Chinese companies and government officials are rushing to find out how to comply with US sanctions on Russia, easing concerns in the Biden administration that Beijing will help Vladimir Putin evade them.
Chinese diplomats in Washington have been in contact with US counterparts asking for granular details on the sanctions, according to people familiar with the situation who asked not to be identified. That’s encouraged US officials, even though they remain wary that China may simply be looking for loopholes to help Russia, the people said.
For now, they added, there’s no consideration of imposing Iran-style secondary sanctions.
In Iran’s case, the US imposed financial sanctions on foreign companies, no matter their location, that did business with sanctioned Iranian people or entities. Such punishments are highly polarising and could alienate partners that do business with China but whose support the US wants against Russia.
Within China, trade lawyers and risk consultants contacted by Bloomberg News said they’ve seen a surge in inquiries from Chinese clients to ensure they comply with sanctions from the US, the EU and elsewhere.
The global spotlight on the Russian sanctions worries Chinese companies, said one Asia-based international trade lawyer, who declined to be named due to the sensitive nature of the topic.
The Chinese inquiries covered issues such as the sale of goods to Russia that rely on US technology, transactions involving exports paid for in US dollars and whether a company with Russian connections should proceed with an initial public offering. Most Chinese companies have taken action to avoid violating sanctions, the lawyer said, with measures including adjustments to internal compliance programmes, changing suppliers or terminating contracts.
Chinese companies will comply with US sanctions but they probably won’t say it, because that’s just bad publicity within the Chinese market. They don’t want to appear as being obedient to US demands.
— Professor Ji Li, at the University of California’s Irvine School of Law.
Overall, US officials have said there is little evidence to show China is circumventing American sanctions, amid near-daily warnings from the White House and officials in Europe.
President Joe Biden last week reiterated his warning to President Xi Jinping that “he’d be putting himself at significant jeopardy” if he helped Putin, while also saying the US and its allies discussed ways to monitor “who has violated any of the sanctions and where and when and how they violated them”.
National security adviser Jake Sullivan told reporters travelling with Biden to Brussels for meetings last week with allies that China and other nations had been warned against “systematic efforts to undermine, weaken or circumvent the sanctions regime that we have put in place”.
US treasury secretary Janet Yellen said on Friday that sanctions on China weren’t “necessary or appropriate at this point”. She told CNBC that “we would be very concerned if they were to supply weapons to Russia or try to evade the sanctions we’ve put in place on the Russian financial system and the central bank. We don’t see that happening at this point, and it’s really up to China to make sure they understand the complex situation they face.”
China — which has urged an end to the war in Ukraine but refuses to criticise Russia’s continuing invasion — has vowed to maintain “normal” trade relations with Russia.
Speculation over US sanctions contributed to a plunge in Chinese stocks earlier this month, prompting foreign minister Wang Yi to declare that China “is not a party to the crisis, nor does it want the sanctions to affect China”. Beijing has also denied giving military assistance to Russia, another flashpoint for the US that would risk escalating tensions between the world’s biggest economies, just as Xi looks to minimise disruption as he prepares to prolong his 10-year rule at a party congress later this year.
Chinese officials say they reject on principle the need to respect sanctions on Russia and other countries that don’t have the endorsement of a UN resolution. In practice, though, Chinese companies have shown a willingness to comply with American sanctions towards Russia, North Korea and even Hong Kong — a Chinese territory — to avoid losing access to the global financial system.
“Chinese companies will comply with US sanctions but they probably won’t say it, because that’s just bad publicity within the Chinese market,” said Ji Li, a professor focused on US-China business law at the University of California’s Irvine School of Law. “They don’t want to appear as being obedient to US demands.”
Many Chinese multinational companies began to build up their internal compliance departments only in recent years to address international regulations, he said, adding that the real “wake-up call” for them came when Chinese telecommunications equipment maker ZTE was fined $1.4bn (R20bn) by the US in 2017 for selling American technology to Iran.
At least two of China’s largest state-owned banks restricted financing for purchases of Russian commodities immediately after the Ukraine invasion, and one of them — Industrial & Commercial Bank of China — also temporarily suspended business with high-risk clients in both Russia and Ukraine who might be hit with sanctions, according to a bank official.
In February, Russia’s biggest lender, Sberbank, started allowing its users to make cross-border money transfers via Western Union to Chinese bank accounts connected to the Alipay app owned by Jack Ma’s Ant Group. But that option is no longer available since Western Union suspended its cooperation with Sberbank.
Technology companies are also in the spotlight, with EU officials suspecting that China may be ready to supply semiconductors and other tech hardware to Russia as part of an effort to soften the impact of sanctions. So far it remains unclear whether Chinese chip companies will cut Russia off. Semiconductor Manufacturing International, which uses equipment from US suppliers such as Applied Materials to make its chips, has declined to comment.
Transactions in areas not subject to sanctions are proceeding cautiously. Bloomberg reported on Friday that traders in China were sending 30,000 tons of alumina to United Co Rusal International, the Moscow-based aluminium producer struggling to secure raw materials due to fallout from the war.
While Rusal or aluminium aren’t under sanctions, Australia has banned supplies and the company’s other sources of raw materials are under pressure. Traders said the shipments were exploiting a commercial opportunity and weren’t influenced by a Chinese government directive.
China’s top envoy to Russia similarly urged Chinese executives in Moscow to “fill the void” created by the war, without mentioning sanctions. Speaking to about a dozen business heads in Russia on Sunday, ambassador Zhang Hanhui said major companies faced disruptions in payments and it’s “a moment where private, small- and medium-sized enterprises could play a role”.
Still, while Russia depends on China for almost 20% of its external trade, Beijing is much more reliant on the US and Europe as markets for its goods. Though Xi is likely to back Putin diplomatically, the Chinese leader won’t want to further hurt an economy set to grow at the slowest pace since the 1990s, Eurasia Group said in a report this week.
“Xi’s bottom line is domestic success,” it said. “Beijing is likely to continue to ensure that its ties with Moscow do not invite Western sanctions or otherwise damage China’s economic interests.”
More stories like this are available on bloomberg.com
— Bloomberg
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