The larger Chinese banks, in response to stern U.S. warnings, have this year been exiting transactions involving Russia.
Are America’s sanctions efforts finally working?
No. Beijing is merely shifting transactions to smaller banks and non-banking channels. China, to help Russia’s war effort in Ukraine, is employing a decades-old stratagem: the shell game.
At best, America’s sanctions are crimping the fast-growing China-Russia trade, not ending it.
Beijing, Moscow’s “no-limits” partner, has provided across-the-board support for the Russian war effort since the start of the conflict. In recent months, China has been supplying machine tools, semiconductors, and other dual-use items. It has also helped out with weapons technology and satellite imagery. Reporting from last year shows that Chinese parties were selling ammunition in large quantities.
Moreover, China has lent bank support. Now, however, Chinese banking institutions have become wary of working with Russia, especially since March. “Concern over the possibility of sanctions,” Reuters reported in June, “has already caused China’s big banks to throttle payments for cross-border transactions involving Russians, or pull back from any involvement altogether.”
There is no mystery why China’s big banks have run from Russia: These behemoths—the four largest banks in the world ranked by assets are Chinese—know the United States can effectively impose a death sentence. The Secretary of the Treasury, for instance, can designate, pursuant to Section 311 of the USA PATRIOT Act, Chinese banks to be of “primary money laundering concern.” Designated banks can no longer clear dollar transactions through New York, where every dollar transaction clears.
Because the dollar reigns supreme in international transactions, Section 311 designations would put the Chinese state banks out of business most everywhere outside China and even reduce their business inside that country. The Treasury Department, to great effect, imposed Section 311 on Bank of Dandong, a small Chinese bank, in 2017 for participating in prohibited transactions with North Korea.
In addition, Washington has other tools to hit Chinese banks. In 2012, Treasury also cut China’s Bank of Kunlun off from the U.S. financial system by invoking the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010.
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