Yuan Becomes the New Dollar: Russian Giants Raise Billions in Bonds

Chinese entrepreneurs are excited about Russia’s acceptance of the yuan, as businessmen can now set contracts with Russian buyers in yuan rather than dollars or euros, and they can pay them in yuan. One such entrepreneur is Wang Min, whose company is engaged in the production of LED lights.

Wang’s plans have been altered by the conflict in Ukraine and subsequent Western sanctions on Moscow that have closed Russian banks and distanced many of their companies from the dollar and euro payment systems. His contractual manufacturing business with Russia was small in the past, but he is now preparing to invest in storage there.

– We hope that next year sales in Russia will account for 10-15 percent of our total sales – said the businessman from China’s southern coastal province of Guangdong, whose annual revenue of about $20 million mainly comes from Africa and South America.

Wang aims to take advantage of the rapid ‘yuanization’ of the Russian economy this year as the isolated country seeks financial security from China. He sees a win-win situation for Chinese exporters who reduce their currency risks and payments become more convenient for Russian buyers, Reuters reported.

While the yuan, or renminbi, has gradually entered Russia over the years, the crawl has turned into a sprint in the past nine months since the currency entered the country’s markets and trade flows, according to a Reuters review of data and interviews with ten business and financial players. Russia’s financial pivot to the East could boost cross-border trade but also represent a growing economic counterweight to the dollar and limit Western efforts to economically pressure Moscow.

Total transactions in the yuan-ruble pair on the Moscow Exchange averaged nearly nine billion yuan ($1.25 billion) daily last month, according to exchange data analyzed by Reuters. Previously, they rarely exceeded one billion yuan in an entire week.

Russian Giants Want Yuan

Until April, Russia was not even among the top 15 countries using the yuan outside of mainland China, at least in terms of the value of incoming and outgoing flows, according to data from the global financial messaging system SWIFT.

Since then, it has jumped to fourth place, trailing only Hong Kong, Britain, the former colonial ruler of the city, and Singapore. However, to put this in a global context, the dollar and euro are still far dominant currencies, representing over 42 percent and 35 percent of flows as of September this year. The yuan has risen to nearly 2.5 percent from below two percent two years ago.

Wang’s business optimism is also supported by Shen Muhui, who leads a trade group for small exporters to Russia in the neighboring province of Fujian. He said that more and more Russian buyers are opening accounts in yuan and settling transactions directly in the Chinese currency, which he said is a significant advantage.

– The Russia-Ukraine conflict has brought opportunities for Chinese entrepreneurs – said Shen, adding that his association has received nearly a million inquiries from Chinese companies interested in doing business in Russia. However, it is not only Chinese companies or small businesses joining the yuan train.

Seven Russian corporate giants, including Rusal, Rosneft, and Polyus, have raised a total of 42 billion yuan in bonds on the Russian market, according to Reuters calculations, and the list could expand with the first lender Sberbank and oil giant Gazprom.

Aluminum producer Rusal, which buys raw materials from China and then sells a large portion of its finished goods there, told Reuters that it has increased the share of yuan used in purchases and sales this year and that the share will continue to grow, although it declined to provide a detailed overview.

Xi and Putin, True Friends

While Russian President Vladimir Putin has long sought to reduce Russia’s reliance on the dollar, geopolitics has significantly fueled this trend in 2022. China, or the world’s second-largest economy, is the largest global power that has not joined economic sanctions against Russia.

Putin and Chinese President Xi Jinping sealed a ‘no limits’ partnership back in February, weeks before Moscow launched its ‘special military operation’ in Ukraine. The yuan accounted for about 19 percent of Russia’s trade settlements with China in 2021 compared to a dollar share of 49 percent, said Andrey Melnikov, deputy director of the international cooperation department at the Russian central bank, in September.

Although data for 2022 has not yet been released, the Chinese currency is strengthening, according to Melnikov, who said at a conference that demand for liquidity in yuan has surged due to reduced access to traditional payment methods and the freezing of overseas gold and foreign currency reserves.