Besides helping Russians diversify into Chinese assets, move might help Moscow evade Ukraine-focused sanctions
By JEFF PAO
Russia’s Saint Petersburg Stock Exchange has announced it will allow the trading of 12 Hong Kong stocks from Monday, June 20, raising concerns that Russians may use Hong Kong to evade western sanctions. It remains unclear how the proposed cross-border stock trading can be done without the SWIFT.
According to the SPB Exchange’s announcement, brokers will be able to trade 12 Hong Kong stocks from June 20. The 12 companies include CK Hutchison Holdings, WH Group, Tencent Holdings, CK Asset Holdings, Sino Biopharmaceutical, Xiaomi Corp, Sands China, Country Garden Holdings, Sunny Optical Technology Group, Meituan, Alibaba Group and JD.com.
Sputniknews, a Russian news agency, said that the number of the Hong Kong-listed stocks that could be traded on the SPB Exchange would increase to 50 in two months, 200 by the end of this year and more than 1,000 next year.
Mankevich Vitaly Vikentievich, President of the Russian-Asian Union of Industrialists and Entrepreneurs (RASPP), was quoted in the Friday Sputniknews report as saying that Russian people could diversify their investments by trading Hong Kong stocks.
A stock trading department head of Russia’s Alfa Group told Sputniknews that Russians would increase their investments in Chinese assets, particularly Hong Kong’s information technology sector, due to the rising risks of having their foreign assets frozen by the West amid the unstable geopolitics. He said some Russians would convert their euros and US dollars into renminbi.
Currently, the SPB Exchange allows brokers to trade 17 foreign-listed stocks, mostly US-listed companies, such as Citibank, the Bank of New York Mellon and Lumen Technologies. A statement titled “SPB Exchange is operating normally” has stayed on top of the bourse’s website since late April but it is unclear how it can trade foreign stocks without the SWIFT.
Herman Gref, chairman of Sberbank, said Friday during the St. Petersburg International Economic Forum that Sberbank stopped clearing its cross-border contract payment service in the Chinese currency from June 7 but the service had already been resumed.
Meanwhile, the Hong Kong stock exchange said it had not formed any partnership with the SPB Exchange. It said on Friday that it believed that the scheme was part of the global issuer promotion program rolled out by the SPB Exchange.
Last August, Joseph Yam, an Executive Council member and the former chief executive of the Hong Kong Monetary Authority, said Hong Kong had a role to help connect the financial markets of the mainland and foreign countries. He suggested that investors should be allowed to buy Hong Kong stocks in renminbi and sell them in Hong Kong’s dollar currency, which is pegged to the US dollar.
Yam’s suggestion has so far not been implemented. However, The Hong Kong Monetary Authority (HKMA) said in early May that it had prepared emergency plans in case Hong Kong or mainland China eventually is sanctioned by the US.
Rounds of sanctions
The latest scheme was announced after Chinese President Xi Jinping and Russian President Vladimir Putin in a Wednesday phone call agreed to push for steady and long-term development of practical bilateral cooperation between China and Russia.
A spokesperson for the United States State Department on Thursday criticized China for forming closer ties to Russia and accused Beijing of echoing Russian propaganda around the world.
The US and European Union had imposed several rounds of sanctions on Russian officials, banks and oligarchs since Russian troops invaded Ukraine on February 24.
On March 12, SWIFT disconnected seven Russian banks and their designated Russia-based subsidiaries from its financial transfer network. The sanctioned banks include Russia’s second-largest, VTB, as well as Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank and VEB.
EU leaders said they agreed in principle on May 30 to cut 90% of oil imports from Russia by the year-end and also agreed on other sanctions including the removal of Russia’s largest lender, Sberbank, from SWIFT. The West also urged China to refrain from helping Russia to elude the sanctions.
Xi and Putin held their first phone call on Wednesday since their issuance of a joint statement on February 4 to “oppose further enlargement of the North Atlantic Treaty Organization (NATO) and call on the North Atlantic Alliance to abandon its ideologized cold war approaches.”
Xi told Putin on Wednesday that China was willing to work with Russia to continue supporting each other on their respective core interests concerning sovereignty and security, as well as on their major concerns and deepening their strategic coordination.
He said the two countries would strengthen communication and coordination in international and regional organizations such as the United Nations, the BRICS mechanism and the Shanghai Cooperation Organization.
Xi said China was also willing to work with Russia to promote solidarity and cooperation among emerging market countries and developing nations and to push for the development of the international order and global governance in a more just and reasonable direction.
The Kremlin said both countries agreed to expand cooperation in energy, finance, industry, transport and other spheres, taking into account a global economic situation that had become more complicated due to the West’s sanctions policy – which Moscow described as illegitimate.
A US State Department spokesperson noted that China claimed to be neutral but said Beijing’s behavior made clear that it was still investing in close ties to Russia.
The US spokesperson said the world was watching to see which nations stand up for the basic principles of freedom, self-determination and sovereignty, and who stands by or tacitly supports Russia in its premeditated and unprovoked war of choice.