US Threatens Secondary Sanctions, Impact on Small Companies in China and Russia
The United States has recently escalated its threats of imposing secondary sanctions on countries conducting business with sanctioned nations like Russia. This move by the US government has had a significant impact on small companies in both China and Russia, leading to delays and increased costs in trade transactions.
Challenges Faced by Russian Companies Dealing with Chinese Partners
Russian enterprises engaging in trade with Chinese partners have encountered two major obstacles: delays and rising costs. These challenges have resulted in billions of Renminbi worth of transactions being unable to proceed. The issue first arose several months ago, with an anonymous insider revealing that the problem intensified in August of this year.
While China has not participated in the Western sanctions imposed on Russia for its actions in Ukraine, Chinese banks are deeply concerned about facing what the US refers to as secondary sanctions. In June of this year, the US Treasury issued a warning, stating that it would impose secondary sanctions on banks from China and other countries doing business with Russia. Following this announcement, Chinese banks took immediate action. A Russian e-commerce company mentioned, “During that time, all cross-border payments to China were halted.” The company later found a solution, but it took approximately three weeks to resolve the issue. One alternative method involved purchasing gold and shipping it to Hong Kong, where it was sold, and the proceeds were deposited into a local bank account.
Impact on Small Companies
Small companies have been hit the hardest by these developments. China is Russia’s largest trading partner, with bilateral trade expected to account for one-third of Russia’s total foreign trade by 2023. China provides industrial equipment and consumer goods to Russia, assisting the country in coping with Western sanctions. Simultaneously, China serves as a crucial market for many of Russia’s export products, ranging from oil and natural gas to agricultural goods. While bilateral transactions between large corporations of the two countries, especially those involving Russian raw material suppliers, continue to operate smoothly, smaller consumer goods companies have faced issues.
Rising Transaction Costs Through Third-Party Channels
According to sources, some Russian companies have resorted to handling transactions through intermediaries in third countries. However, this has led to a significant increase in transaction costs, from zero fees previously to as high as 6% of the transaction amount. Dmitry Birichevski, the Economic Director of the Russian Foreign Ministry, highlighted the heavy reliance of large Chinese and Indian companies on the American and European markets. He stated that they were warned, “If you continue to cooperate with Russia, we will cut off your access to our markets, making it impossible for you to breathe.”
Conclusion
The threat of secondary sanctions by the United States has created a challenging environment for small companies in China and Russia conducting business with each other. With delays and increased costs in trade transactions, these companies are navigating a complex landscape of international trade regulations and political tensions. As the situation continues to evolve, it remains to be seen how these companies will adapt and overcome the obstacles presented by these sanctions.