China refuses to lend yuans to Russian government
The Russian government’s decision to turn to the East in its economic and foreign policy in response to western sanctions continues to face difficulties, reports finanz.ru.
The project to issue sovereign bonds denominated in Chinese yuans, which the Russian government has been discussing since 2014, has once again been delayed.
There are still none of the platforms needed for Chinese investors to use yuans to buy specially issued government bonds on the Russian market, Russian Deputy Finance Minister Sergey Storchak told TASS on Wednesday.
Russia has been planning to sell yuan-denominated bonds on the Moscow Exchange under Russian law, so that the borrowed funds remain within the country. However, this goes against Beijing’s own policy, which allows only Panda bonds for borrowers. These bonds are sold on China’s internal market, and the proceeds can only be withdrawn from China with special authorization.
Negotiations with the Chinese authorities have been underway for several years, but have not yet been met with any success.
An issuance of roughly 6 billion yuans was initially planned for 2016, but was later postponed by a year. In December 2017, the Russian Finance Ministry hired Gazprombank, the Bank of China and ICBC to organize the first yuan issuance of federal loan bonds in 2018, but no such placement took place.
“We are constantly receiving contradictory information that the preconditions for borrowing in yuans have been established, or that they have not been established,” Storchak lamented in October last year.
“These prerequisites still have not been met,” he said on Wednesday. “There are none of the necessary platforms for Chinese continental investors with yuans to come to our stock exchange.”
He added that consultation with the Chinese authorities is still underway.
From an economic perspective, issuing yuan-denominated bonds is in the same series of exotic financial and political strategies as trading oil with Iran or trying to sell oil for rubles, commented Peter Trust investment director Mikhail Altynov previously.
The problem is that the Russian government has no revenue in yuans: trade with China is still done primarily with dollars, and Beijing refused to sign an intergovernmental agreement to transition to national currencies.
According to the Bank of Russia, 84.6% of all trade between Russia and China was done using US dollars between January and September 2018. Compared to 2017, use of the American currency has even increased by 5.6 percentage points.
According to Altynov, the yuans needed to repay such yuan-denominated bonds would most likely still have to be bought using dollars. In other words, they would effectively still be dollar bonds, only more expensive.