The Swift sanctions could strengthen China’s payment information system Cips.
(Photo: Xu jingbai – Imaginechina/laif)
Beijing The exclusion of Russian banks from the payment information system Swift could strengthen the alternative Chinese system Cips. That’s what analysts from China’s leading investment bank China Securities write in a recent study.
On Monday, stocks of companies that could benefit from an increase in importance for cips rose sharply. Financial software firms Beijing Infosec Technologies, Brilliance Technology and Shenzhen Forms Syntron Information gained more than 20 percent on Monday.
In 2012, China began to set up the clearing and settlement system Cips (China’s Cross-Border Interbank Payment System) in order to internationalize the use of the Chinese currency renminbi. It is intended to enable banks to process cross-border transactions directly with the local currency.
According to the official website, Cips had joined a total of 75 direct participants by the end of 2021, including Deutsche Bank’s China subsidiary. Russian banks are not on the list, only a Russian subsidiary of commercial bank ICBC.
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According to the state-run newspaper Jiefang Daily, Cips processed about 80 trillion yuan (12.68 trillion U.S. dollars) in 2021. For comparison: According to the company, 11,000 financial institutions are connected to the Swift system.
>> Also read: What is Swift?
Currently, Cips still largely relies on Swift for cross-border communications. However, it is already serving as a messaging system for Chinese banks and companies, allowing them to communicate directly without transaction data reaching the United States. The fact that Cips has not been able to assert itself more is also due to the fact that the renminbi is not a freely convertible currency.
China Securities analysts warn that the Swift sanctions could cause payment and settlement obstacles between Chinese and Russian financial institutions and affect trade between the two countries.
Bloomberg, a financial news agency, reported on Friday that at least two of China’s major state-owned banks, ICBC and the Bank of China, have restricted funding for Russian commodity purchases. China’s four largest banks have abided by previous US sanctions on Iran and North Korea, for example, because they need access to the US dollar clearing system, a source quoted Bloomberg as saying.
The Chinese government again condemned Western sanctions against Russia on Monday. “We are opposed to using sanctions to solve problems, and even more so to unilateral sanctions without an international mandate,” said Foreign Ministry spokesman Wang Wenbin. China and Russia would continue their economic cooperation in a spirit of mutual respect and benefit.
The state leadership refuses to speak of a Russian invasion of Ukraine. She has repeatedly called for negotiations, acknowledging Russia’s legitimate security concerns.
China is Russia’s largest trading partner
Western countries, including the US and EU members, recently tightened sanctions against Russia in order to increase pressure on President Vladimir Putin. Numerous Russian banks were excluded from Swift. Wang didn’t directly address questions about how the Swift sanctions would affect bilateral trade with Russia or whether China would increase its purchases of Russian commodities to help its neighbor. China is Russia’s largest trading partner.
Putin and his Chinese counterpart Xi Jinping only agreed on a far-reaching strategic partnership at the beginning of February. The extensive bilateral agreements also include an agreement to create new possibilities for cross-border renminbi payments.
China had previously switched most of its commodity transactions to euros in order to reduce dependence on the US dollar. Nevertheless, according to China Securities analysts, only 17.5 percent of trade between Russia and China in 2020 was in renminbi and around 10 percent in rubles.
More: There’s one good reason for the Swift shutdown — and four against it