US to take aim at Chinese banks aiding Russia war effort, WSJ reports

The U.S. is drafting sanctions that threaten to cut some Chinese banks off from the global financial system, which officials hope will stop Beijing's commercial support of Russia's military production, the Wall Street Journal reported on Monday, citing people familiar with the matter. As Secretary of State Antony Blinken visits China this week, the question is whether this potent financial threat can dent the China-Russia trade enabling Moscow to rebuild its military after losses in Ukraine, the report says.

The U.S. is drafting sanctions that threaten to cut some Chinese banks off from the global financial system, which officials hope will stop Beijing's commercial support of Russia's military production, the Wall Street Journal reported on Monday, citing people familiar with the matter.

As Secretary of State Antony Blinken visits China this week, the question is whether this potent financial threat can dent the China-Russia trade enabling Moscow to rebuild its military after losses in Ukraine, the report says. Blinken on Friday criticised Chinese support for Russia's defence industry, saying Beijing was the primary contributor to Moscow's war in Ukraine through its provision of critical components for weaponry.

In recent weeks, U.S. officials have intensified pressure on China, warning Washington stands ready to take action against Chinese financial institutions facilitating trade in goods that have both civilian and military applications. U.S. officials said targeting banks with sanctions is an escalatory option in case diplomatic overtures fail to persuade Beijing to curb exports, the report said.

Cutting banks off from access to the dollar - the denomination of most of global trade - is often reserved as a last resort, as such sanctions often force banks into failure, affecting their customer and client base. Such an action also represents a particular risk for China as the country grapples with sputtering economic recovery and growing debt.

The People's Bank of China and the National Financial Regulatory Administration, China's top banking regulator, didn't immediately reply to Reuters' requests for comments. China and Russia have fostered more trade in yuan instead of dollar in the wake of the Ukraine war, an effort that could shield their economies from potential escalating U.S. sanctions. The United States and other Western nations imposed sweeping sanctions on Russia's financial system after Moscow invaded Ukraine in February 2022.

Several banks in China, the United Arab Emirates and Turkey have boosted their sanctions compliance requirements, resulting in delays or even the rejection of money transfers to Moscow, Reuters reported in March. The delays show how U.S. restrictions can have a strong knock-on effect. Banks, cautious of U.S. secondary sanctions, started to ask their clients to provide written guarantees that no person or entity from the U.S. SDN (Special Designated Nationals) list is involved in a deal or is a beneficiary of a payment.

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