G7 Pledges to Limit Chinese Financial Support for Russia’s War Economy

The recently concluded G7 summit demonstrated to the world that Europe and the United States are determined to deter the Chinese Communist Party (CCP) and Russia from further aggression, with sanctions introduced against Chinese entities, including financial institutions that provide economic impetus for Russia to maintain its war against Ukraine.

In the G7 communiqué released on June 14, “China” was mentioned a rare 28 times in its elaborating of the Chinese communist regime for threatening geopolitics and peace on issues such as production overcapacity, support for the Russia-Ukraine war, “militarization, and coercive and intimidation activities” in the South China Sea, and other issues.

Leaders from Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States, as well as the European Union, warned the Chinese regime against its support for the Russian war, vowing in the statement to take “measures against actors in China and third countries that materially support Russia’s war machine, including financial institutions, consistent with our legal systems, and other entities in China that facilitate Russia’s acquisition of items for its defense industrial base.

Li Hengqing, a U.S.-based Chinese economist, told The Epoch Times on June 17 that this G7 summit has reached a consensus against the CCP, a focal point of interest different from the past summits.

“In the past, those Western countries more or less considering their economic, diplomatic, and political relationship with Communist China, have always dodged naming China (CCP), but this time the G7 has made a major change, sending a clear signal that ‘if the CCP furnishes resources to the Russian war, then it will be made to pay a heavy price,” he said.

“The U.S. is targeting the CCP as a counterpart bundled with Russia,” said Henry Wu Chia-lung, macroeconomist and lead economics researcher at Taiwan AIA Capital

Mr. Wu shared during the New Tang Dynasty program “Pinnacle View” on June 18: “The U.S. sanctions against Russia have gone through several rafts of escalation, and now they have been further escalated to expand the sanctions against Russia’s financial system, including countries with which Russian banks have business dealings, with the obvious intention of targeting the CCP.”

He believes that the G7 summit would be striving to “lay out a new international order after the Russian-Ukrainian war.”

New US Sanctions Against Russia

On June 12, the U.S. Treasury Department announced a significant expansion of sanctions guided by G7 commitment, involving more than 300 individuals and entities in Russia, Asia, Europe, and Africa that “enable Russia to sustain its war efforts and evade sanctions.”

It included Hong Kong trading companies that “route payments related to gold sales through foreign financial institutions back into the Russian financial system.”

The Treasury Department also imposed sanctions on key parts of Russia’s financial infrastructure, including the Moscow Exchange, as well as its securities depository and the country’s largest national clearing center.

In response, the Russian Stock Exchange suspended on June 13 trading in U.S. dollars and euros in foreign currencies and precious metals, as well as using these two currencies as financial instruments.

Meanwhile, the ruble plummeted immediately, and many Russians were seen on June 13 lining up at a money changer in St. Petersburg to buy dollars.

Russia Relies on the Chinese Yuan as Its Main Foreign Currency

On June 14, the Central Bank of the Russian Federation (CBR) designated the Chinese yuan as the main foreign currency and the yuan-ruble exchange rate to be a reference for other currencies.

On June 13, the Russian central bank issued 14.2 billion yuan (about $1.96 billion) in loans to commercial banks in Russia for 174.2 billion rubles in a currency swap transaction. The day after, the bank doubled the limit of the currency swap to 20 billion yuan (about $ 2.76 billion).

The China-Russia Bilateral Local Currency Swap Arrangement was signed earlier in October 2014, when Russia was under sanctions by the West over its annexation of Ukraine’s Crimea.

The agreement between the CBR and the People’s Bank of China (PBC) stipulates the size of the swap of 150 billion yuan (approximately $20.7 billion)/815 billion rubles. It is valid for three years and can be extended by mutual consent.

Chinese Banks ‘Circumventing’ SWIFT

Since March this year, to avoid becoming a target of U.S. sanctions, China’s four major state-owned banks—the Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China, and Construction Bank of China—as well as other national banks, such as Bank of Communications and CITIC Bank, have suspended settlement business with Russia and suspended new account-opening services.

However, numerous agricultural and commercial banks in northeastern provinces bordering Russia, including Jilin Bank, Changchun Farmers’ and Merchants’ Bank, Changchun Development Bank and Yanbian Farmers’ and Merchants’ Bank, continue to provide “a freer and more flexible settlement channel for border trade” through the Cross-Border Inter-Bank Payments System (CIPS) supported by China’s central bank, according to multiple Chinese media reports.

The report said those banks shared ruble channel of Hunchun Bank’s ruble channel, and “given the transactions are mainly settled using the ruble as the currency, not the yuan, this system is outside the regulatory scope of the International Payment System (SWIFT) and won’t be directly impacted [by the sanctions].”

In this regard, Mr. Li indicated that these small banks are not directly connected to the SWIFT system, which does not mean that they can violate the U.S. and European Union bans and escape sanctions.

“If the Chinese Communist government continues to support Russia’s war against Ukraine in this way, the West will eventually step in and impose sanctions on all Chinese banks. All Chinese banks are more or less state-owned, with shares linked to the Communist regime.” Mr. Li said.