The U.S. is drafting sanctions that threaten to cut some Chinese banks off from the global financial system

The U.S. is drafting sanctions that threaten to cut some Chinese banks off from the global financial system.

The United States has had preliminary discussions about imposing sanctions on certain Chinese banks but currently does not have a concrete plan to do so, a U.S. official told Reuters on Tuesday. This comes as part of Washington's efforts to curb China's support for Russia.
The official, speaking anonymously, stated that there are no immediate plans to impose sanctions on Chinese banks and expressed hope that diplomatic efforts will prevent the need for such actions. Secretary of State Antony Blinken is scheduled to visit China this week.
A report by The Wall Street Journal on Monday, citing sources familiar with the matter, claimed that the U.S. was preparing sanctions against certain Chinese banks to hinder Beijing's financial support for Russia's military activities.
Neither the White House nor the Treasury Department immediately responded to requests for comment.
In recent weeks, U.S. officials have increased pressure on China, warning that the U.S. is prepared to take action against Chinese financial institutions facilitating trade in goods with dual civilian and military applications.
On Friday, Blinken criticized China for its support of Russia's defense industry, stating that Beijing plays a significant role in Moscow's war in Ukraine by providing crucial components for weaponry.
Sanctions that restrict banks' access to the dollar – widely used in global trade – are typically considered a last resort, as they can lead to the failure of banks.
Such measures could pose a significant risk to China, given its sluggish economic recovery and mounting debt.
The Wall Street Journal report did not specify which types of banks might be targeted, a crucial factor in determining the extent of the impact on China's economy or its ability to support Russia economically.
While the U.S. has imposed sanctions on smaller Chinese banks in the past, such as the Bank of Kunlun, over various issues, including collaboration with Iranian institutions, it has been hesitant to sanction major Chinese banks – a move analysts have long considered a "nuclear" option – due to its potential massive repercussions on the global economy and U.S.-China relations.

A spokesperson for China's foreign ministry stated on Tuesday that China strongly opposes the U.S. making "groundless accusations" about normal trade exchanges with Russia.
"We firmly oppose the hypocritical behavior of the U.S. in pouring fuel on the fire while blaming China," said Wang Wenbin at a regular news briefing when asked about potential sanctions.
"China's right to conduct normal economic and trade exchanges with other countries, including Russia, is inviolable," Wang emphasized.
The People's Bank of China and the National Financial Regulatory Administration, China's top banking regulator, did not immediately respond to Reuters' requests for comments.
Following the Ukraine conflict, China and Russia have increased trade in yuan instead of the dollar, potentially shielding their economies from possible U.S. sanctions. In response to Moscow's invasion of Ukraine in February 2022, the United States and other Western countries imposed extensive sanctions on Russia's financial system.
Several banks in China, the United Arab Emirates, and Turkey have heightened their sanctions compliance requirements, resulting in delays or rejections of money transfers to Moscow, as reported by Reuters in March. These delays underscore how U.S. restrictions can have far-reaching effects.
Cautious of sanctions, banks have begun asking clients to provide written assurances that no individual or entity from the U.S. SDN (Special Designated Nationals) list is involved in a deal or is the recipient of a payment.