When U.S. officials looked for ways to punish Iran for supplying Russia with drones for the war in Ukraine, they soon encountered a problem: The Iranian manufacturer of the pilotless aircraft had already been hit with Washington’s toughest financial penalties.
The Chinese network was responsible for the sale and shipment of “thousands of aerospace components” to Iran, including some that can be used in unmanned aerial vehicles (UAVs) such as those that ended up in Russia, Treasury said.
More sanctions against Chinese manufacturers could be on the way. The Biden administration warned recently that China, for the first time, had been considering the provision of lethal aid to the Russian military. On Monday, Chinese President Xi Jinping arrived in Moscow for three days of talks with Russian President Vladimir Putin on a range of subjects, including the war in Ukraine.
The United States would likely respond to a stepped-up Chinese military aid effort by punishing the specific Chinese companies and financial institutions involved, as it did earlier this month, analysts said. Any U.S. sanctions in response to Chinese arms shipments are likely to be more limited than the crushing package deployed against the Russian economy last year after Russia invaded Ukraine.
“I do think this move is indicative of the direction of U.S. sanctions policy,” said Edward Fishman of Columbia University, a former State Department official. “For months, U.S. officials have made clear that they would use sanctions against any firm involved in aiding Russia’s military-industrial complex, regardless of where the firm is located. They have made good on this threat.”
U.S. officials have said they have intelligence indicating that Beijing is considering providing arms to Russia, which Secretary of State Antony Blinken warned would be “a serious problem” for relations with Washington. So far, Xi has confined his support for Moscow to rhetorical backing and an offer to broker a peaceful settlement with Ukraine, which the government in Kyiv has rejected as a nonstarter.
On Monday, as Xi and Putin met in Moscow for more than four hours, John Kirby, a National Security Council spokesman, said it remained unclear whether Beijing planned to provide lethal arms to its ally. “We still don’t believe that China has taken it off the table. We still don’t believe and haven’t seen any indication that they’re moving in that direction,” Kirby said.
Fresh U.S. sanctions on any Chinese companies, banks or officials involved in such a move would aggravate an already troubled economic relationship between the United States and China that faces several immediate threats.
Taiwanese President Tsai Ing-wen is scheduled to visit the United States next month, brushing aside protests from China, which claims the self-governing island as its own. A House select committee is criticizing Chinese Communist Party activities in high-profile hearings. And amid some of the slowest economic growth in China in decades, the Biden administration is eyeing new restrictions on U.S. investment in Chinese technology companies, unrelated to the war.
“There are a number of different scenarios that might play out, all of which would further disrupt the relationship,” said Craig Allen, president of the U.S.-China Business Council. “There is a recalibrating and a de-risking going on. That could rapidly accelerate to a higher degree of [economic] decoupling.”
In the March 9 announcement, Treasury targeted a Chinese network it said was supplying Iran Aircraft Manufacturing (HESA). The Tehran-based aerospace company produces armed drones, including the Shahed-136 that Iran has sold Russia.
In 2008, the United States placed the Iranian company on its blacklist of “specially designated nationals” over its support for the Iranian Revolutionary Guard Corps. The action barred any person or company in the United States from dealing with the manufacturer.
One of the Chinese companies sanctioned this month, Hangzhou Fuyang Koto Machinery, used a front company in Hong Kong to ship aerospace components, including light aircraft engines, worth “millions of dollars” to HESA, Treasury said.
“Iran is directly implicated in the Ukrainian civilian casualties that result from Russia’s use of Iranian UAVs in Ukraine,” said Brian Nelson, undersecretary of Treasury for terrorism and financial intelligence. “The United States will continue to target global Iranian procurement networks that supply Russia with deadly UAVs for use in its illegal war in Ukraine.”
That announcement was not an isolated action. In late January, when the United States sought to thwart the Russian Wagner Group’s military campaign in Ukraine, it went after a Chinese company that Washington said had provided the paramilitary outfit with satellite reconnaissance photos for battlefield use.
Treasury formally designated Spacety, a Changsha-based satellite provider, barring U.S. individuals and companies from doing business with it. Spacety satellites gathered images of locations in Ukraine “to enable Wagner combat operations” there, Treasury said. The company denied the allegations, insisting that its activities “do not involve any military use.”
Mao Ning, a Chinese Foreign Ministry spokeswoman, criticized the sanctions in a news conference earlier this month. “China has all along been firmly opposed to the unilateral sanctions of the U.S. side which violate international law and the basic norms in international relations. We will continue to resolutely safeguard the lawful rights and interests of Chinese companies in accordance with law,” she said.
The United States has stepped up its use of sanctions in recent years, making them a key foreign policy tool. Treasury has blacklisted 398 Chinese companies or individuals over their involvement in Iran, nuclear proliferation, human rights abuses in Xinjiang or repression in Hong Kong, according to a new report by Emily Kilcrease at the Center for a New American Security.
Separate measures bar Americans from buying the securities of 68 companies in the Chinese military-industrial complex, while the Commerce Department “entity list” forbids the transfer of U.S. technology to an additional 603 companies or individuals.
In crafting a future sanctions response, the United States would consider the extent of the military assistance China was providing and how overtly the aid was given, analysts said. Massive shipments of artillery shells by Chinese government armories, for instance, would draw a harsher penalty than uniforms shipped through a third country with no evidence of direct Chinese government knowledge.
“The U.S. would need to judge how extensive the supply of lethal aid is and through what means, what corporate or government entities,” said Thomas Feddo, founder of Rubicon Advisors and a former Treasury sanctions official.
The prospect of further sanctions looms even as doubts have been raised about how well such tools work. Repeated U.S. warnings of financial penalties in the weeks before the Feb. 24, 2022, attack failed to dissuade Putin from striking Ukraine.
The United States froze the assets of the Russian central bank, blocked high-tech goods from reaching Moscow and called upon multinational corporations to leave the country. When the United States and the European Union imposed comprehensive sanctions last year, some economists predicted the Russian economy would shrink by 15 percent.
Instead, Russian gross domestic product fell by just 2.2 percent last year and is expected to grow faster than Germany this year, according to the International Monetary Fund.
U.S. officials insist that sanctions are gradually eroding Russian economic power and military punch. Russian industrial production has fallen for nine consecutive months. The Russian government is running a massive budget deficit. And Putin has been forced to divert money he would prefer to spend on his war machine to economic needs.
“Our economic tools are constraining the Kremlin,” Deputy Treasury Secretary Wally Adeyemo said in speech last month. Some say the high stakes and potential risks make it unlikely that China ultimately will opt to arm the Russians, whom Xi hailed Monday as “good neighbors and reliable partners.”
Scott Kennedy, a China specialist at the Center for Strategic and International Studies in Washington, said Xi wants to preserve strong ties with Moscow. But he also values Chinese trade links to the United States and Europe, which arms shipments would put at risk.
“That would be quite a dramatic change. That would be a fundamental change,” Kennedy said. “Such a momentous decision is unlikely for China to take. The world would look different the day after if they went ahead.”
