Speaking Out | It's Time for Financial Sanctions on China

Russia is dodging Western financial sanctions. Its consumer price inflation rate is now in the 7% range, lower than the 8% range before the Ukraine war. Behind this low rate is support from China.

China's exports to and imports from Russia have increased by more than 60% from levels before the war. Across the long Sino-Russian border or via third countries, China provides Russia with not only daily necessities, but also semiconductors and other high-technology products for military and civilian use, military-related equipment, and trench-digging machines.

Russia can acquire foreign currency using China's yuan settlement system and the international financial market in Hong Kong. As a result, the Russian ruble has gradually appreciated against the US dollar since the autumn of 2023. This contrasts sharply with the Japanese yen for which depreciation against the dollar continues to accelerate.

High-Priced Crude Oil Supports Russia's War Chest

In fact, China has been buying Russian energy resources at far higher prices than the international market rate. This has contributed to Russia's financial resources for the war. Russian crude oil, which is under a Western trade embargo, is sold on the international market at lower prices than North Sea Brent crude of the same grade. 

Chinese trade statistics show that its Russian crude oil imports totaled $135.9 USD billion from March 2022 to May 2024. Based on my calculations, if the oil had been purchased at international market prices, it would have cost $115.5 billion. This means that China is paying $20.4 billion, or 18%, more than the market rate.

According to the Stockholm International Peace Research Institute, Russia's annual increase in military spending was $36.4 billion in 2022 and $7.1 billion in 2023, for a total of $43.5 billion. China paid $17.6 billion more than the international market price for Russian crude oil over two years from March 2022 to February 2024. Given these figures, it can be assumed that more than 40% of the cost of the Ukraine war was covered by China's Russian crude oil imports purchased at a higher price than the international market rate.

This fact alone shows the enormous impact of the "no limits" partnership promised by Chinese President Xi Jinping to Russian President Vladimir Putin. 

In a communique at the recent G7 summit in Italy, the leaders expressed "deep concern" over China's support for Russia. They also called for China to halt the transfer of dual-use materials to Russia. However, such business-as-usual rhetoric will never move the Xi government.

China's Weak Point

But there is a trump card that could rein in China's support for Russia. This requires cutting off dollar-denominated transactions for China's major commercial banks involved in Russia's payments for military-related materials, oil, and other goods. The Xi administration fears such financial sanctions the most. However, the Biden administration in the United States has been circumspect about imposing such sanctions due to concerns about a negative impact on US financial markets.

China is taking advantage of Russia's upper hand in Ukraine to intensify an offensive against Taiwan, Japan's Senkaku Islands, and the South China Sea. For Japan, the Ukraine war is no longer just a problem for somebody else. Japan's Prime Minister Fumio Kishida government should determinedly push the United States to impose financial sanctions on China.

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(A version of this article was first published by the Japan Institute for National Fundamentals. Find it in Speaking Out #1159 in Japanese on July 1 and in English on July 2, 2024.)

Author: Hideo Tamura

Hideo Tamura is a Planning Committee member at the Japan Institute for National Fundamentals and a columnist for The Sankei Shimbun.