Two Chinese state-owned banks will restrict financing for Russian commodity purchases, suggesting there are limits to Beijing's support for Moscow as the Kremlin confronts severe economic sanctions over its attack of Ukraine.
Offshore units of Industrial & Commercial Bank of China have stopped issuing U.S. dollar-denominated letters of credit for purchases of physical Russian commodities ready for export, while the Bank of China has also limited funding, according to Bloomberg News, citing people familiar with the matter.
Yuan-denominated letters of credit are still available for some clients, pending approval from senior executives.
The move comes after Russia launched a wide-scale invasion into Ukraine, shattering three decades of peace in Europe and eliciting a slew of condemnations and financial penalties from the U.S., European Union and other nations.
It was a surprising twist and points to potential cracks showing in the relationship between Moscow and Beijing. The two countries are frequently geopolitical allies who have united in the past against the U.S.; they have formed increasingly close bonds over recent years, with Russia a key supplier of energy to China.
At the same time, China's biggest banks hold billions of Russian assets. Beijing has also provided Moscow with tens of billions in funding over the years.
But Beijing ultimately has closer economic ties to Western nations, who are much bigger export customers for China, major sources of technology and investment, and also control China's access to the international dollar system.
China has pledged to maintain normal trade with both Russia and Ukraine, despite the latest restrictions from two of its largest state-owned banks.
The leaders of the two nations – Xi Jinping of China and Vladimir Putin of Russia – spoke on Friday, during which Xi reportedly urged Putin to solve the crisis with negotiations.
"The situation in eastern Ukraine has undergone rapid changes, drawing great attention from the international community. China’s position would be based on the right and wrong in relation to the Ukraine issue itself," Xi told Putin on Friday, Chinese state broadcaster CCTV reported. "China supports Russia and Ukraine in resolving the issue through negotiation."