U.S. Threatens Sanctions on Chinese Banks Trading with Russia

Washington has gone back and forth over sanctions on Chinese financial institutions, but the Treasury Secretary has shared that no moves are being made just yet.

Talk of Sanctions

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In recent days, the possibility of U.S. sanctions against Chinese banks has loomed over the global marketplace. On Thursday, U.S. Treasury Secretary Janet Yellen clarified the government’s stance.

“Nothing to Announce”

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“I have nothing to announce in terms of sanctions [on Chinese banks],” Yellen said in an interview with Reuters. She also clarified that the U.S. “would be prepared to use [them] if necessary.”

Trade Between Russia and China Grows

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The possibility of sanctions has arisen following the growing trade between China and Russia and the potential bolstering of the Russian military presence in Ukraine.

Wall Street Journal Sparks Debate

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Speculation ballooned on Monday when the Wall Street Journal reported that U.S. lawmakers were already in the process of drafting sanctions against specific Chinese financial institutions suspected of trading with Russia.

A Fraught Geopolitical Relationship

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Excluding Chinese lenders from global financial relationships could further strain the already tense relationship between the U.S. and China.

The Only Way?

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However, it may be the only way for the country to address the growing relationship between China and Russia.

Main Supplier of Industrial Components

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While it is unlikely any military weaponry has passed between the two countries, Chinese companies are currently the main suppliers of Russia’s industrial components, such as aircraft parts, schematics, and machinery.

Dual-Use Goods Export Explodes

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According to the Center for Strategic and International Studies, the export of dual-use items from China has expanded from a few thousand to as much as 30,000 per month as of March.

“We’ve Had Intense Discussions”

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Yellen assured that the U.S. and China had maintained clear communication over this rising issue.

“We’ve had intensive discussions with the Chinese about this. I think they understand our position, and it is a tool that’s available,” she affirmed.

Executive Order Placed

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The decision to sanction Chinese banks would not be unprecedented. In December last year, President Biden approved an executive order allowing the Treasury to sanction any foreign banks that had provably allowed the trade of military goods with Russia.

Removing China from Western markets

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It is possibly the strongest move the U.S. could make against China, as it could effectively remove the country from Western markets. But it would not be without risks.

Speeding Up De-Dollarization

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Removing China from Western financial systems could hasten the movement of de-dollarization, which aims to reduce the dominance of U.S. currency in international trade.

“Gargantuan Source of Financial Instability”

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In general, it could lead to significant financial and political instability for both countries.

“The U.S. would be creating a gargantuan source of financial instability for not only China but also itself,” said Brian Wong of the Centre on Contemporary China and the World at the University of Hong Kong.

Could Impede American Interests

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“This could severely impede the interests of American companies and investors in China, especially given the likely retaliation that would come either immediately, or in due course,” he continued.

Accusations from Both Sides

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Officials from both Washington and Beijing have levied accusations of hypocrisy over the sanction problem.

They “Can’t Have It Both Ways”

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“China can’t have it both ways,” Secretary of State Anthony Blinken said recently. “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.”

Blinken Goes to Beijing

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Blinken is heading to China this week to facilitate talks with Beijing in a bid to reduce or even end commercial relations between the East Asian superpower and Russia.

Foreign Ministry Speaks Out

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On the other hand, China’s foreign ministry spokesperson condemned the news from the U.S. in a news briefing on Tuesday.

“Our Rights Are Inviolable”

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“China’s right to conduct normal economic and trade exchanges with other countries, including Russia, is inviolable,” he said.

Strong Ties Between Moscow and Beijing

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Beijing and Moscow have worked to maintain their diplomatic and economic relations ever since Russia’s military invasion of Ukraine in early 2022, even as much of the developed world moved to sanction the eastern European nation.

The post U.S. Threatens Sanctions on Chinese Banks Trading with Russia first appeared on Liberty & Wealth.

Featured Image Credit: Shutterstock / Alexandros Michailidis.

The content of this article is for informational purposes only and does not constitute or replace professional financial advice.

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