Russia’s Growing Dependence on China: The Financial Consequences for Businesses

Cost of Yuan Funding Increasing for Companies

As Russia’s reliance on China continues to grow, the cost of borrowing in yuan has become increasingly expensive for Russian companies. In March, short-term borrowing rates for the yuan reached 15.7%, posing significant challenges for businesses already facing high domestic borrowing costs.

Russian companies that rely on yuan-denominated debt are facing increased financial pressures as costs rise and demand for China’s currency increases within the country. The average yield on yuan-based securities approached 6% last year, according to data from Russia’s central bank. This predicament is particularly concerning for Russian businesses that have issued significant amounts of yuan debt to meet their foreign currency requirements.

The volatility in short-term yuan borrowing costs, which surged to 15.7% on March 1, highlights the financial stress that these companies are under. As interest rates rose to 16% in February to address inflation, Moscow added an extra 1.2 trillion rubles, or $13 billion, in debt costs for corporate borrowers last year. The demand for yuan among importers in Russia has risen substantially due to the country’s reliance on China’s currency following sanctions that disconnected Russian banks from the global financial system.

The yuan played a significant role in Russia’s trade with China, accounting for 75% of bilateral trade and 25% of global trade settlements in the previous year. However, economists caution that Russia’s economic ties with China could lead to overreliance on Beijing if not managed carefully. The possibility of Russia becoming economically subservient to China has been raised as Moscow pursues an unrestricted partnership with Beijing and other countries in the region.

Overall, Russian businesses must carefully manage their finances and relationships with Beijing if they are to avoid becoming overly dependent on China and facing even greater financial pressures down the line.

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