China is attempting to distance itself from Russia as the scale of the invasion of Ukraine becomes clear, with Foreign Minister Wang Yi saying it was “absolutely imperative” for all sides to exercise restraint to prevent the conflict from “getting out of control”.
And at least two of China’s largest state-owned banks are restricting financing for purchases of Russian commodities, underscoring the limits of Beijing’s pledge to maintain economic ties with one of its most important strategic partners in the face of sanctions by the US and its allies.
Offshore units of Industrial & Commercial Bank of China (ICBC) have stopped issuing US dollar-denominated letters of credit for purchases of physical Russian commodities ready for export, two people familiar with the matter told Bloomberg News.
Yuan-denominated letters of credit are still available for some clients, subject to approvals from senior executives, the people said, asking not to be identified.
The move followed the imposition of a wave of sanctions against Russia from countries including the US, the UK and Japan, and stoked speculation that more may follow.
Bank of China has also curbed financing for Russian commodities based on its own risk assessment, another person said. The lender has yet to receive explicit guidance on Russia from Chinese regulators, two people said.
It’s unclear whether Chinese banks have pulled back from other forms of financing for Russian companies and individuals, and their policies could change. Because commodity-linked letters of credit are issued so frequently, they would be among the first transactions affected by the threat of sanctions.
The curbs highlight the difficult balancing act facing China’s biggest financial institutions as well as political leaders from President Xi Jinping on down.
The foreign ministry has moved quickly to moderate its rhetoric as it assesses the widespread global disapproval of Russian President Vladimir Putin’s adventurism.
“China has been following the evolution of the Ukraine issue, and the present situation is something China does not want to see,” the official Xinhua News Agency quoted Wang Yi as saying in phone calls with top diplomats from the UK, France and the European Union.
“The safety of ordinary people’s lives and properties should be effectively safeguarded, and in particular, large-scale humanitarian crises have to be prevented.”
In his first remarks on the crisis, President Xi was reported to have urged Mr Putin in a phone call to solve the issue through talks with the Ukrainians.
China has stood by Russia over the past month as tensions escalated, with Mr Xi hosting Mr Putin at the Olympic Games in Beijing and declaring their friendship had “no limits”. China also endorsed Mr Putin’s security concerns over the expansion of the NATO alliance and abstained on Friday from a vote on a United Nations Security Council draft resolution, vetoed by Russia, that condemned the Ukraine invasion.
Still, China’s statements since the invasion show an increasing discomfort, particularly with reports of heavy fighting in Kyiv and other cities.
Wang’s latest comments mark a shift in tone from tense media briefings immediately after the military operation began on Thursday. Then, Foreign Ministry spokesperson Hua Chunying pinned the blame on the US, questioned the use of the word “invasion” and highlighted Russia’s comments that the military would avoid artillery strikes on cities.
On Friday, Mr Wang made clear that China supports Ukraine’s sovereignty and territorial integrity, adding that Beijing backs the interests of “small and medium-sized countries”.
While taking some veiled shots at the US, he also called China a “responsible major country” — signalling that Beijing is concerned about how the Russian conflict might affect the reputation of the world’s second-biggest economy.
“China has always been faithfully fulfilling its international obligations and playing a constructive role in safeguarding world peace and stability,” Mr Wang said.
Russia is a major energy supplier to China which buys about 30% of Russia’s oil and gas. The two countries often find themselves aligned in geopolitical disputes with the US, but Russia’s economic weight pales in comparison to that of Western nations that buy many of China’s exports and control its access to the dollar-dominated international financial system.
China’s four largest banks have complied with previous US sanctions against Iran, North Korea and even top officials in Hong Kong because they need access to the US dollar clearing system, a person familiar with the matter said.
“Chinese financial institutions take sanctions compliance seriously,” said Ben Kostrzewa, foreign legal consultant at Hogan Lovells in Hong Kong, who formerly handled US-China disputes and negotiations at the Office of the US Trade Representative.
“They don’t want to be sanctioned themselves, they can’t lose access to US dollar transactions, so they are going to have to think about it very seriously — whatever the geopolitical impact might be.”
ICBC, Bank of China and the China Banking and Insurance Regulatory Commission didn’t immediately respond to requests for comment.
