Chinese companies evade sanctions, fuel Moscow’s war on Ukraine, says report

PRC semiconductor exports curiously rose 19% y-o-y for first 9 months of 2022

Chinese companies, including state-owned defense companies, are evading tech sanctions and fueling Moscow’s war in Ukraine, according to a US report released on Thursday.

US export controls against Russia apply to made in the USA tech, but also items produced abroad if they are made with US software, technology or equipment. Sanction violations of the latter are often difficult to track because of the downstream nature of the end product.

The report, titled quite descriptively Support Provided by the People’s Republic of China to Russia, comes from the Office of the Director of National Intelligence (ODNI) and was published by the US House of Representatives Permanent Select Committee on Intelligence.

“Beijing is pursuing a variety of economic support mechanisms for Russia that mitigate both the impact of Western sanctions and export controls,” states the report.

ODNI asserts foremost that the People’s Republic of China (PRC) is “probably” supplying Moscow’s war with key technology and dual-use equipment.

In order to back up its claims, the report cites both Chinese and Western press as saying that many shell companies, as well as small and medium sized businesses with less than 300 employees, in Hong Kong serve as receptacles for secondary sales of chips to Russia. ODNI also refers to a Japanese media report stating that hundreds of millions of dollars' worth of US made or branded semiconductors are finding their way into Russia, despite sanctions.

Furthermore, it says, United Nations Comtrade database numbers showed that in the first nine months of 2022, PRC semiconductor exports to Russia increased by 19 percent year-on-year, thus at least partially offsetting the entire year’s 54 percent decrease in global semiconductor exports to Russia and Belarus.

Other equipment allegedly sent to Moscow includes drone parts, of which it claims $12 million worth was shipped as of March, navigation equipment, jamming technology, and fighter-jet parts from state-owned companies.

According to ODNI, Beijing has also enhanced its financial infrastructure with Russia to allow commercial entities to transact in a way that remains unfettered by the west.

China has denied mulitple times that its companies are sending equipment to Russia in violation of sanctions.

“China does not sell weapons to parties involved in the Ukraine crisis and prudently handles the export of dual-use items in accordance with laws and regulations,” said former minister of foreign affairs Qin Gang in May of this year.

ODNI did give Beijing the benefit of the doubt by stating that the intelligence community “lacks sufficient reporting to assess whether Beijing is deliberately inhibiting United States government export control end-use checks.” ®

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