Beijing: Following the suspension of operations in Moscow by payment giants Visa and Mastercard, Russia have been exploring the alternative of transitioning their cards-based payments to China’s Union Pay, which apparently supports Beijing’s geopolitical strategy, said a media report.
In the wake of the Russia-Ukraine conflict and stringent Western sanctions targeting Russia, existing international payments mechanisms of MasterCard, Visa, Amex and SWIFT have suspended their operations.
Writing in The Times of Israel, Sergio Restelli, said “attempts to unify China’s banking and payments landscape have been underway since the early ’90s. Jiang Zemin set up the ‘Golden Card Project’ in 1993 with this aim. A decade later, these efforts culminated into a working interbank settlement network for bank and card payments – China Union Pay (CUP), which was set up in 2002 with the approval of the People’s Bank of China, initially with the four large Chinese banks – ICBC, BOC, ABC and CCB.”
Cards networks, like any other networks, are prone to network effects i.e. the value from the network increases exponentially in proportion to the number of acceptance nodes on it, he said.
The global interoperability offered by MasterCard, Visa and Amex have effectively built American soft power in public consciousness, particularly in the international financial systems space.
Notably, CUP is already the largest payments network by volume in the world, even bigger than MasterCard and Visa. Despite this fact, and notwithstanding its global presence, CUP remains, quite surprisingly, primarily a Chinese domestic network.
“Now, with the Russia-Ukraine conflict providing a window of opportunity to Beijing’s predatory instincts, a number of steps have been taken by China to cash in. Pushing Union Pay into the vacant space of Russia’s economy is the most obvious instance,” said Restelli.
In late February itself, with the Ukraine crisis imminent, China had bolstered the Russian economy by easing restrictions on wheat imports from Russia and signing energy cooperation agreements for the supply of 10 billion cubic metres of gas to China.
And while the rest of the world has been focusing on the needless human cost of the conflict and the attendant humanitarian crisis, China’s Ambassador to Russia Zhang Hanhui urged (March 20) Chinese business leaders to seize the “opportunity” and “fill the void” in the Russian markets, said Restelli.
He further added that on the same day, Xu Qin, Party Secretary of China’s north-eastern Heilongjiang Province, called for accelerated and deeper integration of the Province with Russia – in order to serve ‘China-Russia strategic coordination’.
The most ingenious Chinese business manoeuvre however, has been the easing of foreign exchange rate controls, allowing the Rouble to fall faster against the Yuan, making imports from Russia cheaper, said Restelli.
He further stated that “China, which is otherwise notorious for manipulating its currency in order to strengthen its imports, has on this occasion grabbed the ‘Ukraine Moment’ and has poised the Chinese economy to serve as a vast consumer of the now-cheaper Russian imports.”
“It is a win-win situation, with Beijing gaining Russian gratitude, reducing its own import bills, while at the same time conducting this enhanced trade on China Union Pay,” he added.
Russian forces launched military operations in Ukraine on February 24, three days after Moscow recognized Ukraine’s breakaway regions – Donetsk and Luhansk – as independent entities.
Several countries including the UK, the US, Canada, and the European Union have condemned Russia’s military operations in Ukraine and imposed sanctions on Moscow. These countries have also promised Ukraine to help with military aid to fight Russia.