Detached from international payment systems by Western sanctions, Russia has turned to China to get the microchips it needs to meet growing demand for local bank cards.
But while Chinese producers may be able to provide a quick solution to the besieged Russian financial institutions, they are unlikely to be able to alleviate the country’s growing economic problems significantly, analysts say.
Chipmakers, including Intel, AMD, TSMC and Qualcomm, have suspended exports to Russia after the United States and its allies imposed sanctions on Moscow in response to its invasion of Ukraine.
Chip shipments are also affected by bottlenecks in the Asian supply chain caused by the COVID-19 pandemic.
Speaking at a conference earlier this month, Oleg Tishakov, a board member of Russia’s National Card Payment System (NSPK), said banks have been unable to meet growing demand for cards running the government-sponsored system. PEACE. NSPK issued more than two million MIR cards between the end of 2021 and March this year, bringing the total to 116 million, according to Reuters estimates.
“We are looking for new suppliers of microchips and [have] they found a couple in China, and the certification process is underway, “Tishakov told the conference.
Russia’s invasion of Ukraine has led to the expulsion of some Russian banks from the SWIFT payment system [File: Dado Ruvic/Reuters]
The burden of sanctions on the Russian economy is felt through restrictions on the country’s ability to conduct foreign currency transactions and receive specialized technologies.
Some of Russia’s largest banks have been cut off from the global banking system SWIFT, effectively freezing nearly half of the country’s $ 640 billion in foreign exchange reserves and gold. MasterCard and Visa also stopped servicing foreign Russian accounts until Apple Pay cut ties with MIR.
Although there is a global shortage of microchips – not least because some of the gases needed to make them come from Ukraine – bank card chip technology is not very advanced or limited to countries following Western sanctions.
Iran, for example, has been using chip and pin payment systems for years.
China may be able to fill the gap in the short term, but blocking the road could force Russia to completely bypass the relatively outdated system and move to cardless payments.
“Many emerging and frontier markets in Africa and elsewhere have surpassed branch and card banking, adopting mobile phone banking over the years,” Hassan Malik, senior sovereign analyst at the Boston-based consulting firm, told Al Jazeera. Loomis Sayles investment.
“Russia is benefiting from very high levels of literacy, as well as the penetration of smartphones and the Internet, and Russian banks have invested heavily in application-based banking.
“Detached from the global economy”
The lack of bank card chips is unlikely to deal a significant economic blow to Russia, although a stable supply could offer some relief to increasingly sanctions-stricken citizens by allowing them to run their domestic finances more smoothly. .
“The problem with everyday life in Russia is that Putin’s Russia is cut off from the global economy,” John R. Bryson, a professor of enterprise and economic geography at the University of Birmingham, told Al Jazeera.
“Local adaptations – such as the Financial Communication Transfer System (SPFS) and MIR – are local solutions that are not integrated into the global financial system. They allow some form of daily life to continue in Russia, but largely separated from the rest of the world.
MIR and SPFS, an alternative to SWIFT, were developed following Russia’s deteriorating ties with the West since Putin’s annexation of Crimea in 2014. Although both were Russia’s attempts to improve its economic sovereignty and resilience, they remain geographically limited. MIR, for example, is maintained only in the domestic market and by a small handful of Russian-friendly countries, including Vietnam and Belarus, and the breakaway regions of Abkhazia and South Ossetia.
After receiving Western sanctions, China voiced opposition to what it called “interference in the affairs of other countries” and criticized economic sanctions against Russia.
Beijing has refused to explicitly condemn Moscow’s invasion and has expressed sympathy for Putin’s stated security concerns, despite calls for “maximum restraint” and peace talks between the parties.
Although China’s economic and geopolitical position gives it a wider opportunity to engage with Russia, despite Western concerns, filling the chip gap is not without risks.
Although they do not explicitly violate existing sanctions, Chinese companies could potentially be punished further if the West considers that their actions have provided an unacceptable level of support for Putin.
“While China has made it clear that it will not take part in financial sanctions against Russia, it will also be very careful not to put its own companies and financial institutions at risk by helping Moscow avoid Western sanctions,” said Joe Mazur, senior. an analyst at Trivium, a China-based political research firm, told Al Jazeera.
“Beijing will do everything possible to avoid deliberately violating Western sanctions, but it still leaves the door open for partnerships with unauthorized Russian banks and financial institutions.
Chinese President Xi Jinping has refrained from explicitly supporting or condemning the invasion of Ukraine [File: Lintao Zhang/Reuters]
Chinese President Xi Jinping has refrained from explicitly supporting the invasion of Ukraine, but Beijing continues to see Moscow as an important strategic partner, with Foreign Minister Wang Yi reiterating last month that China and Russia will “make steady progress.” [their] a comprehensive strategic partnership for coordination for a new era ”.
Some Russian banks have also issued cards in partnership with China’s UnionPay payment system, providing an alternative to Visa and MasterCard for Russians from abroad, although it is unclear how long such agreements could last. On Thursday, Russian media RBC reported that UnionPay would no longer cooperate with major Russian banks, including the majority state-owned Sberbank. The report, citing a number of unnamed sources, says China’s payment system has made the decision for fear of secondary sanctions.
Although the chips themselves are unlikely to change the game, China’s willingness to trade with Russia and its refusal to comply with the West could be crucial for Putin, some analysts say.
“In some respects, Putin and Xi share a similar worldview, and China remains reluctant to throw Russia completely under the bus because of its actions in Ukraine,” Mazur said.
The danger for President Putin, a leader who seems absorbed in the need to present an image of a strong man, is that Russia could become dependent on China and its trade, eventually entering into some form of subordination with one of its closest associates. his friends, said Bryson, a professor at the University of Birmingham.
“This would be ironic, because Putin’s Ukrainian war is partly about Russia remaining a superpower and partly a distorted reading of Russian nationalism,” he said.
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