Leading Chinese bank Chouzhou Commercial Bank has ceased all financial dealings with Russia, potentially leading to significant disruptions in logistics for Russian importers, Vedomosti reported on February 7.

Sources told Vedomosti that the bank, a major player in the $200bn a year Sino-Russia trade, has ended its association with Russian and Belarusian entities.

While China has been one of Russia’s strongest supporters ever since Chinese President Xi Jinping visited Russian President Vladimir Putin in Moscow in March 2022, Chinese banks have been wary of bringing down US sanctions on themselves as China continues to have significant trade with the US.

Chouzhou Commercial Bank’s decision comes ahead of the weeklong Chinese New Year holidays that start on February 10. Vedomosti reports that trade faces an "almost imminent logistics collapse" that could impede Russian exports until March. "There is very little chance that Russian imports from China will resume post the public holiday," Pavel Bazhanov, a specialist in Chinese legislation, was cited saying by Vedomosti.

The bank has discontinued its operations across all major payment networks, including SWIFT, China's CIPS, and Russia's Financial Communications System (SPFS), the Russian analogue to SWIFT. The suspension extends to Chinese cross-border payment systems like PingPong and Xtransfer, further complicating financial transactions for Russian businesses.

The cessation of banking services by Chouzhou comes amidst increasing scrutiny by Chinese state banks of their Russian clientele, driven by the threat of secondary sanctions from the United States.

Office of Foreign Assets Control (OFAC) quietly introduced new banking rules in December that can hold any bank that ultimately does any business with a Russian entity liable for secondary sanctions, even if the bank is unaware that any money it handles eventually ends up in Russia. The rule shifts the onus for investigating trading and transfer daisy-chains Russia has set up to dodge sanctions from OFAC to the bank’s own compliance departments. The upshot is many banks are refusing to do business if there is any hint of a scheme designed to dodge sanctions.

Despite Beijing's non-participation in Western-imposed sanctions following Russia's military actions in Ukraine, Chinese banks have largely adhered to these international directives.

Requests for comments from Russia's Central Bank, the People's Bank of China, and Chouzhou Commercial Bank went unanswered, Vedomosti added. The Kremlin has also remained silent on the issue, following prior reports of enhanced compliance measures by Chinese banks towards Russian clients amid the looming threat of US sanctions.