The United States is preparing sanctions aimed at disconnecting certain Chinese banks from the international financial network, in a move officials say is intended to halt China's financial backing of Russia's military production efforts, The Wall Street Journal reported on Monday, citing people familiar with the matter.
With Secretary of State Antony Blinken due to visit China this week, it remains to be seen whether this financial threat will dent the China-Russia trade, enabling Moscow to rebuild its military after losses in Ukraine, the report said.
Blinken on Friday criticized Chinese support for Russia's defense industry, saying Beijing was the primary contributor to Moscow's war in Ukraine through its provision of critical components for weaponry.
In recent weeks, U.S. officials have intensified pressure on China, warning Washington to stand ready to take action against Chinese financial institutions facilitating trade in goods with civilian and military applications.
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, which is grappling with a sputtering economic recovery and growing debt.
'Groundless accusations'
On Tuesday, a spokesperson for China's foreign ministry said China was "firmly opposed" to the U.S. making "groundless accusations" about normal trade exchanges with Russia.
"We are firmly opposed to the hypocritical practice of the U.S. side itself pouring fuel but blaming the Chinese side," Wang Wenbin said at a regular news briefing when questioned on the possible sanctions.
"China's right to conduct normal economic and trade exchanges with other countries, including Russia, is inviolable," said Wang.
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 potentially escalating U.S. sanctions. The U.S. and other Western nations imposed sweeping sanctions on Russia's financial system after Moscow invaded Ukraine in February 2022.
Reuters reported in March that several banks in China, the United Arab Emirates (UAE) and Türkiye have boosted their sanctions compliance requirements, resulting in delays or even the rejection of money transfers to Moscow. 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. Special Designated Nationals (SDNs) list is involved in a deal or is a beneficiary of a payment.