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Yuan financing is growing costly for Russian businesses

Jennifer Sor   

Yuan financing is growing costly for Russian businesses
  • Financing via China's yuan is becoming more expensive for Russian companies.
  • Short-term borrowing costs for the yuan briefly soared to 15.7% at the start of March.

Russian firms that fund themselves with yuan-denominated debt are facing issues as costs rise and demand for China's currency increases in the country.

The cost of yuan debt rose steadily throughout 2023, with the average yield on yuan-based securities edging close to 6% last year, according to data from Russia's central bank. The higher costs spell trouble for Russian businesses, which have issued billions in yuan debt to meet their needs for foreign currency.

Short-term yuan borrowing costs have been even more volatile. Borrowing costs for short-term yuan bonds briefly jumped to 15.7% on March 1, before easing to around 4% a few days later, according to Bloomberg Economics.

Businesses are already under pressure from higher domestic borrowing costs, with the central bank opting to keep interest rates at 16% in February to combat high inflation. Higher rates have left corporate borrowers with an extra 1.2 trillion rubles, or an extra $13 billion in debt costs, as Moscow raised its interest rates last year, according to data from Russian consulting firm Yakov & Partners cited by Bloomberg.

The demand for yuan is also soaring among importers in Russia, as the country has come to rely on China's currency after Western sanctions cut the country off from the global communication system for banks.

The yuan accounted for 75% of Russia's trade with China and 25% of trade settled with the rest of the world last year, according to a report at the end of 2023.

Economists have warned Russia risks becoming too dependent on China as Moscow's economy is weighed down by the war in Ukraine. Russia could end up becoming an "economic vassal" to China's" as it pursues a "no limits" partnership with Beijing, the director of the US Central Intelligence Agency said earlier this year.

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