# Analysis-After sanctions barrage, Russia’s emerging market allies explore workarounds
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-02-28
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Emerging Markets Allies Navigate Sanctions Over
Meta Description: Despite growing Western sanctions on Russia, emerging markets like China are exploring alternative trade and financing routes to maintain business relations.
URL: https://financedigest.com/analysis-after-sanctions-barrage-russias-emerging-market-allies-explore-workaroundshtml

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SHANGHAI (Reuters) – As western governments ratchet up sanctions against Russia over its invasion of Ukraine, Moscow’s emerging markets allies are exploring channels for trade and financing to continue.

The other members of the erstwhile BRICs group – Brazil, India and China – are treading cautiously for fear of tripping on the sanctions, but the beginnings of a parallel financial system centred on Beijing are becoming detectable.

The United States and Europe have banished big Russian banks from the main global payments system SWIFT and announced other measures to limit Moscow’s use of a $640 billion war chest.

So the willingness of the emerging market giants to sustain business relations with Russia highlights a deep rift over [Europe’s biggest crisis](https://www.financedigest.com/europes-energy-crisis-and-the-nuclear-path-out.html "Europe’s energy crisis and the nuclear path out") since the World War II, and threatens to chip away the dominance of the U.S. [dollar in global](https://www.financedigest.com/dollar-jumps-u-s-stocks-buck-global-rally.html "Dollar jumps, U.S. stocks buck global rally") trade.

Chinese businesses and banks are now scrambling for ways to limit the impact of sanctions on their relations with Russia, with settlement of transactions in yuan seen [rising at the expense of the dollar](https://www.financedigest.com/dollar-slips-after-upbeat-china-data-euro-pound-rise.html "Dollar slips after upbeat China data; euro, pound rise"). The western curbs, which [aim to cut Russia out of the global](https://www.financedigest.com/u-n-summit-aims-for-global-pact-to-protect-nature.html "U.N. summit aims for global pact to protect nature") financial system, could also deepen commercial links between Moscow and Beijing.

In India, as concerns mount over sustaining supplies of Russian fertilizer, government and banking sources [say there is a plan to get Russian banks and companies to open](https://www.financedigest.com/one-minute-to-midnight-says-johnson-as-climate-conference-opens.html "“One minute to midnight” says Johnson as climate conference opens") rupee accounts with a few state-run banks for trade settlement as part of a barter system.

Brazil’s President Jair Bolsonaro said his country will remain neutral in the conflict.

Deng Kaiyun, who heads Zhejiang’s chamber of [commerce that represents Chinese private businesses](https://www.financedigest.com/smishing-is-a-new-virus-plaguing-big-business-conversational-commerce-to-the-rescue.html "‘Smishing’ is a new ‘virus’ plaguing big business – Conversational Commerce to the rescue!") that trade with Russia, said doing transactions without SWIFT was not a big issue, as the two countries both started de-dollarisation five years ago.

Yuan-rouble settlement has become a [normal business at major banks](https://www.financedigest.com/how-banks-can-triumph-in-the-new-normal.html "HOW BANKS CAN TRIUMPH IN THE ‘NEW NORMAL’") nowadays … We business people are already accustomed to that,” Deng said, adding [yuan is increasingly popular with Russians](https://www.financedigest.com/permitted-share-of-chinas-yuan-in-russian-wealth-fund-doubled-to-60-finance-minister.html "Permitted share of China’s yuan in Russian wealth fund doubled to 60% -Finance Minister").

SWIFT

The sanctions are prodding Russian and Chinese companies to [open](https://www.financedigest.com/lack-of-electric-vans-opens-door-for-chinese-other-ev-makers.html "Lack of electric vans opens door for Chinese, other EV makers") accounts at Chinese banks that have subsidiaries in Russia, said a Moscow-based lawyer who represents Chinese businesses.

SWIFT is not the only [payment system](https://www.financedigest.com/main-uk-payment-systems-effectively-privatised-to-one-person.html "Main UK payment systems effectively privatised to one person"). If you block this channel, [business people need](https://www.financedigest.com/what-is-premises-liability-coverage-and-why-does-your-business-need-it.html "What is Premises Liability Coverage … and Why Does Your Business Need It?") to find alternatives,” said the lawyer, who declined to be named due to sensitivity of the topic.

A source at a Chinese state [bank who declined to be identified says “exporters are now in favour of using yuan to settle their payments”](https://www.financedigest.com/crown-agents-bank-owner-explores-sale-of-british-payments-group-sources.html "Crown Agents Bank owner explores sale of British payments group –sources") with Russia. Some of those trades were settled in [euros or dollars](https://www.financedigest.com/dollar-jumps-euro-dips-before-fed-minutes.html "Dollar jumps, euro dips before Fed minutes") until last week.

A source at another state lender said that, given a lack of details in the Western sanctions, the [bank is closely monitoring](https://www.financedigest.com/swiss-regulator-monitoring-banks-and-insurers-after-svb-collapse.html "Swiss regulator monitoring banks and insurers after SVB collapse") the situation while encouraging clients to use yuan in trade settlements with Russia.

Yuan settlements already accounted for 28% of Chinese exports to Russia in the first half of 2021, compared with just 2% in 2013, as both China and Russia step up efforts to reduce reliance on the dollar, while developing their own respective, [cross-border payment](https://www.financedigest.com/why-blockchain-could-represent-the-future-of-cross-border-payments.html "Why blockchain could represent the future of cross-border payments") systems.

The [current crisis could accelerate the trend](https://www.financedigest.com/polypropylene-woven-bags-and-sacks-market-quantitative-market-analysis-current-and-future-trends.html "Polypropylene Woven Bags and Sacks Market: Quantitative Market Analysis, Current and Future Trends").

Dang Congyu, analyst at Founder Securities writes the SWIFT [sanctions against Russia](https://www.financedigest.com/russia-unleashes-rockets-after-mariupol-ceasefire-eu-eyes-oil-sanctions.html "Russia unleashes rockets after Mariupol ceasefire, EU eyes oil sanctions") are “a milestone event that will accelerate the process of de-dollarisation.

“Although it’s hard to replace SWIFT in the short term, this incident is very beneficial to yuan’s globalisation over the long run.”

DE-DOLLARISATION

Efforts on de-dollarisation are not [limited to trade](https://www.financedigest.com/indias-carmakers-back-zero-duty-on-limited-british-imports-under-trade-deal-sources.html "India’s carmakers back zero duty on limited British imports under trade deal – sources").

Investment firm Caderus Capital said it has been working to promote cross-border investment between [Russia and China](https://www.financedigest.com/russia-sharply-scales-back-far-east-war-games-with-china.html "Russia sharply scales back Far East war games with China").

Managing director Andrei Akopian also hailed Russia central bank’s move to increase [investment in yuan assets as “the best way to increase the popularity of the Chinese](https://www.financedigest.com/brexit-no-obstacle-as-chinese-overseas-property-investment-doubles.html "Brexit no obstacle as Chinese overseas property investment doubles") RMB among Russian investors.

Yuan accounted for 13.1% of the Russian [central bank’s](https://www.financedigest.com/no-santa-rally-for-markets-as-central-banks-dampen-peak-rate-hopes.html "No Santa rally for markets as central banks dampen peak rate hopes") foreign currency reserves in June 2021, compared with just 0.1% in June 2017. Dollar holdings dropped to 16.4%, from 46.3%.

If we [talk about trade](https://www.financedigest.com/tax-credits-for-eu-electric-vehicles-to-dominate-mondays-trade-talks-with-u-s.html "Tax credits for EU electric vehicles to dominate Monday’s trade talks with U.S") and investment, it makes a lot of sense for both countries not to trade in the in U.S. dollars, because then you have double conversion, in addition to other difficulties recently,” Akopian said.

But the [pain for many Chinese businesses](https://www.financedigest.com/pakistan-floods-add-to-pain-for-struggling-small-businesses.html "Pakistan floods add to pain for struggling small businesses") is immediate, with a volatile rouble and trade contracts not being honoured.

Everyone is focused on maintaining or [cutting existing business](https://www.financedigest.com/cutting-business-costs-pros-of-using-commercial-heat-pumps-in-2016.html "Cutting business costs: Pros of using commercial heat pumps in 2016") right now. No one is talking about new business. That’s what I’m hearing from all quarters, including Chinese clients,” said a lawyer who declined to be named.

Han-Shen Lin, senior advisor The Asia Group and an ex-banker, also cautions that Chinese banks could [face tougher scrutiny in the face of western sanctions against Russia](https://www.financedigest.com/gold-investors-face-bind-over-bars-from-tarnished-russia.html "Gold investors face bind over bars from tarnished Russia").

All the [Chinese banks](https://www.financedigest.com/swiss-bank-ubp-returns-to-chinese-markets.html "Swiss bank UBP returns to Chinese markets") know that the U.S. [dollar clearing global banks](https://www.financedigest.com/deutsche-bank-equity-bear-market-rally-will-stretch-into-2023-dollar-weaker.html "Deutsche Bank: Equity bear market rally will stretch into 2023, dollar weaker") will be asking Chinese banks about involvement in sanctions-related counterparts transactions,” Lin said.

What will be of interest is how Chinese [banks can segregate the sanctioned transactions](https://www.financedigest.com/igtb-launch-digital-transaction-banking-available-as-saas.html "iGTB launch Digital Transaction Banking available as SaaS") versus non-sanctioned”, such as energy-related businesses.

(Reporting by Winni Zhou, Andrew Galbraith, Samuel Shen in Shanghai; and Ma Rong in Beijing; Additional reporting by Alun John; Editing by Vidya Ranganathan and Toby Chopra)


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