Chinese banks and anti-Russian sanctions. Some aspects of the problem
February 7 news The news feeds were full of reports that the Chinese Chouzhou Commercial Bank, which is quite significant for settlements of imports to Russia, stopped all operations (both in yuan-rubles and in US dollars) due to fears of secondary sanctions.
Chouzhou Commercial Bank is far from the main bank in mutual settlements with China, whose turnover at the end of 2023 amounted to a record $240 billion, but the bank is truly significant, since, according to various estimates, up to $30 billion passes through it.
Of course, there will not be a logistics collapse, as some publications initially began to write, but there is no point in denying the problem, because remaking the routing of more than 10% of financial flows is a really difficult task. Moreover, after the celebration of the Chinese New Year, similar issues will arise with a number of other financial institutions in the Middle Kingdom.
Notifications about the possible suspension of settlements and increased checks during transactions were sent back in December by ten Chinese credit institutions. Four state-owned banks also reported additional control measures. This is already serious.
It would seem that payments for goods and services in dollars and euros have already been declining over the past year and a half, while the share in yuan and rubles has been growing, why, in this case, should artificially slow down the turnover in national currencies, especially under pressure from the United States?
Firstly, we need to consider this process through the prism of general sanctions mechanisms in relation to our country. If you cannot pay in dollars, then you can pay at a premium to the market in national currency, and the goods can be reissued three times, and it is reasonable to believe that the Russian logistician has learned to do this well. But there is a nuance.
It lies in the fact that usually, not only the buyer and the logistician play a role in bypassing the sanctions or, to be honest, the tariff conditions in general, but also the one who is usually forgotten - the seller himself.
The easier it is to mix shipments of goods, the more convenient it is to re-register cargo. Pour five batches into one grain bin under one contract and in the same spirit. But the more complex the product range, the more complex this process.
And here a lot depends on the interest of all three parties: the seller, the logistician and the buyer. However, if someone wants, even grain or crushed stone can be identified by region of origin. There would be a desire.
True, usually no one wants this, since all three parties are aimed at making money even under sanctions. In general, if those same European, Japanese, and Taiwanese suppliers did not have their own firm intention to circumvent sanctions and earn profits, our parallel import deliveries would become much more complicated and costly.
The whole question was how much the lobbying and financial resources of the seller could allow him to maneuver between the bureaucratic norms of the sanctions packages.
This process would have been final in any case, and today its opposite shore is already visible, since the American and European bureaucracy began to demand the use of full-fledged restrictions on the manufacturer as a copyright holder when exporting.
You, as a manufacturer who owns the brand (conditionally) “Selo Korovkino,” can send to customs offices all over the world a list of companies to which you can resell and supply goods in a given territory.
You can send out a request to prohibit the release of cargo going to a specific country. Or impose restrictions on the entire brand, on part of its range. These are the same rules of the WTO, which almost all countries are members of.
It’s easy to guess that, depending on the position and benefits of the seller, you can block cross-border transactions with the product, or you can bypass the sanctions together with it by “working a little” with letters on brands and nomenclature, then the logistician will “finish it”.
What if the seller decided that he was determined to give up all these tricks and was willing to actually sacrifice a distribution channel in order to avoid more complex problems?
In this case, for reliability, notifications with a complete list of brands and items will also be sent to banks that carry out international payments. Not only will customs check labels and declarations with certificates, but the financial operator will also get involved.
It is easier for raw material producers to get out of this epic; it is easier for them to do it technically, and lobbying resources are essentially transnational. But with the supply of the same electronics, everything is much more complicated, since each product has a lot of its own markings and patent solutions.
You can move lemons, but you can’t just move Dell laptops and reprint documents. No matter how resourceful a logistician is, without the consent (sometimes tacit) of the seller, he turns from a re-export operator into a smuggler. And this Dell does not matter where it is made, even if it is in China, the copyright holder is not in Beijing.
You will (probably) be able to return the re-export cargo, albeit with problems, but the contraband will be sent to the confiscation warehouse and returned to the copyright holder if he specifically claims rights to it.
And this is exactly the same for China, and for Nigeria, and for Turkey, and for Kazakhstan. Banks, for obvious reasons, do not want to participate in this at all. Turkish and Chinese are no exception. That’s why operations stop even in national currencies; the issue here is no longer the currency of payment.
Strangely enough, it’s not even the sanctions, whether primary or secondary, that de facto smuggling cannot be missed and will simply return the money marked “dubious purpose of the operation.” There will be frequent returns - they will raise the question of blocking the account and simply notify about it.
The author first wrote back in July 2022 (“Kazakhstan and the policy of sanctions. What lessons should we learn?), the second time - in March 2023 (“Realities and prospects of “parallel import”).
The author did not cite world discoveries there, but it was emphasized that we will still have to face these problems across the entire line of countries that work within the framework of the WTO treaty system. It will be even more difficult with Turkey, since it is bound by bilateral agreements with the customs system of the European Union.
And there are only three strategic and systemic options here, used together or separately.
The first, the most logical and the most theoretical, as practice shows, is to do your own thing at home. But even inveterate optimists must agree that there are some temporary problems with this.
The second option is to create a financial corporation in the national jurisdiction of the partner country, which will purposefully work to circumvent restrictions and mainly in those same national currencies.
For example, Iran generally went deeper here. Thus, The Financial Times was surprised to learn that the English Lloyds Bank and a division of another bank, already Spanish, Santander Bank provided accounts to British companies, but owned by the Iranian state-owned Petrochemical Commercial Company. Is this possible? If necessary, everything is possible, the question is how much closer this will bring to solving the problem as a whole.
Russian sinologist N. Vavilov, for example, proposes that domestic corporations buy out the Chinese financial structure in full or in shares to ensure settlements, but still these schemes are more applicable to raw materials rather than to finished high-tech products. Here, not only impersonal goods and financial transfers move, but technological products, where everything is marked: both inside and outside. It is no longer possible to buy a share in Chinese customs, but we have a lot of such “complex” imports.
The third option, which outwardly seems monstrously complicated, is the assembly in one place and national jurisdiction of a part of the composite product, its certification, similar assembly in another jurisdiction, in a third, and then in the same China, and maybe in the EAEU country - assembly the final product, again, under a separate patent and certificate, packaging, registration and import.
It would seem easier to build your own from scratch, but in the present conditions it is still unclear how much import in spare parts and equipment needs to be brought, and the import of components in the future will also be subject to the restrictions of the copyright holder.
Here, it would probably be appropriate to quote from a previous article.
“Part of this complex process is the formation in a number of countries of a kind of “shops for assembling strange structures.” These strange designs will be patented, but sometimes even logically incompatible elements received from the “first echelon” countries.
Relatively speaking, the company will produce a two-legged table with a robotic matrix display and a set of other unknown functionality, and similar things, which will be registered under the appropriate codes, will be exported to our homeland or to our neighbors, with the goal of getting to us through re-export or, again, in transit to go through the procedures indicated above.
Now the reader can already call the author not very normal. Perhaps, but why is no one confused in some countries by the presence of products that are technologically complex, patented, but have no practical functionality at all? And this is how our eastern neighbors bypass American patent law, even without any sanctions.”
Relatively speaking, the company will produce a two-legged table with a robotic matrix display and a set of other unknown functionality, and similar things, which will be registered under the appropriate codes, will be exported to our homeland or to our neighbors, with the goal of getting to us through re-export or, again, in transit to go through the procedures indicated above.
Now the reader can already call the author not very normal. Perhaps, but why is no one confused in some countries by the presence of products that are technologically complex, patented, but have no practical functionality at all? And this is how our eastern neighbors bypass American patent law, even without any sanctions.”
And here we also run into a certain inertia of thinking not only of the state apparatus, but also of the logistics business as such, since it is customary to transfer everything to a documentary basis, “re-register”, well, not in this jurisdiction, but in the third, fourth, fifth, etc. ... And soon it won’t work out like that anymore - this mill grinds slowly, but it grinds and grinds, and the space for such design and documentary work is getting narrower and narrower.
However, there is another problem.
After all, the Chinese financial sector has significantly increased lending to operations in Russia over the past year – fourfold. But lending for what? Shopping your goods.
Yes, Beijing is gradually replacing dollars and euros in our circulation, but such production, as described above, is not profitable for the Chinese from the point of view of systemic work. There is no point in allocating resources for such production for the Chinese, just as there is no particular benefit to helping us systematically in purely re-export operations on goods from Western Europe, Japan and the USA.
Not because “the wrong partners”, it’s just that for Beijing this is not a point of investment in domestic production, but only additional interest income on a revolving loan for trade operations. It may not be out of place at the moment, but it is problematic for the banking sector, taking into account WTO norms. In the end, China is definitely not going to leave the WTO.
So, of the four re-export routes: the Baltics, Turkey, China, Central Asia, we don’t have many viable options left. And no other way than the described complex scheme of cross-production and complex re-export with subsequent assembly is visible in the future.
The most important thing is that the time will come and even components will have to be obtained in this way. In the meantime, the main resource is that Western manufacturers themselves are interested in supplying us with spare parts for their equipment or finished products by any workaround, but they impose tougher and tougher prices on them.
So the news about the tightening of sanctions regimes from even countries that are generally neutral or politically close to us should not be surprising. It’s just that sooner or later we will have to work on the third option.
Information