The Biden administration announced a series of new financial sanctions Wednesday aimed at interrupting the fast-growing technological links between China and Russia that American officials believe are behind a broad effort to rebuild and modernize Russia’s military during its war with Ukraine.
The actions were announced just as President Biden was leaving the country for a meeting in Italy of the Group of 7 industrialized economies, where a renewed effort to degrade the Russian economy will be at the top of his agenda.
The effort has grown far more complicated in the past six or eight months after China, which previously had sat largely on the sidelines, has stepped up its shipments of microchips, optical systems for drones and components for advanced weaponry, U.S. officials said. But so far Beijing appears to have heeded Mr. Biden’s warning against shipping weapons to Russia, even as the United States and NATO continue to arm Ukraine.
Announcing the new sanctions, Treasury Secretary Janet L. Yellen said in a statement that “Russia’s war economy is deeply isolated from the international financial system, leaving the Kremlin’s military desperate for access to the outside world.”
At the heart of the new measures is an expansion of “secondary” sanctions that give the United States the power to blacklist any bank around the world that does business with Russian financial institutions already facing sanctions. This is intended to deter smaller banks, especially in places like China, from helping Russia finance its war effort.
The Treasury Department also imposed restrictions on the stock exchange in Moscow in hopes of preventing foreign investors from propping up Russian defense companies. The sanctions hit several Chinese companies that are accused of helping Russia gain access to critical military equipment such as electronics, lasers and drone components.
Although the measures expand the reach of the U.S. sanctions program, the Biden administration has so far held back from imposing sanctions on Chinese or European banks that it believes are helping Russia. The new measures do not restrict banks from facilitating transactions related to Russia’s energy exports, which the Biden administration has allowed to continue out of concern that restricting them could fuel inflation.
Mr. Biden has tried before to choke off supplies and financing to Russia, and overestimated its effects. In March 2022, shortly after the war began, he announced an initial round of financial actions and declared, “As a result of these unprecedented sanctions, the ruble almost is immediately reduced to rubble.” It was not. After a brief dive, it recovered, and while today it is not as strong as it was a year ago, the Russian economy has been growing because of the strength of war-related growth.
Much of that is thanks to China’s effort. It has been buying Russian oil, often at a discount to world prices. And it has ramped up its sale of dual-use goods, especially the microelectronics and software needed to manufacture weapons systems, drones and air defenses.
The result has been the rise of a somewhat parallel war economy involving Russia, China, Iran and North Korea. Many of the firms subject to sanctions are in Hong Kong or just over the border in Shenzhen, the technology manufacturing center of China. Yet administration officials insist that this time, they can choke off what has become a deepening commercial relationship.
The United States has already imposed sanctions on more than 100 Chinese entities that have been assisting Russia, but so far they have done little to deter Chinese companies or the government.
In announcing new restrictions on Chinese firms, the Biden administration is also hoping to spur European governments and possibly Asian allies to take similar measures.
Secretary of State Antony J. Blinken discussed the issue with European counterparts at a meeting last month in Prague of the North Atlantic Treaty Organization, and U.S. officials intend to put it on the agenda of a leaders’ summit in Washington in July. That NATO summit is expected to include not only the leaders of member nations but also the heads of state of Japan, South Korea, New Zealand and Australia — American allies in Asia who are part of a Washington-led coalition that aims to counter China’s military buildup.
Mr. Blinken has also warned the Chinese government that it cannot hope to have an amicable relationship with European powers if it props up the Russian defense industry.
At a news conference in Prague on May 31, Mr. Blinken said that while China has refrained from providing weapons to Russia, as North Korea and Iran have done, Chinese companies are exporting “critical inputs that have allowed Russia to accelerate its own production of tanks, of missiles, of shells.”
He noted that 70 percent of the machine tools that Russia is importing are coming from China, as well as 90 percent of microelectronics.
“I heard ally after ally today raise their deep concern about this, and it only made even more clear to me what I shared with Chinese counterparts in Beijing: China cannot expect on the one hand to improve relations with countries of Europe while on the other hand fueling the biggest threat to European security since the end of the Cold War,” he said.
