The Financial Times reported on Feb. 27 that Chinese companies already sanctioned by the United States, such as Huawei and SMIC, may help Russia evade sanctions in semiconductors and telecommunications over the series of restrictions the Biden administration announced on Feb. 24.
According to the Atlantic Council, one possible economic sanction could be a Russia-focused Foreign Direct Product Rule (FDPR). The U.S. used the same rule in 2019 to stifle Chinese tech giant Huawei. It would restrict Russia’s ability to source or use the U.S.–made technology. The FDPR has the potential to cripple its targets’ ability to obtain critical items manufactured using U.S.–origin technology.
Despite these far-reaching U.S. sanctions, some Chinese companies, particularly those sanctioned by the U.S., may assist Russia in circumventing export controls.
CNBC reported that if Russia could not obtain products made by the biggest chipmakers like TSMC and Samsung, SMIC would be a good option.
The U.S. blocked SMIC in 2020 due to users classified as military-linked, preventing it from acquiring advanced manufacturing equipment from U.S. suppliers. However, SMIC continued development by purchasing older technology.
According to the Semiconductor Industry Association, China’s current semiconductor production only accounted for about 16% of the global supply in 2020. A senior U.S. Biden administration official mentioned in the Financial Times on Feb. 27 that he did not believe that China would help Russia to evade U.S. sanctions. China alone cannot meet all the needs of the Russian military, especially if it is a product related to semiconductors.
On Sunday, the Chinese New York Times reported that it’s a dilemma for Chinese companies to join the sanctions against Russia.
According to Ma Yongzhe (Martin), China has a law that imposes penalties on companies that comply with extraterritorial sanctions from countries like the U.S., making it difficult for Chinese companies to do so. So if they don’t comply with U.S. regulations, they could run into trouble in the U.S. But if they don’t comply with Chinese regulations, they could face penalties in China.
The Financial Times also cited an analysis that Chinese state-owned banks continuing to provide loans to Russia may also be at risk. Although China’s major banks have begun withdrawing their investments from Russia, China may still allow smaller state-owned banks to support Russia. However, these banks do not have much international business that requires U.S. dollars.
Bloomberg reported on Feb. 26 that at least two large state-owned banks in China, the Industrial and Commercial Bank of China (ICBC) and the Bank of China, have imposed restrictions on trade financing for Russian commodities. However, it may be a temporary measure.