Washington, D.C. may impose sanctions on certain Chinese banks over their commercial support of Russia’s war in Ukraine.
What Happened: According to the Wall Street Journal, Secretary of State Antony Blinken recently addressed the issue in a speech at the G7 meeting in Capri, Italy.
“When it comes to Russia’s defense industrial base, the primary contributor in this moment to that is China,” he said. "China can't have it both ways… It can't purport to want to have positive friendly relations with countries in Europe, and at the same time be fueling the biggest threat to European security since the end of the Cold War."
The comments come as Blinken prepares a three-day trip of discussions with Chinese officials in Shanghai and Beijing, hoping to persuade China to align more closely with Western efforts to stabilize global security.
Why It Matters: Despite geopolitical tensions, China and the U.S. are trade partners.
However, Chinese banks from the global financial system — primarily dominated by the dollar — play a vital role as intermediaries in facilitating trade between China and Russia, including transactions for military-linked goods.
Also, Chinese exports of dual-use goods — items with both commercial and military applications — have significantly increased (i.e., semiconductors, chips, ball bearings, navigation equipment, and fighter jet parts).
Essential components like circuitry and aircraft parts have been pivotal in enabling Russia to replenish its military capabilities.
Per the Center for Strategic and International Studies (CSIS), a Washington-based think tank, trade between China and Russia surged to a record $240 billion in 2023. That’s a 26.3% increase from the previous year, despite the looming threat of secondary sanctions from the West.
Exports of technological items like microelectronics and drone components from China are essential for Russia's manufacturing and assembly processes. The Russian industrial sector is dependent on China for machine tools and other critical arms manufacturing components.
“This has ultimately enabled the Kremlin to speed up its weapons production, including
armor, artillery, missiles, and drones, and put up an effective defense against Ukraine's 2023
counteroffensive,” the report claimed.
The Russian drone industry is 95–98% reliant on imported parts, predominantly from China, as revealed by the analysis.
“The Russian military continues to rely on commercial UAVs such as the Chinese-made DJI and Autel. Within the first six months of 2023, Russia received at least $14.5 million in direct drone shipments from Chinese
trading companies,” CSIS stated.
Chart CSIS
See Also: “Back in Stock? The State of Russia’s Defense Industry after Two Years of the War”
What’s Next: Treasury Secretary Janet Yellen has voiced concerns that banks involved in significant dealings with Russia’s defense sector risk exposure to U.S. sanctions.
Officials hope that coordinated diplomatic efforts from Western nations will prevent the need for drastic actions that could disrupt the fragile balance between global major powers.
Expect lesser-known regional Chinese banks, which engage minimally in dollar-denominated transactions, and thus have less exposure to U.S. sanctions, to become increasingly significant conduits for military-related trade between China and Russia.
Additionally, the CSIS reported that some Chinese and Hong Kong companies play a dual role, supplying both Russian and Ukrainian military efforts, raising a significant challenge and potential conflict in the effectiveness and implications of sanction strategies.
Now Read: Geopolitical Relief Triggers Gold Selloff: Prices Dip Below $2,350 Mark, Mining Stocks Hit Hard
Image: Shutterstock
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