Western sanctions are pushing Russia to explore deeper financial links with China, according to Moscow’s deputy finance minister.
Speaking to the FT during a trip to Beijing, Alexei Moiseev said Russia expected to sign a deal this year that would link China’s national electronic payment network into its own soon-to-be-launched credit card system as part of measures aimed at reducing reliance on the west.
The move is just one of a series of new measures aimed at integrating Chinese and Russian financial markets under discussion by Moscow and Beijing. Mr Moiseev candidly said these were being made more urgent by western sanctions on Russia.
“The motivation has increased significantly,” Mr Moiseev said of the closer ties. “We are driven by outside [events] to develop bilateral financial links.”
But the deputy finance minister declined to comment on whether Russia was in talks to issue sovereign debt in renminbi, as some bankers have said.
The agreement with Unionpay, which is usable in 141 countries according to its website, would ease the way for international acceptance of the “Mir” credit card that Russia plans to issue in 2016, said Mr Moiseev. “Clearly we would like our national plastic card system to be as internationally accepted as possible,” he said.
Russia has sought to increase its exposure to China after US and EU sanctions over the Ukraine conflict largely cut the country off from western markets. The finance ministry has struggled to find western banks willing to underwrite a planned $3bn Eurobond after the US Treasury warned them off the deal.
While both Visa and MasterCard continue to operate in Russia, they are banned from doing business with two Russian banks accused by the US of close links to the Kremlin. “The very possibility that Russian banks can be switched off from plastic cards have of course pushed us to make steps,” Mr Moiseev said.
Amid several rounds of negotiations over financial integration, many see Russia’s primary aim as access to China’s debt markets. Western sanctions mean many of Russia’s largest banks and corporations are unable to raise finance in dollars. Historically low oil prices have also hurt Russia’s economy and led to an increase in financing needs.
Meanwhile, China is easing international access to its onshore bond market, estimated at some $6tr — the third largest in the world. Several western banks and corporates, including HSBC and Daimler, as well as South Korea, have over the past year issued so-called “panda bonds”.
Bankers have told the FT that talks between Russia and China to issue a renminbi-denominated panda bond are under way, but Mr Moiseev declined to discuss the matter.
“I am deliberately not talking specifically about the Russian Federation borrowing in China or Chinese buying Russian government bonds in Russia,” he said.
He said his trip to Beijing had the broader aim of promoting the integration of financial infrastructure. “I want to make it much more convenient for investors on both sides to invest,” he added.
He pointed to other recent examples of integration including a dual-taxation treaty which would unlock cross-border investment by lifting taxation on capital gains and coupons. He said topics for discussion also included mutual recognition of credit ratings and auditing standards.