Moscow: Major Russian banks have quietly implemented a new netting payment framework—known as “The China Track”—to facilitate trade with China while avoiding detection by Western regulators and insulating themselves from the threat of secondary sanctions, according to banking sources who spoke with Reuters.
Despite the hurdles, Russia-China trade soared to a record $245 billion in 2023. This occurred even as commissions surged up to 12% and Chinese banks grew increasingly hesitant to transact with Russian entities for fear of endangering ties with the United States. These mounting payment obstacles became a significant issue, prompting direct discussions between Russian President Vladimir Putin and Chinese President Xi Jinping during Putin’s visit to China in May 2024. The diplomatic exchange underscored the nations’ deepening “no limits” partnership.
Xi is expected to participate in Russia’s Victory Day parade on May 9. His visit comes amid escalating trade tensions between China and the United States, which in turn have amplified the importance of trade with Russia and other non-Western partners.
“I do not rule out that the Chinese partners will no longer be afraid of secondary sanctions,” said Alexander Shokhin, head of the influential RSPP business lobby group, who has participated in trade talks with Chinese counterparts.
The newly established system—operated by major Russian banks already under Western sanctions—relies on a complex web of intermediaries based in nations classified by Moscow as “friendly.” Though operational for some time, the framework has reportedly remained stable and free of major disruptions.
Each bank involved manages several verified payments agents, some of whom facilitate export-related transactions while others focus on imports. All operations are eventually netted at a central point within each bank, ensuring that all parties receive their funds through the network.
According to market insiders who requested anonymity due to the sensitivity of the topic, the system processes trade in both directions.
A Sanction-Proof Financial Route
To protect transactions from being blocked or scrutinized, participating banks provide guarantees for payment settlements and offer financial instruments to insure against payment agent or counterparty defaults. Notably, the framework excludes the SWIFT messaging system and avoids reliance on Western bank accounts altogether.
“We had to structure financial flows through friendly jurisdictions to secure these payments from being blocked,” said one source, highlighting netting as the most cost-effective method currently available for conducting trade with China.
Sources declined to disclose the identities of the participating banks but emphasized they are all within Russia’s top 20 institutions.
China has played a pivotal economic role for Russia since 2022, when unprecedented Western sanctions were imposed following Moscow’s military actions in Ukraine. As Western companies pulled out, China stepped in with consumer goods and continued energy imports, particularly oil. Nonetheless, trade in consumer goods nearly came to a standstill in 2023 due to secondary sanctions concerns.
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Some bankers say that the netting system enables seamless payments to any Chinese bank, provided the goods are not sanctioned and the counterparty is located in one of 11 designated Chinese provinces.
In remarks to parliament in April, Central Bank Governor Elvira Nabiullina acknowledged that Western sanctions had significantly complicated cross-border transactions for Russian firms. However, she also noted that alternative payment channels were being developed.
Designed for Scale, Not Without Challenges
While “The China Track” offers tangible benefits—particularly for large corporations—it also comes with limitations. Every transaction must be individually authorized, and there are persistent challenges related to value-added tax (VAT) refunds.
“The scheme allows direct work with 11 Chinese provinces, which produce most of the goods that are being exported to Russia. The cost is calculated based on the official exchange rate, with no spread on top,” explained one banker.
Currently, fees through the netting system range from approximately 1% for imports and 0.5% for exports, significantly lower than the 2–4% charged outside the system and the 12% peak during last year’s most challenging period.
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“Today 100% of all the money is being transferred without a glitch, we have not had a single case where the money comes back. The money is normally delivered within two days,” said another banker directly involved in the operation.
At present, settlements are processed once weekly on Thursdays. However, banks plan to introduce a second weekly clearing session starting in late April, with further expansions likely to meet growing demand.
