The News
The US is preparing to sanction some Chinese banks in an attempt to curb Beijing’s financing of Russia’s war in Ukraine, The Wall Street Journal reported.
The proposed sanctions come as US Secretary of State Antony Blinken is set to travel to China this week.
Washington has been increasing pressure on Beijing regarding its facilitation of exports to Moscow, and views sanctions as an escalatory measure if China does not respond to talks.
SIGNALS
Threat of sanctions could be enough to exert pressure on Beijing
Previous threats by Washington to sanction Chinese financial institutions proved enough to shift Beijing’s behavior, The Wall Street Journal noted. Last year, an executive order by US President Joe Biden authorizing sanctions on any bank that aided the Russian military created “bottlenecks” on transactions between China and Russia, one expert told the Journal. As Chinese banks feared reprisals, they backed out of facilitating deals that could lead to sanctions, Alexandra Prokopenko, a fellow at the Carnegie Russia Eurasia Center think tank, said. But that threat has diminished in recent months as smaller banks that don’t use the US dollar — and so wouldn’t be struck by sanctions — have become more prevalent in Russia-China transactions. “Both Russians and Chinese are constantly adapting to the new conditions,” she said.
China has developed some resistance to possible sanctions
China also faces the threat of sanctions from Group of Seven nations if it carries out military provocations in Taiwan. Beijing has been preparing for such a scenario, an Atlantic Council report noted, and has created some safeguards. For instance, China is creating financial networks dominated by the yuan, rather than the US dollar, adding a small shield against any punitive actions. “A rapidly growing number of domestic and crossborder payment projects are being designed with the possibility of Western sanctions in mind,” the report found. Meanwhile, if Beijing responds to sanctions, it is unlikely to do so with tit-for-tat measures, the authors said. Instead, it “will target sectors where it can inflict asymmetric pain, particularly through the use of export controls or trade restrictions on critical goods such as rare earths.”
Chinese firms nearshoring in Mexico to avoid US sanctions
Chinese companies have set up factories and logistics hubs in northern Mexico in recent years, part of an attempt to circumvent US sanctions or tariffs on their products, the BBC reported. Analysts believe that trend could last long-term, since the trade war between the US and China doesn’t show signs of cooling. “While the Chinese origin of the capital coming into Mexico may be uncomfortable for the policies of some countries … according to international trade legislation, those products are, to all intents and purposes, Mexican,” Juan Carlos Baker Pineda, Mexico’s former vice-minister for external trade, told the broadcaster.
