According to Bloomberg and its unrevealed source, offshore units of Industrial & Commercial Bank of China Ltd. stopped issuing US dollar letters of credit for physical Russian export commodities purchases. Some clients can still get Yuan letters of credit, pending senior executive approval.

Bank of China Ltd. has also curbed financing for Russian commodities based on its risk assessment. The lender has yet to receive explicit guidance on Russia from Chinese regulators. China banks need access to the US dollar clearing system, so they need to comply with the US sanctions programs to avoid being kicked out of the US Clearing House Interbank Payments System (CHIPS.)

According to the Observatory of Economic Complexity data, China is currently the biggest export destination of Russia. Beyond that, the two countries signed oil, wheat, and coal trading projects.

The New York Times reported that Chinese oil purchases from Russia surpassed those from Saudi Arabia in December. Six days before the military campaign began, Russia announced a multi-year deal worth more than $20 billion with China to sell 100 million tons of coal. And China agreed to buy Russian wheat hours before Russia began bombing Ukraine, despite concerns about plant diseases.

According to SMCP, Putin confirmed the agreement to supply 10 billion cubic meters (353 billion cubic feet) of gas per year to China, the world’s largest energy consumer, via a new pipeline from Russia’s Far East in a meeting aside from the opening ceremony of the Winter Olympics.

Chinese banks’ response may be transitory, particularly given that Western sanctions have thus far spared Russia’s energy sector. It is unknown whether Chinese banks have withdrawn from other forms of financing for Russian businesses and individuals, and their policies may change in the future.

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