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

By Trevor Hunnicutt

(Reuters) -The United States has preliminarily discussed sanctions on some Chinese banks but does not yet have a plan to implement such measures, a U.S. official told Reuters on Tuesday, as Washington seeks ways to curb Beijing’s support for Russia.

The official, speaking on condition of anonymity, said there was no plan to roll out sanctions on China's banks in the near-term, and said officials hope that diplomacy will avert the need for such action. Secretary of State Antony Blinken is due to visit China this week.

The Wall Street Journal reported earlier on Monday, citing people familiar with the matter, that the U.S. was drafting sanctions against some Chinese banks in the hopes of stopping Beijing's commercial support of Russia's military production.

The White House and Treasury Department did not immediately respond to requests for comment.

In recent weeks, U.S. officials have intensified pressure on China, warning that Washington was ready to take action against Chinese financial institutions facilitating trade in goods with dual civilian and military applications.

Blinken on Friday criticized Chinese support for Russia's defense industry, saying Beijing was the key contributor to Moscow's war in Ukraine through its provision of critical components for weaponry.

Cutting banks off from access to the dollar - used in much of global trade - is often reserved as a last resort, as such sanctions often force banks into failure.

It would also represent a particular risk for China, amid a sputtering economic recovery and growing debt.

The Wall Street Journal report did not describe which types of banks might be targeted, a key distinction for how large an impact any such measure would have on China's economy or its ability to support Russia economically.

The U.S. has sanctioned smaller Chinese banks in the past, such as the Bank of Kunlun, over various issues, including working with Iranian institutions.

But Washington has so far been reluctant to implement sanctions on major Chinese banks – long deemed by analysts as a "nuclear" option – because of the huge ripple effects it could have on the global economy and U.S.-China relations.

'GROUNDLESS ACCUSATIONS'

A spokesperson for China's foreign ministry on Tuesday said China was "firmly opposed" to the U.S. making "groundless accusations" about normal trade exchanges with Russia.

"We are firmly opposed to the hypocritical practice of the U.S. side itself pouring fuel but blaming the Chinese side," Wang Wenbin said at a regular news briefing when questioned on the possible sanctions.

"China's right to conduct normal economic and trade exchanges with other countries, including Russia, is inviolable," said Wang.

The People's Bank of China and the National Financial Regulatory Administration, China's top banking regulator, didn't immediately respond to Reuters' requests for comments.

China and Russia have fostered more trade in yuan instead of the dollar in the wake of the Ukraine war, potentially shielding their economies from possible 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 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 sanctions, have 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.

(Reporting by Devika Nair in Bengaluru, Ziyi Tang and Liz Lee in Beijing and Trevor Hunnicutt, Michael Martina and Daphne Psaledakis in Washington; Editing by Varun H K, Gerry Doyle, Lincoln Feast, Bernadette Baum and Andrea Ricci)

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