The Biden administration on Wednesday announced a raft of new financial sanctions aimed at severing fast-growing technological ties between China and Russia that U.S. officials see as part of a broad effort by Russia to rebuild and modernize its military during its war with Ukraine.
The measures were announced before President Biden left for Italy for a Group of Seven meeting, where a renewed push to weaken Russia’s economy will be at the top of his agenda.
The measures, coordinated by the Treasury, State and Commerce departments, are aimed at further isolating Russia from the global financial system and denying it access to the technology that underpins its military arsenal.
That effort has become much more complicated after China, which had largely stood by, stepped up exports of microchips, machine tools, drone optics and advanced weapons components to Russia over the past six or eight months, U.S. officials said. But so far, Beijing appears to have heeded Biden’s warnings not to send weapons to Russia, even as the United States and NATO continue to deliver arms to Ukraine.
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While the measures expand the scope of the U.S. sanctions program, the Biden administration has so far refrained from imposing sanctions on Chinese or European banks that it believes are helping Russia. The new measures do not restrict banks from facilitating transactions related to Russian energy exports, which the Biden administration has allowed to continue out of concern that restricting those transactions could fuel inflation.
“Russia’s wartime economy is severely isolated from the international financial system, leaving the Kremlin’s forces desperate for connection to the outside world,” U.S. Treasury Secretary Janet Yellen said in a statement announcing the sanctions.
At the heart of the measures is an expansion of “secondary” sanctions that gives the U.S. the power to blacklist any bank in the world that does business with already-sanctioned Russian financial institutions. The move is intended to prevent smaller banks — especially in places like China — from helping Russia finance its wars.
The U.S. Treasury Department has also imposed restrictions on Moscow’s stock exchange in hopes of deterring foreign investors from backing Russian defense companies. The sanctions hit several Chinese companies accused of helping Russia obtain key military equipment such as electronics, lasers and drone parts.
In addition to the Treasury sanctions, the State Department imposed sanctions on about 100 entities, including “companies involved in the development of future energy, metals and mining production and export capabilities in Russia.” The Commerce Department also announced its own set of restrictions, prohibiting U.S. exports to certain addresses in Hong Kong that the U.S. said were used to set up shell companies to funnel prohibited goods to Russia.
Biden had previously tried to cut off supplies and financing to Russia, but he overestimated the impact of such a move. In March 2022, shortly after the war began, he announced the first round of financial actions and declared, “As a result of these unprecedented sanctions, the ruble was almost immediately reduced to rubble.” It was not. After a brief dive, the ruble recovered, and while the ruble today is not as strong as it was a year ago, the Russian economy has been expanding due to strong war-related growth.
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That’s largely thanks to China, which has been buying Russian oil, often at a discount to international prices. It has also increased sales of dual-use goods, especially microelectronics and software needed to build weapons systems, drones and air defenses.
The result is a somewhat parallel war economy between Russia, China, Iran and North Korea. Many of the sanctioned companies are in Hong Kong or in Shenzhen, China’s tech manufacturing hub. Yet administration officials insist that this time around, they can sever the deepening commercial ties between the two countries.
By announcing new restrictions on Chinese companies, the Biden administration also hopes to spur European governments and possibly Asian allies to take similar measures.
Secretary of State Antony Blinken discussed the issue with his European counterparts at a NATO meeting in Prague last month, and U.S. officials intend to put the issue on the agenda for a leaders’ summit in Washington in July.
Blinken also warned the Chinese government that it could not expect to maintain friendly relations with European powers if it supported Russia’s defense industry.
At a press conference held in Prague on May 31, Blinken said that 70% of Russia’s imported machine tools come from China, and 90% of its microelectronics products also come from China.
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“China cannot expect to improve relations with European countries while fuelling the greatest threat to European security since the end of the Cold War,” he said.