic bank card organization.

The European Union, Canada and Japan have placed similar sanctions against Russia.

On March 1, Putin deployed troops to the Crimean Peninsula, located in the southeastern region of Ukraine. Ten days later, the Crimean parliament declared independence from Ukraine, as the Republic of Crimea. A week after that, Crimea requested to join the Russian Federation, with Russia recognizing it as a sovereign state the same day. On March 27, the UN General Assembly declared the incorporation of Crimea into Russia illegal.

At the time, Ukrainian Prime Minister Arseniy Yatsenyuk called it “a robbery on an international scale,” one that Kiev, the capital of Ukraine, will never accept. “It will be difficult to find a quick resolution to this problem, but Russia is now isolated by the whole international community.”

Today, Ukraine teeters on the brink of civil way, said Bloomberg, with Ukrainian forces battling pro-Russian militants in numerous hotspots that have left dozens dead.

China, which owns about 30,000 square kilometers of Ukrainian farmland, remains neutral despite Russia actively seeking its support since the beginning of March. Xi has made guarded statements on the issue, neither criticizing nor supporting Moscow’s actions in Ukraine.

Chinese companies, on the other hand, are making major deals.

State-owned China Railway Construction Corp. may help build a car and rail bridge from mainland Russia to Crimea, with financing from the private China International Fund, reports Russian daily Kommersant.

Novatek, Russia’s second-largest natural gas producer, secured financial support in late April from Chinese investors for its US$27 billion Yamal liquid natural gas project, after losing the backing of the US Export-Import Bank, according to IBT. China and Russia are also expected to sign an agreement for joint construction of a US$1.3 billion transport corridor to Crimea via the Black Sea’s Kerch Strait, during Putin’s upcoming visit to Shanghai.

In another example of growing ties between China and Russia, China announced last week that it plans to hold joint naval drills with Russia in the East China Sea later this month.

“These drills are regular exercises held by China and Russia’s navies, and the purpose is to deepen practical cooperation between the two militaries, to raise the ability to jointly deal with maritime security threats,” China’s Defense Ministry said.

– Contact the writer at [email protected]

SK

A strategist and marketing consultant on China business

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