Welcome back to the China In Eurasia briefing, an RFE/RL newsletter tracking China’s resurgent influence from Eastern Europe to Central Asia. Subscribe here.
I’m RFE/RL correspondent Reid Standish and here’s what I’m following right now.
An Evolving Fight On Sanctions
Chinese banks have tightened their restrictions on payments from Russia out of fear of triggering U.S. secondary sanctions.
Will this make an impact in choking off Russia’s war machine?
Finding Perspective: The latest batch of information on this comes from the Russian newspaper Kommersant, which reported at the end of July that trade between Russia and China is getting ever more difficult, with some payments between partners taking up to six months to be processed.
About 80 percent of bank transfers made in the Chinese yuan are also getting bounced back with no explanation after being stalled for weeks while banks decide whether they can go ahead, the newspaper reported, citing anonymous sources.
This follows a report from July 17 by Bloomberg in which several major Russian commodity exporters said that trade with China had become increasingly difficult due to direct payments made in the Chinese yuan getting stuck indefinitely or delayed.
In June, the Russian division of the Bank of China stopped processing yuan payments with Russian banks that had been sanctioned by the U.S. Treasury Department.
The Industrial and Commercial Bank of China (ICBC), China CITIC Bank, and most other large Chinese lenders have made similar moves.
How Did We Get Here? Beijing has emerged as a top partner for Russia since its full-scale invasion of Ukraine, with analyses of Chinese customs data showing that in 2023 90 percent of dual-use goods deemed “high priority” and used to make Russian weapons came from China.
The United States and its allies have been intensifying restrictions in recent months after multiple senior U.S. officials said that the supply of dual-use goods by China has had a substantial impact for Russian forces on the battlefield.
This latest round of pressure originated back in December 2023 when the United States authorized secondary sanctions targeting financial institutions involved in trade linked to Russia’s military industry.
This prompted global banks from China to the United Arab Emirates, Turkey, and Austria to reduce transactions with Russia to avoid getting in the crosshairs.
The payment issues were also exacerbated in June when the U.S. Treasury rolled out a new package of expansive sanctions against Russia for its full-scale invasion of Ukraine, forcing the Moscow Exchange to halt dollar and euro trade.
Why It Matters: Sanctions and finding ways around them is a constant game of cat and mouse.
In early July, a top Russian banker said the sanctions-evading methods should be made a “state secret” because they kept getting shut down so fast.
Andrei Kostin, the head of Russia’s second largest lender VTB and the banker who made those comments, called for a greater use of cryptocurrencies and other digital assets to facilitate payments, something that Bloomberg reported is increasingly being done in Hong Kong via Central Asia-based intermediaries at a growing frequency.
Worried about being targeted by U.S. secondary sanctions, China’s big banks have limited their cross-border transactions involving Russia and Russian firms of late, with Chinese companies that trade with Russia instead moving to smaller banks or underground financing channels that are difficult to track and have less exposure to the international financial system.
Tom Keatinge, director of the Center for Financial Crime and Security Studies at the Royal United Services Institute, told me that this makes up a “burner bank strategy.”
This is where China’s trade with Russia becomes concentrated increasingly into institutions that are unlikely to have a contagion effect on the country’s economy and that also are set up with no need for access to the international banking system and thereby limit the reach of U.S. sanctions.
Three More Stories From Eurasia
1. Brazil, China, And The Ukraine War
Beijing announced that a joint Brazilian-Chinese plan to end Russia’s war against Ukraine has received a “positive response” from more than 110 countries.
The Details: The August 1 statement came following a visit to Brazil by Li Hui, China’s special envoy for Eurasian affairs, where he met with multiple high-ranking Brazilian officials.
China and Brazil jointly published a “six-point consensus” meant to bring about a lasting political solution to the war.
At the beginning of May, Li made a series of visits to countries across the Global South, as did Brazilian officials, as they crafted this new set of proposals.
China’s previous attempt to mediate between Russia and Ukraine, with a 12-point plan it put forward in February 2023, was quickly dismissed by European leaders.
Brazilian President Luiz Inacio Lula da Silva has strong working ties with China and looked for his country to play a role in pushing for a peace process to end the war in Ukraine.
The six-point plan is a fairly bland diplomatic outline that calls for cooling down fighting on the battlefield and a recognition that dialogue and negotiations are the only way to end the war.
During a July visit to China by Ukrainian Foreign Minister Dmytro Kuleba, he praised China “as a global force for peace” and said that Kyiv was open to peace talks.
But Kuleba also made clear that Ukraine attached conditions to such negotiations, saying it would only engage Russia when Moscow was “ready to negotiate in good faith,” and added that “no such readiness is currently observed on the Russian side.”
2. Boots On The Ground?
As China’s investments in Central Asia have grown over the last two decades, Chinese companies have also faced a growing list of new security challenges.
Odil Gafarov, writing for the Carnegie Russia Eurasia Center, looks at the rise of Chinese private security companies (PSCs) in the region.
What You Need To Know: This phenomenon is not unique to Central Asia and has already grown in unison with China’s expanding economic footprint in places like Africa and Southeast Asia.
The expansion of PSCs operating in Central Asia have gone hand-in-hand with incidents like clashes between Chinese and local personnel at oil refineries and gold mines in Kyrgyzstan in 2014 and 2019, the 2016 suicide bombing at the Chinese embassy in Bishkek, and numerous anti-China protests in Kyrgyzstan and Kazakhstan over the years.
As Gafarov notes, these companies offer “both armed and unarmed site protection, security consulting, safety training, insurance provision, and logistical support.”
The report notes that most of the companies do not fit the connotation of private security personnel operating in tactical gear and instead says that many of the Chinese PSCs prefer to keep their presence less visible.
The number of PSCs operating is also set to grow in the coming years and line up with other aspects of Chinese foreign policy in Central Asia.
“It aligns with China’s modern security diplomacy, police/paramilitary cooperation, and recently adopted Global Security Initiative. From this perspective, these entities potentially present an attractive instrument for advancing Beijing’s geopolitical agenda,” the report stated.
3. Drone Clampdown
The Chinese Commerce Ministry announced that it will ban the export of all drones that can be used for military purposes starting September 1, RFE/RL’s Ukrainian Service reported.
What It Means: Small and affordable consumer drones, many of which can even be bought online or off the shelf, have become a staple of the war in Ukraine for both Kyiv and Moscow for reconnaissance and targeted attacks.
This has led to both sides burning through the products at a high rate and constantly needing to replenish their stocks. China is the largest manufacturer of consumer unmanned aerial vehicles.
While the latest announcement points to the added scrutiny from the West against Chinese companies over the flow of dual-use equipment to the battlefield in Ukraine, it’s unclear if this move will make a significant impact.
DJI — the preeminent Chinese drone maker — first said it would stop doing business in Russia and Ukraine nearly two years ago, yet the flow of its products continues. The Chinese Commerce Ministry has also enacted multiple measures to limit the flow of drones, but both Kyiv and Moscow have managed to secure a continued flow to their forces.
Across The Supercontinent
Previewing Kallas: Former Estonian Prime Minister Kaja Kallas will be taking over as the European Union’s new foreign policy chief, but what does her past record tell us about how she’d deal with China?
The South China Morning Post’s Finbarr Bermingham takes a look here.
Scooting Forward: With a $10 million investment, the Uzbek-Chinese company Ecomoto is scheduled to begin manufacturing electric scooters in Uzbekistan.
Beijing’s New Man In Berlin: Deng Hongbo, a seasoned Chinese diplomat with decades of experience in the United States, is slated to be Beijing’s next ambassador to Germany, the South China Morning Post reports.
One Trillion Dollars?: Chinese authorities have rejected a $ 1 trillion proposal made by the International Monetary Fund to use central government funds to complete unfinished housing in China, Bloomberg reports.
One Thing To Watch
U.S. Vice President Kamala Harris has chosen Minnesota Governor Tim Walz as her running mate on the Democratic ticket.
Walz doesn’t bring a great deal of foreign policy experience, but he did live and work in China as an English teacher in 1989. Since then, he says he has visited the country at least 30 times and even speaks some Mandarin. Walz also honeymooned in China with his wife and organized summer educational trips to China for U.S. students.
The Minnesota governor also became an outspoken advocate for human rights in the country, meeting with the Dalai Lama. While teaching, he also visited the Tiananmen Square protests under way in 1989 before the massacre that year.
Walz and his wife also got married on June 4, the anniversary of the Tiananmen massacre of student protesters. When asked why that date was chosen, his wife said it was because Walz “wanted to have a date he’ll always remember.”
That’s all from me for now. Don’t forget to send me any questions, comments, or tips that you might have.
Until next time,
Reid Standish
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