China’s support for Russia galvanises US, Europe as Washington examines once-unthinkable sanctions against Beijing

  • Chinese leaders get a look at what can be possible when Western allies unite to hobble the economy of a major power
  • Beijing has failed to convince the West of its self-proclaimed neutrality on the Ukraine war as political winds shift rapidly

Within days of Russia’s invasion of Ukraine, China watched the United States and its allies thrash Moscow’s economy with astonishing speed, coordination and power. Now officials in Washington are looking ahead towards a once-unthinkable possibility: in a future moment of crisis, would those same economic weapons work against China too?

In the weeks since Washington unleashed the broadest sanctions in history against Russia, studies are already under way within US President Joe Biden’s administration to learn how similar economic tools might one day affect Beijing.

At the same time, as the European Union’s relations with China have plunged to unprecedented depths, the US has also floated these theories with allies in Europe, a sign of the resurgent transatlantic cooperation galvanised by the war.

Conversations and statements from officials on both sides of the Atlantic reveal a new geopolitical landscape emerging at lightning pace – one that appears increasingly likely to isolate China as long as Beijing’s leaders continue to stand behind the Kremlin. They reflect not only Washington’s focus on its rivalry with Beijing even as the war in Ukraine rages into its seventh week, but also the wildly shifting political winds in Europe.

Outraged by the Chinese government’s tacit backing for a brutal Russian war on its doorstep and frustrated by Beijing’s stubborn refusal to engage in serious dialogue on Ukraine, the EU has all but given up hope that China might help.

Six months ago, transatlantic ties were fractured after the fallout from a submarine deal with Australia helped undermine the Biden administration’s push to repair a relationship that had nosedived. But in a matter of weeks, the EU has become more open to American advances, with top officials speaking glowingly about a new era of cooperation with Washington and unusually disparagingly towards Beijing – even if the bloc is still some way off committing to sanctioning China.

All of this coincides with the realisation about what’s possible when the West unites and wants to hurt the economy of a major power, as it has done to Russia.

“We need [China] for everything, but now they must be scared,” said one senior European diplomat. “They will realise and fear that the world is changing; we are changing too.”

The sanctions imposed on Russia just days after the invasion began went straight for the heart of the country’s financial system – its central bank and biggest commercial banks – and have helped damage the Russian economy, the 11th largest in the world.

One US official told the Post that anyone who assumes the United States would hold back on similarly powerful economic retaliation against Beijing if, for example, it one day invades Taiwan, is misunderstanding just how far and how quickly the conversation has changed in Washington since the Ukraine war began.

“I think you should not doubt our ability and resolve to do the same in other situations,” US Treasury Secretary Janet Yellen told lawmakers last week when asked about retaliation against a hypothetical Chinese attack on Taiwan.

Before the war began, there was little talk in Washington about blocking the core of China’s US$15 trillion economy – the world’s second largest – from the global financial system.

Zhang Jun, China’s representative to the United Nations, speaks during a General Assembly emergency session on Thursday. China voted against a resolution, which was adopted, to suspend Russia’s membership in the UN Human

Even during the later years of Donald Trump’s administration, which went further than any in decades to punish China, a move like this seemed to be off-limits.

In one case, Trump’s team had reportedly weighed sanctions against some of China’s biggest banks for their ties to North Korea, but ultimately decided against the move because it would have been considered too extreme.

These calculations have changed dramatically in the weeks since Russia’s invasion, especially as China has failed to convince the West of its self-proclaimed neutrality on the war. Beijing continues to insist on its “no limits” partnership with Moscow, promotes Kremlin disinformation through its state media and refuses to criticise the invasion – or call it an invasion at all.

On Thursday, China voted against a successful American-led effort at the United Nations to oust Moscow from the UN Human Rights Council.

The US official said Washington was always aware that it had the technical ability to block a major economy’s central bank, even China’s, but what was less clear was whether it was politically possible.

“The recent actions have shattered previous playbooks on how to impose economic sanctions,” said John Smith, former director of the Treasury Department’s office of foreign assets control, which oversees US sanctions policy.

“Once politicians see this, you can imagine that they would want to demand it any time they have a political disagreement with another jurisdiction,” said Smith, who now helps lead the law firm Morrison & Foerster’s national security practice.

US lawmakers and officials have already begun to show signs of this shift. One bill in Congress would essentially kick China’s biggest banks out of the global financial system if any are found to be helping undermine the sanctions on Russia. Another bill, introduced before the war began, would require sanctions against China’s biggest banks and its central bank if the mainland attacked Taiwan.

At the same time, the US commerce secretary has threatened that the United States could “essentially shut” down China’s biggest semiconductor manufacturer, SMIC.

Biden’s top foreign policy officials have warned of severe consequences if Beijing helps Russia with the war, though they have not said what exactly those consequences would be.

China’s economy is vastly bigger than Russia’s, and it is much more integrated in the US and global economies.

Some observers question whether similar sanctions against Beijing would backfire.

But if China were to follow in Russia’s footsteps and start a war, or be caught actively helping the Kremlin with its attacks in Ukraine, those concerns may not matter to policymakers in the heat of the moment.

“What does it mean that we’ve frozen Russian central bank assets?” asked David Dollar, who served as the Treasury Department’s envoy in China during Barack Obama’s administration.

“I tend to side with the part of the debate that’s relatively sanguine,” he said. “The lesson is, if you invade your neighbour, you might be cut off from the dollar system, so don’t invade your neighbour.”

US President Joe Biden speaks with Chinese leader Xi Jinping on March 18

Both US and EU leaders used recent conversations with Chinese leader Xi Jinping to warn of the economic catastrophe that could result from supporting Russia militarily.

Just four weeks ago, top EU diplomat Josep Borrell expressed a belief that “only China” had the power to negotiate a settlement – but last week, in the cold light of day, even the dovish Spaniard had given up hope.

“China will, for the time being, not engage actively to bring about an end to Russia’s war against Ukraine,” he said. “The best we can realistically aim for is that China does not move into a more active pro-Russian stance.”

In Brussels, the Russia-China relationship has managed to alienate even the most dovish of voices: pro-engagement lawmakers and officials now frequently talk of the two authoritarian countries in the same breath. Both political parties in Washington are already aligned in their deep distrust of Beijing.

“The future of EU-China relations will be determined to a significant degree by China’s approach to the war in Ukraine,” said Janka Oertel, director of the Asia programme at the European Council on Foreign Relations. “If China openly undermines the sanctions regime that has been imposed there will be consequences. This could not be clearer now.”

The growing US-EU alignment has not gone unnoticed in Beijing, where Chinese officials and state media have lashed out at Europe for being a puppet of the US. Those comments may have antagonised Brussels even further.

“We condemn Russian aggression against Ukraine and support this country’s sovereignty, democracy, not because we follow the US blindly, as sometimes China suggests but because it is our position,” Borrell said last week in response to the summit between the EU and Beijing on April 1.

“This was an important message for the Chinese leadership to hear.”

Observers say China is worried by the EU’s collaboration on Russian sanctions not just with the US, but also Japan, South Korea and other Asian countries. Officials in Washington and Europe say their close cooperation is why the sanctions have been so effective.

“I am sure China is paying very close attention and is surprised that such harsh sanctions were imposed on Russia so quickly,” said Victor Shih, an expert on Chinese central bank policies at the University of California San Diego.

“China is even more vulnerable than Russia to a freeze of its foreign exchange reserves,” he said.

Behind the scenes, EU officials say the allies are closely cooperating on any potential circumvention of sanctions by China, sharing intelligence and calibrating responses.
It amounts to what is frequently described as a “defining moment” for China’s ties with Europe.

“We’re looking more carefully at what they’re doing in terms of financial support for Russian banks,” said one EU official, who added that while US secondary sanctions would kick in “automatically” if China is found to circumvent embargoes on Russia, Brussels has yet to decide what it would do.

Experts say China is certainly making moves to protect itself from a future where the US and its allies unite to sanction its enormous economy. Less clear is whether those protective moves would work, if Beijing found itself targeted by a majority of the world’s economic powers all at once.

China holds more than US$3.3 trillion in foreign currency reserves, comprising dollars, Euros, Japanese yen and other currencies.

“Given the gigantic size of China’s holdings of these assets, it is impossible for it to divest without drawing global attention,” said Hui Feng, author of The Rise of the People’s Bank of China: The Politics of Institutional Change. “But keeping these assets are risky from Russia’s lesson.”

Authors: Jacob Fromer, Finbarr Bermingham, SCMP

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