Before Secretary of State Antony Blinken’s visit to China, the United States took another significant step. After the U.S. House of Representatives passed a major bill including provisions to provide funding for Ukraine, Israel, and Taiwan, as well as to ban TikTok in the U.S., the bill was also passed by the U.S. Senate on April 23. It will soon be sent to President Biden, who signed it on April 24, making the bill effective.
The passage of the bill demonstrates the firm support of the United States for Ukraine, Israel, and Taiwan. This also means that any regime supporting Russia, Iran, or Hamas will become targets of U.S. actions. This serves as a strong warning to the Chinese regime, which supports these three entities.
On the same day, the U.S. also reportedly drafted a sanction proposal, threatening to cut off some Chinese banks from the global financial system by kicking them out of the SWIFT system. These banks were allegedly helping Chinese companies aid Russia’s aggressive war.
Currently, over 11,000 financial institutions from more than 200 countries use the SWIFT international banking transfer system. As there is no globally recognized alternative, SWIFT remains the most important channel for global financial transactions. In the past, the U.S. government has wielded significant influence over SWIFT, having expelled North Korea and Iran from the system to cut off their financial ties with the outside world.
Following Russia’s invasion of Ukraine on February 24, 2022, the U.S. and Europe jointly announced sanctions to remove selected Russian banks from the SWIFT system. Restrictive measures were implemented to prevent the Russian Central Bank from undermining the impact of the sanctions. Actions were taken against individuals and entities supporting the war and harmful activities of the Russian government, restricting the sale of citizenship and blocking them from entering the U.S. and European financial systems.
With nearly 300 Russian financial institutions using the SWIFT system, more than half of Russian credit institutions are members. The heavy sanctions imposed by the West have effectively cut off all of Russia’s international trade, leading to a significant devaluation of the ruble and massive capital outflows. The U.S. and Europe have escalated financial and asset sanctions on Russia, dealing a severe blow to the country.
After the U.S. and Europe expelled Russian banks from the SWIFT system, China declared that it would not participate in such sanctions. Subsequently, Russian banks began turning to the Chinese state-owned UnionPay system for connections. With multiple infusions of blood from China over the past two years, Russia has sustained its economy and war efforts.
The U.S. and Europe have long been aware of China’s support for Russia and have issued multiple warnings to the two-faced regime. In March 2022, U.S. National Security Advisor Sullivan expressed concerns to senior Chinese officials about Beijing standing with Moscow and the potential consequences, which could affect Beijing’s relations worldwide, including with U.S. allies and partners in Europe and the Indo-Pacific region.
In April of the same year, the U.S. House of Representatives overwhelmingly passed a bill titled “Assessing Xi’s Interference and Subversion Act” introduced by Republicans. This bill, also known as the “Axis Act,” is likely setting the stage for future sanctions against the evil axis.
In 2023, Blinken stated in an interview with CBS that if China truly provided lethal assistance to Russia, it would face “serious consequences.”
The roles played by China in the Russia-Ukraine conflict have been evident over the past two years. While pretending to be neutral, China has supported Russia politically, economically, in the media, and militarily. However, the U.S. possesses evidence of China’s military support for Russia, with some U.S. officials privately indicating that China’s support has approached the threshold of “lethal aid,” including ammunition and weapons. Consequently, the U.S. has issued sterner warnings to China.
During Treasury Secretary Yellen’s visit to China on April 6, she emphasized that Chinese companies must not provide substantial assistance to Russia in its war on Ukraine, including support for the Russian defense industry, or face severe consequences. This public stance marks a significant shift in U.S. policy.
Warnings and appeals from Yellen and Blinken appear to be the final ultimatum, indicating that if China continues its duplicity, the U.S. will make China bear the consequences. This could involve publicly exposing and freezing Chinese and elite officials’ overseas assets, as well as potentially kicking some Chinese banks out of the SWIFT system. How will the top Chinese leadership handle this potential upheaval?
They are likely very concerned. If major banks are removed from the SWIFT system, it would mean losing international payment capabilities and international business opportunities, causing significant damage. Take the example of Kunlun Bank.
Before 2012, Chinese banks such as China CITIC Bank, ICBC, Quzhou Bank, and local branches of Bank of China could accept credit from Iran. However, due to the risk of policy implications following U.S. sanctions on Iran in 2012, these banks ceased business dealings with Iran to avoid being expelled from the SWIFT system. Finally, Kunlun Bank became the sole channel for domestic enterprises to trade with Iran.
In July of that year, the U.S. Treasury Department announced sanctions on Kunlun Bank, severing its ties with the U.S. financial system, prompting any U.S. financial institutions holding accounts with the bank to close them within 10 days. Subsequently, the U.S. shut off Kunlun Bank’s USD settlement channels, forcing it to only conduct Euro and RMB transactions. Kunlun Bank was also compelled to halt international business operations outside of Iran until sanctions were lifted.
On August 12, 2020, several Chinese media outlets reported that prominent adviser to China’s top leadership, Yu Yongding, warned at a summer summit hosted by the Beijing Daily Economic Observer that if financial disputes arose between China and the U.S., America could not only sanction Chinese banks but also freeze the CCP’s overseas assets. He cited Kunlun Bank as an example, highlighting the severe consequences for a company unable to use USD settlement systems for its international business operations.
Therefore, if the U.S. were to sanction the China UnionPay system, condemning Chinese state-owned banks and financial institutions to financial “execution” by kicking them out of the SWIFT system, what kind of social and internal shockwaves would this trigger in mainland China? Can the top Chinese leadership withstand such consequences?
It is likely they are extremely fearful. If major banks are unable to utilize the SWIFT system, it would signify the loss of international payment functions and business opportunities, resulting in significant harm. This is a scenario the Chinese leadership should be wary of.
Blinken’s upcoming visit to China is likely to issue a stern warning to Beijing against continuing its support for Russia. If this support persists, the U.S. will unleash severe consequences. How will the Beijing authorities choose to respond? Regardless of their decision, the predetermined fate may prove unchangeable.