How China and Russia are reportedly using 'underground' channels to get around sanctions

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  • Chinese exporters are reportedly going "underground" as domestic banks pullback from transaction business with Russia, Reuters reported.

  • Many lenders have restricted transactions with Moscow, curbing payment options for Chinese firms.

  • Alternative channels include money brokers, and the possible use of cryptocurrencies.

Tighter US scrutiny of Beijing's trade ties is sending domestic exporters underground, Reuters exclusively reported on Monday.

Chinese firms involved in the Russian market are reportedly finding alternative ways to facilitate trade with its Northern neighbor, as they no longer can rely on big banks to finance such settlements.

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"Transactions between China and Russia will increasingly go through underground channels," a Chinese trade body head told Reuters: "But these methods carry significant risks."

For instance, one unnamed Chinese manufacturer told the outlet that it may have to turn to currency brokers operating on the border with Russia, as they could potentially help settle payments.

The search for alternatives is a direct consequence of Washington's growing concern over trade between the two capitals. China's commercial shipments have been accused of supplying Russia's military industry, spurring US lawmakers to start drafting sanctions against Chinese banks that facilitate this trade.

"I reiterated our serious concern about the PRC providing components that are powering Russia's brutal war of aggression against Ukraine," Secretary of State Antony Blinken said of the People's Republic of China last week.

In the face of possible sanctions, a number of financial institutions have voluntarily restricted Russia-related transactions, including some of China's biggest state banks.

For exporters, this has also meant a pullback from Russia's market, given the challenges of pursuing business outside of official channels, Reuters said.

For those who try, money brokers are one option. Cryptocurrency could also provide an answer, even though the asset has been banned in China since 2021. But the restriction hasn't stopped China's strained investors from seeking out crypto this year, and could help exporters bypass know-your-customer channels.

While some smaller banks are still open to facilitating business between the countries, its led to months-long queues for those who want to open an account — an issue seen among dealers on both sides of the border.

Lenders in China aren't the only ones rethinking their ties with Russia. Restrictions have also tightened in countries such as the United Arab Emirates, Turkey, and even Austria, all resulting from rising US sanctions rhetoric.

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