On Wednesday, May 6th, Bloomberg quoted sources as saying that the Chinese financial regulatory authority has proposed that domestic large banks temporarily suspend issuing new loans to five oil refineries in Iran that are under U.S. sanctions.
This suggestion is in stark contrast to the directive issued by the Chinese Ministry of Commerce last week, instructing Chinese enterprises to ignore U.S. sanctions.
According to the report, the China Banking and Insurance Regulatory Commission (CBIRC) has instructed several major domestic banks to review their business dealings with five companies, including Hengli Petrochemical (Dalian) Limited, and assess the risks associated with transactions with these enterprises. Hengli Petrochemical is one of China’s largest privately-owned oil refineries.
Sources indicated that banks have been instructed not to issue new loans to the relevant oil refineries and have also been told not to demand repayment of existing loans.
The report mentioned that this instruction was delivered verbally and was issued before the May Day holiday weekend.
This contrasts with the notice issued by the Chinese Ministry of Commerce on May 2nd. The Ministry explicitly directed companies to disregard U.S. sanctions, marking the first-time China has implemented the so-called “Blocking Statute” against foreign laws and measures.
Bloomberg noted that these conflicting measures highlight the balancing act Beijing faces – attempting to demonstrate a confrontational stance towards the Trump administration while also protecting its largest state-owned banks from secondary U.S. sanctions.
President Trump of the United States and Chinese leader Xi Jinping are set to hold a meeting next week in Beijing (14th to 15th). Prior to this, tensions between the U.S. and China have been escalating.
The U.S. has been intensifying efforts to cut off Iran’s oil supply, which is crucial for Iran’s financial lifeline. Approximately 90% of Iran’s oil destinations are in China.
At the end of April, the U.S. Department of the Treasury sanctioned companies including Hengli Petrochemical, Shandong Shouguang Luqing Petrochemical, Shandong Jin Cheng Petrochemical, Hebei Xinhai Chemical, and Shandong Xingxing Chemical for assisting in the sale of Iranian oil. These companies reportedly purchased billions of dollars worth of Iranian oil.
Scott Bessent, the U.S. Treasury Secretary, has reportedly sent letters to two Chinese banks warning of the risk of secondary sanctions if they are found supporting Iranian-related transactions. He did not disclose the names of these two banks.
According to Bloomberg data, the four major state-owned banks in China, including Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, and Bank of China, provided loans to Hengli in 2018, but these banks did not publicly disclose their exposure to Hengli’s risks.
The report pointed out that China has often criticized U.S. unilateral sanctions in the past while quietly allowing its largest state-owned enterprises to comply with the sanctions to avoid economic repercussions. China’s major state-owned banks have consistently complied with U.S. sanctions on Iran, North Korea, and even high-ranking officials in Hong Kong to avoid losing access to the U.S. dollar settlement system.
In previous incidents, Beijing attempted to transfer transactions related to Iran through Bank of Kunlun, a subsidiary of China National Petroleum Corporation (currently under sanctions), to prevent major financial institutions from being impacted.