By Bloomberg News — China has instructed its companies to disregard US sanctions, an unprecedented move that poses risks to a significant part of its banking sector amid growing tensions between the two largest ec...
By Bloomberg News — China has instructed its companies to disregard US sanctions, an unprecedented move that poses risks to a significant part of its banking sector amid growing tensions between the two largest economies.
In the past, Beijing has openly criticized unilateral sanctions as illegitimate while allowing its major companies to adhere to them, mainly to protect its economy and maintain ties to the US financial system.
However, a recent announcement indicates a shift in strategy. China has directed its firms not to comply with US sanctions targeting private refiners connected to the Iranian oil industry, including the prominent Hengli Petrochemical (Dalian) Refinery Co., which was sanctioned last month.
Within China, state media and academics supportive of the government described this retaliation as a strong but measured response to what they perceive as US overreach. A commentary on the People’s Daily app, affiliated with the Communist Party, referred to this move as “a pivotal step” in curbing what it calls the “long-arm jurisdiction” of the US.
This action by Beijing will challenge the US sanctions framework, which is already under strain as Washington wavers in its approaches to sanctions against Russia, Venezuela, and Iran. With Trump's tough stance against Iran complicating alliances worldwide, China sees this as an opportunity to defend its economic interests while expanding its range of economic strategies.
The Xi administration has increasingly utilized alternative methods, including leverage over rare earth minerals and technology. Just last week, China blocked Meta’s $2 billion acquisition of AI startup Manus, despite the deal being finalized.
“China aims to maintain as many levers as possible,” said Ja Ian Chong, a political science professor at the National University of Singapore, regarding this latest directive. “This should be viewed as part of a broader trend of increased controls.”
China has enacted a blocking measure introduced in 2021 to protect its companies from foreign laws it considers unjust. The refiners, including Hengli and other private entities, have faced asset freezes and transaction restrictions due to US sanctions.
Bankers working with Hengli are trying to make sense of this directive and are seeking clarification from the banking regulator. With public holidays in China this week, they have some time to analyze the situation, alongside the grace period provided by the Treasury Department’s Office of Foreign Assets Control.
Hengli Petrochemical Co., the Shanghai-listed parent company of the sanctioned Dalian refinery, reported in April that it expects to secure a total of 235 billion yuan ($34.4 billion) in bank credit this year, partly on a revolving basis.
China’s private refiners have shown a willingness to navigate US sanctions, taking advantage of discounted oil from Iran, Russia, and Venezuela. While the sector includes major players like Hengli, it generally relies less on the US financial system than large state-owned refiners. However, key industry players maintain close relationships with major state banks.
Banks can find workarounds, such as conducting transactions in yuan to make them less visible to US authorities. Under the blocking order, companies can also seek exemptions from the rules, which may be granted if compliance would lead to significant hardship.
“The specifics of the prohibition order mainly target US sanctions on particular Chinese companies,” said Ji Wenhua, a law professor advising the Commerce Ministry. “Its main aim is to negate their legal effects within China rather than escalate to more aggressive responses.”
China's Commerce Ministry stated that US sanctions unjustly restrict normal trade with other countries and violate international standards, leading to the announcement of a ban on recognizing or complying with sanctions against the five companies.
“The Chinese government has consistently opposed unilateral sanctions not authorized by the United Nations or grounded in international law,” the ministry added.
While this blocking measure is unlikely to disrupt the upcoming Xi-Trump summit, analysts from Eurasia Group suggest that the response from Washington will determine if tensions increase.
“The refineries primarily deal with Chinese banks that haven’t faced direct sanctions yet,” noted the analysts led by Dominic Chiu. “If the US extends sanctions to these banks or significant state-owned entities, Beijing would likely retaliate more forcefully.”
China has long been the largest buyer of Iranian oil, often using indirect channels and private refiners to bring it in, later processing it into gasoline and other products. Official Chinese customs data does not capture this trade, with the last recorded shipment occurring several years ago.
Unlike earlier efforts that focused on smaller Chinese firms, Washington's strategy to cut off Iranian oil revenue now includes larger companies like Hengli, which is considered one of the most advanced private refiners, boasting a vast oil-processing and chemicals facility in Liaoning province.
Cui Fan, a former advisor to the Commerce Ministry, emphasized that Beijing needs to respond as the US continues targeting various Chinese industries connected to Iranian oil, warning that these actions have become increasingly disruptive since 2025.
“The range of these sanctions keeps expanding, and their enforcement has intensified, indicating a trend towards further escalation,” he wrote in an opinion piece for a state-run magazine. “If this pattern continues, it will jeopardize China’s energy supply chain and undermine its energy security and development goals.”