According to a report by the Wall Street Journal on Monday, the U.S. is preparing sanctions aimed at potentially disconnecting certain Chinese banks from the global financial system. This move is intended to halt Beijing’s economic backing of Russia’s military production. As Secretary of State Antony Blinken visits China this week, there is speculation on whether this severe financial threat will impact the China-Russia trade that supports Moscow’s military refurbishment following its losses in Ukraine.
On Friday, Blinken criticised China for its role in supporting Russia’s defence industry, highlighting that Beijing is a major supplier of essential components for Russian weapons used in Ukraine. Recently, U.S. officials have ramped up their warnings to China, emphasising that the U.S. is prepared to act against Chinese financial entities that facilitate the trade of items with dual civilian and military uses.
U.S. officials said targeting banks with sanctions is an escalatory option in case diplomatic overtures fail to persuade Beijing to curb exports, the report said.
Cutting banks off from access to the dollar – the denomination of most of global trade – is often reserved as a last resort, as such sanctions often force banks into failure, affecting their customer and client base.
Such an action also represents a particular risk for China as the country grapples with sputtering economic recovery and growing debt.
The People’s Bank of China and the National Financial Regulatory Administration, China’s top banking regulator, didn’t immediately reply to Reuters’ requests for comments.
China and Russia have fostered more trade in yuan instead of dollar in the wake of the Ukraine war, an effort that could shield their economies from potential escalating U.S. sanctions. The United States and other Western nations imposed sweeping sanctions on Russia’s financial system after Moscow invaded Ukraine in February 2022.
Several banks in China, the United Arab Emirates and Turkey have boosted their sanctions compliance requirements, resulting in delays or even the rejection of money transfers to Moscow, Reuters reported in March. The delays show how U.S. restrictions can have a strong knock-on effect.
Banks, cautious of U.S. secondary sanctions, started to ask their clients to provide written guarantees that no person or entity from the U.S. SDN (Special Designated Nationals) list is involved in a deal or is a beneficiary of a payment.
With Inputs From Reuters
