The Biden administration on Wednesday announced a set of new financial sanctions aimed at severing a rapidly expanding technological partnership between China and Russia that American officials see as a broader effort to rebuild and modernize Russia’s military amid its war with Ukraine.
The measures were announced just before Biden leaves Russia for a meeting of the G7 in Italy, where renewed efforts to weaken Russia’s economy are expected to be at the top of the president’s agenda.
The measures, coordinated by the Treasury, State and Commerce departments, were aimed at further isolating Russia from the international financial system and cutting off its access to technology that powers its military.
The effort has become much more complicated over the past six to eight months, U.S. officials say, as China, previously a bystander, has increased its exports of microchips, machine tools, optical systems for drones and advanced weapons components.So far, though, Beijing appears to be heeding Biden’s warnings against arms sales to Russia as the U.S. and NATO continue to supply weapons to Ukraine.
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 supporting Russia. The new measures do not restrict banks from facilitating transactions related to Russian energy exports, which the Biden administration has allowed to continue due to concerns that restricting them could fuel inflation.
“Russia’s military economy is deeply isolated from the international financial system, and the Kremlin’s military desperately needs access to the outside world,” Treasury Secretary Janet L. Yellen said in a statement announcing the sanctions.
The core of the measure is an expansion of “secondary” sanctions that would give the US the power to blacklist banks around the world that do business with already sanctioned Russian financial institutions, aimed at preventing smaller banks, particularly in China, from helping Russian war financing.
The Treasury Department also imposed restrictions on the Moscow stock exchange to prevent foreign investors from backing Russian defense companies. The sanctions hit several Chinese companies that are accused of helping Russia access critical military equipment, including electronic devices, lasers and drone parts.
In addition to the Treasury action, the State Department imposed sanctions on nearly 100 entities, including companies “engaged in developing Russia’s future energy, metals, and mining production and export capabilities.” The Commerce Department also announced its own restrictions, banning the export of U.S. goods to certain addresses in Hong Kong that the U.S. claims are being used to set up shell companies and funnel prohibited goods to Russia.
Biden has tried before to cut off supplies and funds to Russia, overestimating the impact. In March 2022, shortly after the war began, he announced his first set of monetary measures, declaring that “as a result of these unprecedented sanctions, the ruble was almost immediately reduced to rubble.” But that did not happen. The ruble crashed for a time, then recovered, and although it is not as strong now as it was a year ago, the Russian economy is expanding due to the strength of war-related growth.
Much of this is due to efforts by China, which buys Russian oil, often at below world prices, and has stepped up sales of dual-use products, such as microelectronics and software needed to build weapons systems, drones and air defense systems.
The result has been the rise of a parallel war economy involving Russia, China, Iran and North Korea. Many of the sanctioned companies are based in Hong Kong or across the border in China’s tech-manufacturing hub of Shenzhen. But administration officials insist they can this time cut off deepening commercial ties.
By announcing new restrictions on Chinese companies, the Biden administration hopes to encourage European countries and perhaps Asian allies to take similar measures.
Secretary of State Antony J. Blinken discussed the issue with European representatives at a NATO meeting in Prague last month, and U.S. officials intend to put the issue on the agenda for a summit in Washington in July.
Blinken also warned that Beijing’s support for Russia’s defense industry would undermine friendly relations with European countries.
At a press conference in Prague on May 31, Blinken said that 70 percent of the machine tools and 90 percent of microelectronics that Russia imports come from China.
“China cannot hope for improved relations with European countries on the one hand and stoke the biggest threat to European security since the end of the Cold War on the other,” he said.
