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The threat of extending sanctions to banks in China is chilling the finance that lubricates even non-military trade from China to Russia.

This is posing a growing problem for small Chinese exporters, said seven trading and banking sources familiar with the situation.

As China’s big banks pull back from financing Russia-related transactions, some Chinese companies are turning to small banks on the border and underground financing channels such as money brokers - even banned cryptocurrency.

“Transactions between China and Russia will increasingly go through underground channels,” said the head of a trade body in a southeastern province that represents Chinese businesses with Russian interests. “But these methods carry significant risks.”

Making payments in crypto, banned in China since 2021, might be the only option, said a Moscow-based Russian banker, as “it’s impossible to pass through KYC (know-your-customer) at Chinese banks, big or small”.