Beijing —
When U.S. Treasury Secretary Scott Bessent announced “Operation Economic Purge” and threatened new sanctions on countries that refuse to stop doing business with Iran, he did not mention China by name, the only country that would decide whether the operation was successful or not.
The world’s second-largest economy has long been a key economic lifeline for the Iranian government, buying up the bulk of its oil exports, estimated to be worth tens of billions of dollars last year, among other trade.
But incorporating it into the White House’s latest effort to quell Iran’s stubbornly rebellious leadership after nearly six months of war is a tall order.
Beijing has flatly rejected what it calls U.S. “unilateral” sanctions and has long defended its right to regular trade with partners such as Iran and Russia. They also speculate that the U.S. government is wary of provoking a broader economic conflict that would harm both countries, just before the U.S. midterm elections.
On Tuesday, following Bessent’s press conference, China’s Foreign Ministry vowed to “take all necessary measures” to protect “its legitimate rights and interests” in the face of the threat of U.S. sanctions.
“Economic warfare and maximum pressure will not help solve problems. They will only further intensify tensions and conflicts, create spillover risks, and disrupt the global economic and financial order,” ministry spokesman Lin Jian said.
Mr. Bessent’s threat comes ahead of Chinese leader Xi Jinping’s long-awaited visit to the United States next month, and the two countries could make progress toward extending a key trade ceasefire that is set to expire later this fall.
US President Donald Trump previously said that he did not ask Xi Jinping for “any favors” regarding Iran during his meeting with him in May, and if this statement is correct, it is likely to give Beijing a whiff of America’s desperation to end the conflict.
What remains now is a careful calculation for both countries about how to navigate what Mr. Bessent said will be a period of “quiet diplomacy,” or a period of informally issuing ultimatums to Iran’s economic partners, which the Treasury secretary did not specifically address at the press conference.
Chinese analysts have suggested there is limited scope for Washington’s demands to be met. “China is unlikely to accept a situation where the U.S. government decides what Chinese companies can legally trade with third countries,” said Zhao Long, director of the Institute for International Strategic and Security Studies at the Shanghai Institute of International Studies.
“This would establish a precedent that U.S. secondary sanctions can effectively determine China’s commercial relations with third countries.”
China intentionally uses the US dollar system and a shadow system insulated from sanctions to import Iranian oil.
Private so-called teapot refineries buy and process U.S.-sanctioned Iranian crude, relying on a network of ports, financial institutions and tankers that are often also firewalled from international dangers. China has not publicly recorded such purchases in years, ever since the first Trump administration withdrew from the Obama-era Iran nuclear deal and the United States reimposed sanctions on Iran.
But analysts say pressure points do exist.
“If you look at the upstream ownership of these entities, you see that many of them are directly or indirectly held by major Chinese state-owned entities that are deeply embedded in the U.S. dollar system,” said Max Maizlisch, senior research analyst at the Foundation for Defense of Democracies think tank in Washington.
“By sanctioning a subsidiary, the United States can pressure the parent company to sell at the risk of being seen as directly or indirectly providing support to the sanctioned company,” he said.
China’s so-called teapot smelter
Bessent said earlier this year that the U.S. government sent warnings to two unnamed Chinese banks about their roles in Iran-related transactions. Asked at a press conference on Monday what action the United States would take against Chinese banks and shipping companies that violate the law, he said “there is no one above” in the face of U.S. sanctions.
Despite tough negotiations, Beijing has seen the United States threaten sweeping sanctions and then back down. We also know that the U.S. government is acutely aware of China’s significant economic influence over the United States, particularly in the form of China’s control over the world’s supply of strategically important rare earths.
“If the U.S. crosses the threshold[of imposing sanctions on large Chinese banks]China will almost certainly react and the political atmosphere leading up to the[Trump-Xi]summit will deteriorate sharply,” said Sun Chenghao, a senior fellow at the Center for International Security Strategy at Tsinghua University in Beijing.
While such measures might not automatically cancel the talks, “they would move the summit from stabilization to damage control,” he said.
The two countries will consider the impact of the escalation on the summit, which is scheduled to be Xi’s first state visit in 11 years.
Beijing does not want to be seen as cooperating with a sanctions regime it opposes, but cautious measures could be taken, including quietly cutting back on oil purchases, elevating its political message against Tehran, and efforts to encourage restraint.
China’s purchases of Iranian crude oil have already fallen significantly compared to last year, as the US economic blockade has curbed Iranian oil exports.
Chinese analysts have also suggested in recent weeks that Washington and Beijing have overlapping interests, particularly in restoring trade flows in the conflict-stalled Strait of Hormuz and restoring stability in the broader region that also feeds into trade.
And in recent days, the Chinese government has reiterated its message of restraint and normal operations around the strait.
In a joint statement after meeting with Jordan’s King Abdullah II in Beijing on Monday, Xi called for the restoration of “normal traffic” through the strait and a “comprehensive solution” to the dispute.
Last week, Chinese Vice Foreign Minister Miao Deyu hosted Iranian officials in Beijing and said that China was “actively working to promote peace negotiations.”
Still, Beijing has shown caution in playing a direct mediating role in disputes, preferring to defend its economic interests and projecting an image as a stable power supporting peace in the region, in contrast to Washington’s vacillations.
Zhao said in Shanghai that any cooperation with the United States in restoring peace in the region “should not be reduced to ‘curating favors for Mr. Trump.'”
“The Chinese government intends to actively contribute to ending the crisis, but it does not intend to become an instrument of the U.S. government’s maximum pressure strategy.”
