China’s Great Game: The United States must stop playing sanctions war with the CCP :: Gatestone Institute

Major Chinese banks, in response to harsh US warnings, halted transactions involving Russia this year.

Are US sanctions efforts finally bearing fruit?

No. Beijing is simply shifting transactions to smaller banks and non-bank channels. To help Russia in its war effort in Ukraine, China is using a decades-old ploy: the shell game.

At best, US sanctions cripple, not end, rapidly growing Sino-Russian trade.

Beijing, Moscow’s “limitless” partner, has provided unfailing support for the Russian war effort since the start of the conflict. In recent months, China has supplied machine tools, semiconductors and other dual-use items. It also provided assistance with weapons technology and satellite imagery. Reports from last year show that Chinese parties sold munitions in large quantities.

In addition, China has been supportive of the banks. But now, Chinese banking institutions are reluctant to engage with Russia, especially since March. “Concern over the possibility of sanctions,” Reuters reported in June, “has already prompted major Chinese banks to limit payments for cross-border transactions involving Russians, or to withdraw from involvement altogether.”

There is no mystery as to why China’s major banks have fled Russia: These giants—the world’s four largest banks by assets are Chinese—know that the United States can effectively impose a death sentence. The Treasury Secretary, for example, can designate Chinese banks as “of primary concern for money laundering” under Section 311 of the USA PATRIOT Act. The designated banks can no longer clear dollar transactions through New York, where every dollar transaction is cleared.

Because the dollar reigns supreme in international transactions, Section 311 designations would bankrupt Chinese state-owned banks almost everywhere outside China and even curtail their operations within the country. The Treasury Department in 2017 imposed Section 311, to great effect, on the Bank of Dandong, a small Chinese bank, for engaging in prohibited transactions with North Korea.

In addition, Washington has other tools to hit Chinese banks. In 2012, the Treasury also cut off China’s Kunlun Bank from the U.S. financial system by invoking the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010.

As major Chinese banks began to pull out of Russian business, other Chinese banks picked up the slack. “Some Chinese companies are turning to smaller banks on the border,” Reuters reported in late April.

The shift to smaller banks had to be orchestrated in Beijing. China’s central government and Communist Party tightly control the banking system, and banks can’t do anything—especially something as sensitive as helping Russia in the middle of a major war—without approval from the top of China’s political system.

Beijing is smart. “So if they shift their transactions to smaller banks that can be sanctioned, you know, that gives them some ability to let a bank go down and not be affected,” Jonathan Ward, author of The Decisive Decade: America’s Grand Strategy to Triumph Over ChinaMaria Bartiromo of Fox Business explained in mid-June.

Chinese authorities are also trying to inoculate their banks. As “the head of a trade body in a southeastern province that represents Chinese companies with Russian interests” told Reuters, “transactions between China and Russia will increasingly go through underground channels.” Those underground channels include cryptocurrencies, which are generally banned in China.

The Chinese regime takes Americans for fools. It is time for Washington to sanction all Chinese banks, all other Chinese financial institutions, and all Chinese companies, treating them as one organization. It is time for U.S. officials to stop playing what has become a sanctions game.

The Chinese Communist Party, which should also be sanctioned, runs a unitary state and demands absolute obedience from all parties in society. Banks and other businesses operate in separate companies and may have separate owners, but they are not separate.

In short, Chinese society is not organized in the same way as that of the United States.

“Speed ​​is essential”, Agathe Demarais, author of Backfire: How Sanctions Are Transforming the World Against U.S. Interests, told NPR, on how to make sanctions work. “Sanctions tend to work quickly, if at all,” she noted. “They cause a shock within the targeted economy.”

By patiently targeting one sanctions-violating entity after another, Washington is giving China plenty of time to adapt and render U.S. sanctions ineffective. Sanctions will work, according to Demarais’ logic, if they are immediately applied against all Chinese entities want to produce maximum shock.

There is no point in imposing sanctions that never have the potential to stop offensive behavior.

Gordon G. Chang is the author of The coming collapse of China And China goes to wardistinguished scholar of the Gatestone Institute and member of its advisory board.