The new rules appear to have extraterritorial reach, not requiring that any such financial transactions have a nexus with US legal jurisdiction. US Treasury Secretary Janet Yellen announced that the agency “will not hesitate to use the new tools provided by this authority to take decisive and surgical action against financial institutions that facilitate the supply of Russia’s war machine”.
The key industries for which international financial support is being targeted involve technology, aerospace, defence and related materials, in addition to broader manufacturing and construction sectors. Where transactions breach the regulations, US authorities can impose full sanctions to block any financial institution from engaging in services with a US organisation or individual.
Since the new rule was introduced, the US Treasury Department has held a meeting with leading Chinese state banks, including the Bank of China, ICBC and Bank of Communications, as well as Hong Kong financial players such as CMB Wing Lung Bank.
Reports suggest the talks were conducted in a collaborative atmosphere with discussions mainly centred on preventing indirect facilitation of financial transactions benefiting Russia’s arms industry. According to Bloomberg, a major outcome of the talks involved Chinese state banks agreeing to rein in their links to Russia’s military-industrial base.
In December, the US Treasury Department imposed sanctions on more than 150 companies and individuals, including several mainland Chinese and Hong Kong entities. The measures underscore Russia’s use of third countries “to acquire much-needed technology and equipment for its war economy”.
This came after the Atlantic Council published a report last November describing how China has enabled Russia to circumvent US sanctions.
It stated: “Open-source trade data suggests that a surge in imports of Chinese-manufactured goods with important military uses played a key role in Russia’s ability to shore up its defences on Ukrainian territory … Even as weapons and ammunition pour into Ukraine from Nato countries, they are being counterbalanced by Chinese imports – not of weapons, but of materials vital for Russia’s ability to sustain its continued stubborn efforts to hold onto Ukrainian territory.”
The report pointed to the expansion in Russian acquisitions of key strategic equipment from China such as integrated circuits, large excavation vehicles and ball bearings, which can have direct military applications.
The Atlantic Council report also claimed Russian security forces had used Chinese-produced drones in the Ukraine conflict. Meanwhile, Ukraine’s KSE Institute reported that throughout most of 2023 around two-thirds of Russia’s non-lethal battlefield and critical goods were sourced from producers in China.
The Chinese government’s response to the sanctions was vehement. The Ministry of Commerce demanded that the “United States should immediately correct its wrong practices and stop its unreasonable suppression of Chinese companies”, further accusing Washington of “unilateral bullying”.
While the European Union has not introduced sanctions targeting Chinese companies, it has raised the issue with Chinese leaders. This included during the China-EU summit held last December, when President Xi Jinping hosted European Council President Charles Michel, European Commission President Ursula von der Leyen and their delegation.
President Xi Jinping (second right) talks to European Commission President Ursula von der Leyen (third left) and European Council President Charles Michel (fourth left) during their meeting at the Diaoyutai State Guesthouse in Beijing on December 7, 2023. Photo: AP
Michel conveyed to Xi a list of Chinese companies which the EU planned to discuss sanctioning for their supply of dual-use goods to Russia. Several Chinese companies are expected to be sanctioned soon, preventing them from doing business with European companies in future.
According to Chinese state media, Xi did not respond directly to the proposed sanctions discussed with the EU leaders, only stating that the two sides should not “engage in confrontation because there are disagreements”.
Recently, however, Beijing has escalated the rhetoric in its opposition to the sanctions. Perhaps the most prominent display of China’s growing disquiet with the West’s pressure arose in a video conference between Dong Jun, China’s new defence minister, and his Russian counterpart Sergei Shoigu.
During the call, on January 31, Dong said, “We have supported you on the Ukrainian issue, despite the fact that the United States and Europe continue to put pressure on the Chinese side.”
Dong’s use of the word “support” elicited some surprise as it runs counter to Beijing’s stated policy of remaining neutral on Ukraine and seeking a political settlement of the crisis – a point which Foreign Ministry spokesman Wang Wenbin later reiterated, adding that, “this position has not changed”.
Even so, as the West increasingly grows frustrated with China and the poor effectiveness of its measures against Russia, the steady increase of sanctions could at some point be conflated with heightened security tensions around Taiwan and the wider Asia-Pacific. That could push China into further deepening its economic relations with Russia as well as its military cooperation.
Bob Savic is a senior research fellow at the Global Policy Institute in London, UK, and a visiting professor with the University of Nottingham’s Faculty of International Relations
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