Sanctions Against Chinese Companies Funding Russia’s War Machine are Being Considered by the EU

Paresh Jadhav

10 months ago

The EU is considering sanctions on Chinese firms which it believes are helping Russia bypass sanctions with purchases of dual-use goods from European firms and circumvention of sanctions, according to Brussels. This move represents another attempt by Brussels to pressure Moscow for their invasion of Ukraine.

Draft of Proposed List. According to this draft list, this includes three Chinese firms and one each from India, Sri Lanka, Serbia, Kazakhstan, Thailand and Turkey; their inclusion does not imply an assignment of responsibility for actions undertaken.

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Russia’s War Machine

Russia may be making attempts to replace imported products in all areas of the economy, yet its military industrial base still relies heavily on foreign imports. A report released by RUSI and Reuters reveals that much of Russia’s microelectronic components used in weapons systems – such as internal navigation systems and fiber-optic gyroscopes – come from companies located in North America, Europe and East Asia.

OFAC recently issued a determination with the intent of disrupting Russia’s supply of turbine lubricant additives used by their military. This shows how serious the US Treasury Department takes Russia’s dependence on western firms for war machine maintenance, and this new determination targets financial facilitators, trans-shippers, and intermediate companies which assist Putin’s army maintain their edge against Ukraine.

One year into Russia’s invasion of Ukraine, Dutch company Danieli Corus made promises to leave and cease providing equipment to Russian steel plants; yet its activity continued, according to an investigation conducted by Follow the Money and Kyiv Independent.

EU Sanctions List

The EU is planning a package of sanctions against Russia over its war in Ukraine, likely including mainland Chinese firms who help it avoid Western sanctions.

These new sanctions could include prohibiting Russian and Belarusian banks from using SWIFT for international transfers, or prohibiting their transport of crude oil overseas through maritime routes.

Sanctions would also target companies facilitating Russia’s access to nonlethal, yet militarily useful equipment – specifically Guangzhou Ausay Technology Co Limited and Shenzhen Biguang Trading Company.

These measures would also target media outlets promoting Russian propaganda and disinformation, with control being defined more broadly than simply ownership; including powers to direct management, policies or financial decisions. Therefore, entities should always check whether UK, US or EU sanctions might apply before engaging in any transaction with any entity located in Russia.

China’s Response

As the EU gears up to release its 13th sanctions package to mark two years of Russia’s full-scale invasion of Ukraine, Brussels reportedly plans on targeting mainland Chinese companies which have helped Moscow bypass Western sanctions. If carried out successfully, this would mark the first time ever that any 27-nation bloc could implement restrictions against businesses within China – something likely to trigger fierce backlash in Beijing.

Ursula von der Leyen issued a warning earlier this year to President Xi of China that EU sanctions on firms selling military equipment to Russia would not hesitate to be applied against. Her current proposal includes three Chinese firms as well as one each from Sri Lanka, Serbia, Thailand, Kazakhstan and Hong Kong and clarifies that inclusion doesn’t imply responsibility; reflecting EU’s strategy of restricting Russia’s access to sanctioned goods through third country entities. These proposals require unanimous approval by member states before becoming final.

Conclusions

As the European Union considers additional sanctions against Russian entities, traders must continue to exercise due diligence to ensure they do not accidentally breach EU regulations. Certain derogations provisions exist within certain sanctions for specific grounds; for more information please reach out to your Competent Authority (Department of Enterprise, Trade and Employment).

China’s leaders may privately express some degree of satisfaction with Western sanctions against Russia, which have provided Beijing an opportunity to test its efforts at becoming less dependent on foreign partners and more resilient in response to external shocks.

But China’s continued support of Russia could have far-reaching ramifications on both its economic and political relationships with Washington- and Brussels-led alliance of democracies. If Beijing were to openly side with Moscow, real costs for its slowing economy may emerge while EU sanction proposals may show China that there are real repercussions for defying international order openly.