Why isn’t China letting Russia take out yuan loans in their ‘no-limits’ partnership?

Russian finance minister says there have been negotiations with Chinese partners ‘for some time’, but it appears enhanced financial ties between the neighbours still have their limits

Analyst says Chinese commercial banks would be wise to consider the safety and returns of yuan loans to Russia, beyond political considerations

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Russia still faces challenges in its quest to take out loans in China’s yuan. Photo: AFP

Published: 9:00pm, 27 Feb 2024Updated: 11:21am, 4 Mar 2024

In long-running discussions with China over whether Russia will be allowed to take out loans in the yuan, the lack of any formal decision could boil down to Beijing adopting a measured approach amid international scrutiny over its relationship with Moscow against the backdrop of the two-year-old Ukraine war, according to analysts.

In recent days, more Chinese firms were sanctioned by the Western world amid accusations that they have aided Russia in its war, through business connections.

Restricted from Western financial networks and the US dollar, Russia has turned to its southern neighbour with whom it boasts a “no-limits” partnership, and has thereby embraced greater use of the Chinese yuan as their financial cooperation has intensified.

In an interview with the state-run RIA Novosti news agency on Monday, Russian finance minister Anton Siluanov said that his nation’s budget laws would allow for it to issue loans in yuan, and that “negotiations with Chinese partners have been ongoing for quite some time” but no decisions had been made.

Dong Jinyue, a senior economist at BBVA Research, said that while enhanced ties on the financial front between the two countries could help internationalise China’s currency, Beijing also tends to play it safe when upholding its “neutral stance” regarding the Ukraine war.

“Chinese commercial banks should also consider the safety and returns of yuan loans to Russia, beyond political considerations,” she added. “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?”

Dong noted that the relatively weak financial market in Russia, coupled with an underdeveloped financial infrastructure – including for cross-border yuan settlements and products – are other challenges for both sides to work out in terms of allowing Russia to take out yuan loans.