Topline
The U.S. government is working on sanctions targeting some Chinese banks amid concerns they are enabling trade with Russia and fuelling its war efforts against Ukraine, the Wall Street Journal reported Tuesday.
Key Facts
According to the Journal, the sanction effort is driven by concerns about trade between China and Russia, which the U.S. believes has helped Moscow rebuild its military and put it in a strong position to fight a long attritional war with Ukraine.
While China has not sold any weapons to Russia since Russia invaded Ukraine, Washington believes the sale of dual-use items like chips, circuitry, machines and tools—which both have civilian and military uses—have helped prop up Russia’s arms industry.
Citing unnamed U.S. officials, the report added that the draft sanctions, which threaten to cut the targeted banks from the global financial system, are an “escalatory option” that will be used only if diplomatic efforts to resolve the issue fail.
If the sanctions are implemented, the fallout could be severe as they would cut the targeted financial institutions from accessing the U.S. dollar, impacting their ability to conduct global trade and potentially leading to these banks failing and their customers getting hit.
The sanctions would also threaten China’s sluggish post-pandemic economic recovery and mounting debt.
What To Watch For
Secretary of State Antony Blinken is set to visit China on Wednesday, where he is expected to warn Beijing about its exports to Russia. It is unclear, however, if the threat of severe sanctions will prompt China to curb its ongoing trade with Russia. Last week, the State Department said Blinken would meet senior Chinese government officials in Shanghai and Beijing to “discuss a range of bilateral, regional, and global issues, including the crisis in the Middle East, Russia’s war against Ukraine, cross-Strait issues, and the South China Sea.”
Key Background
U.S. officials, including Blinken, have voiced concerns about China’s exports to Russia in the past few weeks. After a meeting of G7 foreign ministers in Italy last week, the top U.S. diplomat called China the “primary contributor” to Russia’s “defense industrial base.” Blinken said China’s “machine tools, semiconductors, other dual-use items” have helped Russia’s arms industry recover from sanctions and export controls. He added if China wants to have good relations with Europe and other countries, it can’t be “fueling what is the biggest threat to European security since the end of the Cold War.” During her visit to Beijing earlier this month, Treasury Secretary Janet Yellen said the U.S. was concerned about the role that any companies in China are playing in Russia’s military procurement. She added: “Any banks that facilitate significant transactions that channel military or dual-use goods to Russia’s defense industrial base expose themselves to the risk of U.S. sanctions.”
Further Reading
U.S. Takes Aim at Chinese Banks Aiding Russia War Effort (Wall Street Journal)
Blinken heading back to China, with a threat over military aid to Russia (Politico)
