Is the China/Russia “marriage of convenience” perhaps headed to divorce court?  At the very least it seems they are in couples therapy. And, as so often happens when marriages have troubles money is either the cause or the issue that forces the decision to stick it out or give up and move on.  What the hell am I talking about you ask? Well, if you’re like me and not enthralled by banking and international finance this is usually boring stuff but sometimes it’s worth paying attention to. This might be one of those times.

With all that’s going on in the U.S., and even with aid to Ukraine getting some notice again it’s hard to notice, much less think about arcane stuff like international banking. However, boring as the details of how different countries transfer money to each other this could be significant. Due to sanctions Russia’s ability to do business around the world, to sell it’s oil and food and have money to conduct it’s war and attempt to take over Ukraine has been hampered. China has helped Russia, both in (albeit often tepid) political support but more importantly providing a lifeline. Buying the only thing Russia has worth selling and accepting its currency as payment when few others will.

The fact is China is the only country that can buy from and pay Russia on a scale that can keep Russia afloat. Now a “glitch” has developed in the minutia of converting currency’s of the two nations. According to Newsweek it seems there’s something new to keep an eye on. First let’s briefly review the state of things as we’ve known them. From Newsweek:

Several major Chinese banks—wary of dealings with Moscow’s defense industry—restricted Russian partner access to their services or cut ties altogether. The Chinese payment system UnionPay, which was once touted as a suitable replacement for MasterCard and Visa, also pulled out to limit its exposure.

While the linked article notes China hasn’t been openly critical of Russia, and as I’ve said has stepped up to by oil and even commodities (not that China needs Russia that much for food) it’s that latter part that has truly mattered to Russia. Putin and Russia wasn’t in very good financial shape even before the war. Making it tough for them do do business around the world and keep what revenues they were getting flowing in has hurt. Bad. Europe replaced much of the energy they once bought from Russia so that revenue stream turned into a trickle. And with them joining in with the U.S. to sanction Russia financially Putin’s ability to fund his war have been in the hurt locker.

For all the Chinese banks that have pulled out Xi has made sure there was enough banking in China that would cover Russia’s butt. Now, with apologies for getting more arcane the plain fact is that rumor can collapse a bank, or even a country’s financial well-being. And that’s why I think it’s newsworthy that you have Russia speaking out to say “Nothing to worry about here”:

Andrey Rudenko, Russia‘s deputy foreign minister, denied that his country’s businesses were experiencing any problems settling payments with neighboring China, including through the Financial Messaging System, the Russian equivalent to the SWIFT financial transactions service.

Okay, so some financial Minister most people couldn’t name tells a reporter “nothing to see here.” I wouldn’t bring this up except I think the concern in Russia is deeper than that. Most people (me included) don’t scour the financial section of whatever news outlet they get their general information from. So Rudenko’s statement wouldn’t get much, if any notice anywhere including in Russia. Except for this:

“No, we don’t have such an issue. A couple of Chinese banks refrain so far as [a] precaution, over fears to be sanctioned. But we are confident that this problem will be solved,” Russia’s state news agency Tass quoted Rudenko as saying on Friday.

I call your attention to that last part. He was talking to Tass which means Putin really wants to shore up the image of Russia’s financial health both to his own people and abroad.

This could in the end be nothing more than a hiccup ad Rudenko (meaning Putin) claims. A technical matter or even brief “interruption” as either Russia or China attempts to renegotiate their financial arrangement – I’m sure each side would like more. That’s how business works after all. However, what I find interesting is the timing of all this. A major Chinese Bank that still does business with Russia does so because Xi wants it to. If he decides either China isn’t getting enough out of the deal, or that the political dynamic isn’t worth it he can pull the plug and Russia is screwed. Or, he can screw them in the long term by demanding a better financial exchange than Russia can afford.

I mentioned timing because for MONTHS the U.S. has been screwing around, or rather Trump/MAGA Republicans have in holding up aid to Ukraine. It’s done real damage to Ukraine’s ability to push Russia back. Everyone knows it. Even with developments in the last week indicating the Senate will FINALLY pass a Ukraine aid package, getting the House to do so is still uncertain. The votes are there but Johnson can refuse to bring it up for a vote. It’s far from a done deal.

And NOW China decides to toss a monkey wrench into the works? From where I sit that’s more than a little curious. Again, it might be not much at all. Then again, it might be China knowing things we (well, the public at least) don’t which is that even without U.S. help Russia is not only losing in Ukraine but has already lost. Europe is pulling together to provide enough stopgap help to keep Russia from regaining the initiative. China has to confront the possibility that even if the U.S. no longer dominates, that NATO will still be a formidable alliance and that it has partners in the Pacific rim.

If I’m right about that then what seems like a minor blurb in the financial news world might turn into a major story. Keep an eye on this one.

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  1. China may be limiting its liability because of the problems it is having, namely the real estate stories I’ve been reading about, and is seeing the possibility/probability of needing money in the near future.


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