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MOSCOW: The Kremlin on Wednesday acknowledged that Russian companies were having problems with Chinese banks after local media reported a major Chinese lender had blocked payment settlements with Russian firms.

Beijing has become Moscow’s crucial economic partner since the West hit Russia with an unprecedented package of sanctions for its military offensive in Ukraine.

Led by a surge in vital energy and gas exports, Russian firms have massively boosted trade with their Chinese counterparts and the yuan has become a major currency for settling deals.

US sanctions China, Turkiye firms to curb Russia war efforts

Responding to a report in the Russian Vedomosti business daily, Kremlin spokesman Dmitry Peskov said the government was “working” on addressing the problem with the Chinese government.

Citing Russian companies, Vedomosti reported Wednesday that the Zhejiang Chouzhou Commercial Bank – one of the main banks for Russian exporters – had informed clients that it had suspended all transactions with Russia.

The paper said other banks were tightening compliance checks, which had hampered currency transfers in and out of the country for Russian businesses.

The issue is reported to be related to fears in China that its lenders could be targeted by Western sanctions if they are too accommodative to dealing with sanctioned Russian businesses.

The suspension was also put down to a general slowdown in economic activity around the Chinese New Year.

“We have a close dialogue with our Chinese friends and, of course, we will solve all the problems that arise,” Peskov told reporters in a briefing call Wednesday.

Trade between Russia and China has surged in the last two years, hitting $240.1 billion in 2023 – a 26% annual increase – according to Chinese customs data.

The yuan is also used to settle more than a third of all Russian exports, up from 0.4 percent two years ago, according to Russian Central Bank chief Elvria Nabiullina.

Russian Deputy Prime Minister Alexander Novak said in December that China accounted for 45-50 percent of all Russia’s oil exports.

Europe, which has suspended the vast majority of Russian energy purchases, used to be Moscow’s main oil and gas client.

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