Washington’s sanctions weapon is meeting a market too large to isolate – and a legal order Beijing now appears willing to enforce
By Cynthia Chung
Originally published on The Cradle May 14, 2026.
When US President Donald Trump visited Beijing on 14 May, flanked by top American industrialists, the optics told their own story. Washington came armed with tariffs, secondary sanctions, port fees, and threats over maritime chokepoints. But the executives at Trump’s side revealed the weakness behind the pressure campaign – the US cannot cut China out of the global economy without cutting into itself.
That confrontation explains why Trump’s Beijing delegation mattered. The presence of American executives from finance, technology, manufacturing, and logistics was not a show of US strength alone. It was an admission that corporate America still needs the Chinese market, supply chain, and payments ecosystem at the very moment Washington is trying to discipline all three. That contradiction now sits at the center of the present global crisis.
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Beijing draws its legal lines
That is the real context for Beijing’s new legal architecture. On 7 April 2026, the Chinese State Council promulgated Decree No. 834, the Regulations on the Security of Industrial and Supply Chains. Less than a week later, on 13 April, it issued Decree No. 835, the Regulations on Countering Foreign Improper Extraterritorial Jurisdiction. Both took effect immediately.
Together, these measures mark a shift from reactive Chinese complaints about US overreach to a formal countersanctions framework that can target commercial conduct, regulatory compliance decisions, cross-border legal conflicts, and foreign attempts to impose unilateral rules on Chinese entities.
Beijing has turned Washington’s sanctions regime into a legal battlefield, arming itself to punish the governments, firms, and institutions that enforce US extraterritorial pressure.
This is why the US war against Iran now carries consequences far beyond West Asia. It is testing the dollar’s role as the currency of global oil trade and accelerating the emergence of Chinese-backed payment channels designed to bypass the western financial system. As Iran holds firm over the Strait of Hormuz, negotiations are taking shape for yuan-traded oil in return for safe passage through the waterway.
Iran’s parliament has also officially approved the implementation of tolls of up to $2 million on oil vessels transiting through the strait, which are also likely to be paid in yuan.
Deutsche Bank has stated that the Iran war could be the making of the petroyuan. That would signify the end of US dominance over global finance and trade, and with it, Washington’s self-appointed role as the world’s policeman.
The petrodollar is the foundation of dollar dominance in world trade. It sustains the dollar as the global reserve currency and gives Washington its ‘big stick’: the ability to weaponize sanctions, isolate individuals and institutions, and cut entire states off from global commerce.
In response to this threat, the US Treasury Department has issued another warning: any financial institution caught supporting Iran may face secondary sanctions. At this stage, the policy resembles economic carpet bombing.
Beijing stops playing defense
The threat is aimed largely at the alternative systems China has used to circumvent US sanctions on Russia, Venezuela, and Iran. Since Iran came under heavy sanctions, Beijing has been developing modes of trade that bypass the sanctions laws of the western financial system.
In fact, China does not legally recognize unilateral sanctions on countries, having passed the Anti-Foreign Sanctions Law (AFSL) in June 2021.
Chinese individuals and businesses can still be cut out of the western financial system by US measures. Beijing cannot prevent Washington from weaponizing access to US-controlled networks. But the Chinese state does not recognize those measures as lawful and refuses to enforce them.
In other words, if Chinese institutions find other means of trading with sanctioned entities, including sanctioned countries, the Chinese government will not treat that conduct as a violation.
Decrees 834 and 835 now deepen that posture. China has moved from ad hoc countermeasures to a comprehensive, multiagency countersanctions legal framework capable of addressing commercial conduct, regulatory compliance choices, and cross-border legal conflicts. US sanctions threaten to cut targeted individuals, entities, and states from global trade. But in a world increasingly dependent on Chinese trade, Beijing increasingly holds cards Washington cannot easily match.
Because China rejects the legitimacy of unilateral sanctions – overwhelmingly wielded by the US – it has now created a legal precedent to respond with counter-sanctions. Crucially, this framework now reaches Hong Kong, long treated as too sensitive to fold fully into Beijing’s countersanctions system because of its role as an international legal and financial hub.
The decrees give Beijing a weapon it lacked when the AFSL was passed in 2021: a legal shield for Chinese banks, insurers, ports, shippers, and contractors caught between US pressure and Chinese national security law. Multinationals now face the dilemma Washington has long imposed on others. Obey US sanctions and risk Chinese penalties, or comply with Chinese law and face American retaliation.
That hesitation has become harder to sustain. The war on Iran, the US threat of secondary sanctions, and the pressure campaign over CK Hutchison’s Panama ports have turned Hong Kong from a financial exception into a national security question for Beijing.
Iran oil builds the parallel economy
Out of this pressure has grown a complex network engineered by China and Iran to settle oil payments outside the international banking system. It is, in effect, an oil-for-infrastructure arrangement that blends economic barter with strategic investment, similar to China’s arrangement with Venezuela under President Nicolas Maduro.
In return for Iranian oil, Chinese state-owned companies support Iran’s transport, energy, and infrastructure sectors. Intelligence estimates suggest roughly $8.4 billion moved through this channel in a single year.
This alternative network rests on two core pillars: Sinosure and Chuxin.
Sinosure is a state-owned export credit insurance agency that supports Chinese exporters and overseas investment through risk coverage and financing solutions.
Chuxin is a semi-covert financial entity that manages money flows between Chinese contractors and Iranian oil entities while bypassing the western-monitored banking system.
Much of this Chinese financing takes the form of export credit. Analysts describe the arrangement as a “sanctions-parallel economy” combining insurance tools, project finance, and barter-style settlement. It allows Iranian oil to keep moving while turning western pressure into a pipeline for Chinese-built infrastructure.
Iranian oil reaches China via convoluted maritime routes involving shadowy ship-to-ship transfers and then blends the sanctioned oil with other Asian crude grades, making source tracing difficult. In return, China pays by financing long-term construction projects inside Iran, including airports, refineries, and highways – effectively converting infrastructure into indirect payment for oil shipments.
This cooperation between China and Iran reflects a quiet economic alliance aimed at reshaping the global financial system toward reduced western dependence – generating a parallel economic order based on goods, projects, and alternative financing instead of hard currency controlled by Washington.
Despite the US Treasury’s awareness of this mechanism, it has so far imposed only limited sanctions on smaller Chinese entities. Major players such as Sinosure and Chuxin remain untouched – largely due to their deep entanglement in the global economy. It is the same reason why the US has not sanctioned China as a whole; since China is so crucial to world trade, it would be equivalent to sanctioning most of the world.
China’s trade weight is becoming an umbrella for states subjected to weaponized US sanctions, which are no less destructive than direct acts of war. If this approach continues to expand, it could become a cornerstone of the global shift away from dollar-centered finance toward multi-track economic systems.
Hong Kong and the shadow-bank corridor
Another component of this complex alternative system by the Chinese consists of shadow banking. A Treasury Department analysis found that entities in Hong Kong – most of them likely shell companies – engaged in $4.8 billion in financial activity potentially related to Iranian shadow banking in 2024.
Last year, the US imposed sanctions on five more companies in Hong Kong and one in the mainland Chinese city of Shenzhen for allegedly acquiring western parts and tools for Iranian drones.
Several top Hong Kong officials have also been hit with US sanctions. Hong Kong Chief Executive John Lee, his predecessor Carrie Lam, and senior police and security officials were targeted because Washington objected to how they handled the 2019 Hong Kong protests.
As of November 2025, the US had imposed Iran-related sanctions on at least 366 entities in mainland China or Hong Kong, according to the US–China Economic and Security Review Commission. Some of those targets were accused of helping to move Iranian oil, using front companies in Dubai and Hong Kong.
The system reportedly works like this. Money from oil sales moves through a web of front companies, often routed through Chinese financial institutions, to Hong Kong, before it is then converted into other currencies.
Much of the cash from oil sales to China remains in bank accounts abroad, in financial hubs such as Hong Kong, Dubai, and Singapore. Iranian importers and exporters then trade foreign currency among their various front companies on ledgers maintained in Iran.
These payments are largely routed through smaller Chinese banks that have limited global operations and less to lose if they are sanctioned. Front companies established by Iran in Hong Kong and elsewhere help manage the proceeds.
One such bank, US officials say, is the Bank of Kunlun. In 2012, Washington cut Kunlun off from the US financial system for allegedly providing hundreds of millions of dollars in financial services to Iranian banks, including moving money and paying letters of credit. That punishment only solidified Kunlun as a preferred channel for facilitating trade with Iran in China’s currency.
The bank grew rapidly. A “significant portion” of Iran’s oil revenue was deposited at Kunlun as of 2022, according to the US Treasury. According to indictments filed in US federal courts, front companies in Hong Kong and elsewhere have been used to convert Chinese yuan into dollars, euros, and other foreign currencies that Iran needs.
Shadow fleets and maritime chokepoints
The shadow fleet is the transport arm of this system. These vessels change names and flags, report false GPS signals, go dark, report as different ships during their journeys, and even duplicate transmissions to create ghost ships.
There are now more than 1,470 tankers classed as being part of the shadow or dark fleet, according to the ship monitoring website TankerTrackers.com, which represents approximately 16.3–19.6 percent of tankers currently transporting oil, oil products, and chemicals around the world.
Russia’s shadow fleet has also been trading oil in either rubles or Chinese yuan, further undermining the petrodollar.
These shadow tankers often use a “flag of convenience” provided by smaller, non-western nations such as Gabon, Comoros, or Cameroon. Flag states’ ship registries are responsible for recording ship ownership and loans secured against vessels, as well as investigating incidents. In return, the shipowners pay fees. Some small states outsource their shipping registry to third parties.
The Jun Tong oil tanker, known as the Fair Seas until January 2024, and the Tai Shan until August, appear to be part of China’s shadow fleet. It has sailed under the Cameroon flag, the flag of Malta, the flag of the Marshall Islands, and the flag of Panama.
Shadow fleet vessels typically change ownership multiple times, reportedly relying on shell companies in places with loose registration regulations, such as Dubai, Hong Kong, and the Marshall Islands, to disguise the identities of their ultimate owners.
Panama becomes the pressure point
In fact, the flag of Panama appears to be the second most prevalently used flag amongst shadow vessels.
That is a major clue to the real story behind US pressure on Panama to oust Hong Kong-based CK Hutchison from its two ports in the Panama Canal.
US sanctions are not working as intended. Washington has increasingly resorted to enforcing unilateral sanctions through military force, as seen in recent months when US forces seized shadow tankers such as the Bella-1.
If the US controls major maritime chokepoints such as the Panama Canal, it can enforce unilateral sanctions by force while reserving the right to charge selected vessels. Trump has already announced plans to impose “port fees” on Chinese-built ships passing through ports under US jurisdiction. These fees could reach $1.5 million per vessel.
This is the deeper logic behind BlackRock and MSC’s attempt to purchase 43 of CK Hutchison’s 53 ports internationally – and why China blocked the sale. BlackRock was brought in under former US president Joe Biden’s administration to work for the US government and oversee the Build Back Better World (B3W) partnership, now called Global Infrastructure Partners (GIP).
BlackRock, the largest asset manager in the world, and its infrastructure acquisitions are directly tied to the G7 agreement with GIP. This relationship has continued under the Trump administration.
The GIP was designed to undermine China’s Belt and Road Initiative (BRI), which is building critical infrastructure across the world. GIP, officially owned by BlackRock, is now attempting to purchase or find ways to seize strategic infrastructure, as seen in Panama.
Panama, connected to Hong Kong through both CK Hutchison and possibly the shadow fleet system, has faced intense pressure this year to seize the ports under vague “constitutional” grounds that have not been clearly specified. CK Hutchison is seeking arbitration.
This is where China’s April decrees matter most. In the Panama case, the government’s claim that the seizure rests on constitutional grounds makes the decision harder for Beijing to contest directly. But Panama now faces potential economic consequences under Chinese law. Beijing reserves the right to respond with sanctions of its own. Panama would not be the first country to unlawfully seize major Chinese assets.
The warning is also aimed squarely at Washington. China is preparing to respond if the US pushes further after kidnapping Maduro from Venezuela, cutting off Cuba’s access to oil, freezing Iraqi oil revenue, and waging an illegitimate war on Iran in the span of only a few months.
If Washington escalates its economic carpet bombing, Beijing now has a legal arsenal with which to answer.
Alongside its rapidly growing Cross-Border Interbank Payment System (CIPS), which can operate outside SWIFT, China is moving toward an alternative financial system in which states can trade with whomever they choose, free from the western financial diktat that has long functioned as the monetary architecture of imperialism.
The war on Iran has dragged a parallel financial system into view, exposing an architecture already built through years of sanctions pressure and now pushed further into the open by every new US threat.
Cynthia Chung is the President of the Rising Tide Foundation and author of the books “The Shaping of a World Religion” & “The Empire on Which the Black Sun Never Set,” consider supporting her work by making a donation and subscribing to her substack page Through A Glass Darkly.
On matters of geopolitics, counterintelligence, revisionist history and cultural warfare.