2024 is already straining the seams of China and Russia's 'no limits' partnership

  • Russia is in talks with China about loans in the Chinese yuan.

  • Discussions have been going on for "a long time," but there's no decision yet, said Russia's Finance Minister.

  • Chinese banks are tightening compliance checks due to Western sanctions against Russia over its invasion of Ukraine.

Russia's finance ministry has been discussing yuan loans with its China counterparts — but a delayed decision suggests the two countries' "no limits" partnership may be under strain.

Russian Finance Minister Anton Siluanov told RIA state news agency in an interview published on Monday that Russia is discussing the issue with Chinese authorities.

"Negotiations with Chinese partners have been going on for a long time. So far there is no decision," said Siluanov, according to a Reuters translation. "We discussed this topic at the end of last year at the inter-ministerial dialogue," he added.

Siluanov was responding to a question about why Russia has not issued yuan loans even though the finance ministry's budget provides for it every year. He did not say how long the two sides have been in discussion.

Russia's finance ministry did not immediately respond to a request for comment from Business Insider.

China and Russia's no-limits partnership

Beijing and Moscow declared their "no limits" friendship in a joint statement on February 4, 2022, when Russian President Vladimir Putin visited China for the Beijing Winter Olympics.

Barely a month later — after Russia invaded Ukraine — Chinese officials were reported to be having second thoughts, The Wall Street Journal reported at the time.

However, two years after Russia started its ongoing war in Ukraine, Russia and China appear to be continuing to conduct business as usual.

The close ties between the two countries have contributed to Russia's economic resilience and have frustrated Western efforts to force Moscow to end its war in Ukraine.

Analysts told South China Morning Post that the Chinese side is likely trying to decide if the rewards of a yuan loan deal are worth the economic and political risks of dealing with Russia.

“Chinese commercial banks should also consider the safety and returns of yuan loans to Russia, beyond political considerations,” Dong Jinyue, a senior economist at Madrid-based BBVA Research, told SCMP.

“For instance, what is the risk premium, given the ongoing Russia-Ukraine war, and how would they hedge the currency risks given the large volatility of the Russian rouble?” she added to the media outlet.

Russia is feeling the effects of secondary sanctions

Chinese banks are tightening compliance checks with Russian businesses because they fear getting caught up in the West's increasingly restrictive sanctions against Russia.

These include secondary sanctions the US authorized in December, which target financial institutions that help Russia skirt restrictions.

Three of China's Big Four state banks have halted payments from sanctioned Russian financial institutions, Russia's Izvestia news outlet reported on February 21.

The Kremlin has acknowledged issues with Chinese bank transactions, with spokesperson Dmitry Peskov saying earlier this month that authorities are "working" on addressing them with Beijing.

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