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 believe are behind Russia’s extensive efforts to rebuild and modernize its military during its war with Ukraine.
The actions were announced as President Biden left the United States for a Group of Seven meeting in Italy, where renewed efforts to weaken the Russian economy will be at the top of his agenda.
That effort has been complicated by a sharp increase in Chinese exports of microchips, drone optics and advanced weapons parts over the past six or eight months, U.S. officials say, after China largely stood aside. 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.
“Russia’s war economy is deeply isolated from the international financial system, leaving the Kremlin’s military desperate for access to the outside world,” U.S. Treasury Secretary Janet Yellen said in a statement announcing the new sanctions.
At the heart of the new measures is an expansion of “secondary” sanctions, which gives the U.S. the power to blacklist any bank around the world that does business with Russian financial institutions already facing sanctions. The move is aimed at stopping smaller banks, especially in places like China, from helping Russia finance its wars.
The U.S. Treasury Department has also imposed sanctions on the Moscow Stock Exchange in hopes of deterring foreign investors from supporting Russian defense companies. The sanctions target several Chinese companies accused of helping Russia acquire critical military equipment such as electronics, lasers and drone parts.
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 it believes are helping Russia. The new measures do not restrict banks from facilitating deals related to Russian energy exports, which the Biden administration has allowed to continue out of concern that restricting them could stoke inflation.
Mr. Biden has previously tried to cut off supplies and financing to Russia and overestimated the impact. 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.” But it was not true — after a brief drop, the ruble recovered, and while it is not as strong today as it was a year ago, the Russian economy has been growing because of strong war-related growth.
That’s largely thanks to China, which has been buying Russian oil, often at prices below world prices, and 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 quasi-war economy between Russia, China, Iran and North Korea. Many of the sanctioned companies are based in Hong Kong or across the border in Shenzhen, China’s tech manufacturing hub. Yet administration officials insist that this time around, they can sever deepening commercial ties.
The United States has imposed sanctions on more than 100 Chinese entities that provide aid to Russia, but the sanctions have so far had little effect on deterring Chinese companies or the government.
By announcing new restrictions on Chinese companies, the Biden administration also hopes to spur European governments and possible Asian allies to take similar measures.
Secretary of State Antony J. Blinken discussed the issue with his European counterparts at a North Atlantic Treaty Organization meeting in Prague last month, and American officials intend to put it on the agenda for a leaders’ summit in July in Washington. The NATO summit is expected to include not only the leaders of member states but also the heads of state of Japan, South Korea, New Zealand and Australia — countries that are U.S. allies in Asia and part of a Washington-led coalition aimed at countering China’s military buildup.
Blinken also warned the Chinese government that friendly relations with European powers would be impossible if it supported Russia’s defense industry.
Blinken said at a news conference in Prague on May 31 that while China is not supplying weapons to Russia as it has to North Korea and Iran, Chinese companies are exporting “critical inputs that are enabling Russia to accelerate production of tanks, missiles and artillery shells.”
He pointed out that 70% of Russia’s imported machine tools and 90% of its microelectronics come from China.
“Today I heard from ally after ally that they were deeply concerned, and it reinforced for me the view I share with my Chinese counterparts in Beijing: China cannot expect to improve relations with European nations while exacerbating the greatest threat to European security since the end of the Cold War,” he said.
