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US Expands Sanctions on Chinese Firms Supplying Russia’s War Effort

Russian tanks being built at the Omsktransmash factory in Siberia. (Image: via social media)

The U.S. government announced new and vastly broadened sanctions against the Russian Federation on June 12 (Wednesday), particularly targeting Chinese companies that aid Moscow’s military industry for the war in Ukraine. 

Though the Sino-Russian “partnership” is not officially an alliance and Beijing has not been directly selling weapons to Russia, Chinese firms play a pivotal role by supplying intermediate goods — particularly computer chips — that are essential for a wide range of military hardware. 

Among the steps, the U.S. Treasury said it was raising “the risk of secondary sanctions for foreign financial institutions that deal with Russia’s war economy,” effectively threatening them with losing access to the U.S. financial system.

It also said it was moving to restrict the Russian military industrial base’s ability to exploit certain U.S. software and information technology services and, with the State Department, targeting more than 300 individuals and entities in Russia and beyond, including in Asia, Europe and Africa.

The Department of Commerce announced that it was going after shell companies in Hong Kong that serve as intermediaries for mainland Chinese entities trying to sell semiconductors to Russia. The Commerce Department’s actions will affect around US$100 million worth of high-priority items for the Kremlin. 

It will also expand its lists of items Russia cannot import from other nations to cover not just U.S.-origin products but U.S.-branded goods, meaning those made with U.S. intellectual property or technology, a senior Commerce official told reporters on condition of anonymity.

Weathering sanctions

Apart from Chinese-made parts, U.S.-made chips and other technology have been found in a wide array of Russian equipment, from drones to radios, missiles, and armored vehicles recovered from the battlefield, Ukrainian officials say.

Russia launched a full-scale invasion of Ukraine in 2022 following years of border conflicts after Moscow annexed the Crimean peninsula in 2014. 

kinzhal hypersonic missile and mig-31
Kh-47M2 Kinzhal hypersonic missile deployed on a MiG-31 fighter jet seen at the 2018 Moscow Victory Day Parade that May 9. (Image: CC BY 4.0)

The advent of drones and other new weapons, as well as the liberal use of artillery, has rendered the war a grinding battle of attrition. However, Russian forces have been slowly gaining ground since the beginning of 2024, recently opening new fronts in northern Ukraine in addition to the main battlefields in the east and south of the country. 

The Russian war effort has continued with support from countries like China, North Korea, and others, despite robust sanctions from the U.S. and its allies. 

“Today’s actions strike at their remaining avenues for international materials and equipment, including their reliance on critical supplies from third countries,” Treasury Secretary Janet Yellen said in a statement about her agency’s moves.

The Treasury also said it was imposing sanctions on key parts of Russia’s financial infrastructure, including the Moscow Exchange (MOEX), which operates Russia’s largest public markets for equity, fixed income, foreign exchange and other products.

MOEX and its related subsidiaries have facilitated sanctions evasion by obscuring the identities of parties engaged in such transactions, a senior Treasury official told reporters. By sanctioning them, the official said, the U.S. would force greater transparency on cross-border transactions, making it harder to evade sanctions.

Threatening foreign banks with financial cutoff from the US

The news came as President Joe Biden departed for a summit in southern Italy with leaders from other Group of Seven democracies: Britain, Canada, France, Germany, Italy, Japan, and the United States.

One of the G7’s current priorities is strengthening support for Ukraine and diminishing the potential of the Russian military. 

Servicemen of the 12th Special Forces Brigade Azov of the National Guard of Ukraine fire a howitzer towards Russian troops, amid Russia’s attack on Ukraine, in Donetsk region, Ukraine April 5, 2024. (Image: REUTERS/Sofiia Gatilova/File Photo)

Peter Harrell, who served as White House senior director for international economics in 2021 and 2022, described the latest sanctions as a “paradigm shift,” partly because they expose foreign banks to the risk of being cut off from the U.S. financial system if they deal with key large Russian banks.

The Treasury accomplished this by increasing to 4,500 the universe of Russian companies and individuals who could trigger such sanctions from about 1,200, the senior Treasury official told reporters.

“For the first time, the U.S. is shifting towards something that begins to look like … an effort to set up a global financial embargo on Russia,” Harrell said.

“The message here is really one to banks in China and Turkey and the UAE and elsewhere outside of the G7 they face sanctions for continuing to engage in transactions with the big Russian banks and other sanctioned Russian banks,” he added, saying this would likely spark a “major retreat” by those banks from Russia.