China’s Ministry of Commerce said on Wednesday it had imposed sanctions on two Lithuanian banks, Urbo Bankas and Mano Bankas.
According to the Chinese ministry, the move was made in response to the European Union’s 18th package of sanctions against Russia, adopted in July, which also imposed restrictions on two Chinese banks.
The EU’s measures are meant to put economic pressure on Moscow by restricting contacts with its international partners.
“China firmly opposes this [the sanctions]. […] China has decided to include the two banks of the European Union, Urbo Bankas and Mano Bankas, in the Counteraction List, and to prohibit organisations and individuals within China from engaging in transactions, cooperation and other activities with them,” the ministry’s statement reads.
The two Chinese banks on the latest EU sanction package are accused by the West of links to Russia’s military industry.
The Chinese Ministry of Commerce protested and vowed to “take necessary measures to firmly protect the legitimate rights and interests of Chinese companies and financial institutions”.
Lithuanian-Chinese relations are currently among the worst in the EU after Taiwan opened a representative office in Vilnius in 2021. Beijing downgraded its diplomatic representation in Lithuania and the two countries do not have ambassadors in each other’s capital.
Lithuania still officially considers both missions to be embassies and says that China’s actions run counter to international law.
Chinese banks sanctioned for cryptocurrency services
The move follows the EU’s decision in July to blacklist Heihe Rural Commercial Bank Co and Heilongjiang Suifenhe Rural Commercial Bank Co as part of its 18th sanctions package, citing their role in providing cryptocurrency services that helped circumvent EU restrictions.
Raigirdas Boruta, an associate expert at the Centre for Geopolitical and Security Studies, said that although these Chinese banks are small and regionally focused, their role in transactions with Russia makes them quite significant.
“For example, Heihe Rural Commercial Bank was the first bank to gain access to the cross-border RMB payment system,” Boruta wrote on Facebook.
[The RMB payment system plays a crucial role in the international payment system because it allows processing payments in Chinese Yuan (also known as Renminbi or RMB) – LRT.]
According to the EU, the banks were added to the list for providing cryptocurrency services that undermined EU-imposed sanctions.
Urbo Bank and Mano Bank are now barred from carrying out transactions or cooperating with organisations and individuals in China, China’s Ministry of Commerce announced.
Urbo Bankas: Sanctions will have no impact
Following reports about the Chinese sanctions, Urbo Bankas said it immediately contacted the Bank of Lithuania and the Ministry of Foreign Affairs.
“We have asked market regulators and other state institutions to engage promptly to clarify the real situation. Until this news, which we learned of from the public domain, we had received no indication, warning or signal from Chinese official or unofficial bodies, or from any other sources,” Urbo Bankas CEO Marius Arlauskas said in a press release.
He added that Urbo Bankas is Lithuanian-owned and that the majority of its business and private clients are Lithuanian residents.
“Our bank does not conduct financial transactions in China and has no business ties with individuals or organisations from that country. As we have no business partnerships with Chinese legal or natural persons, the imposition of sanctions will have no impact on Urbo Bankas’s operations or on its compliance with prudential requirements,” Arlauskas said.
The statement also noted that the volume of transfers by Urbo Bankas clients – both individuals and organisations – to accounts held with Chinese financial institutions represents an insignificant share of total transactions. The sanctions announcement, it said, would have no effect on the bank’s daily operations or its provision of services.
Rising tensions between Lithuania and China
Boruta wrote on Facebook that while the EU’s move to sanction two regional Chinese banks might seem symbolic, it should not be underestimated.
“At a time when major international Chinese banks actively present themselves as responsible members of the global financial system, emphasising their reluctance and caution in financial cooperation with Russia, it is precisely these small regional financial institutions that do the ‘dirty work’. Their activities are often difficult to monitor due to their very limited international exposure, which allows them to operate on the margins and play perhaps the most important role in transactions with Russia,” Boruta said.
He noted that China’s retaliatory measure was carefully calculated and followed the principle of “an eye for an eye” – targeting small EU financial institutions similar in size to the Chinese banks sanctioned, and whose operations are unlikely to be significantly affected.
“What is far more interesting is that, in responding to EU sanctions, China struck exclusively at Lithuanian financial institutions. Given the recent dynamics in Lithuania–China relations, which show not only persistent but slightly escalating tensions, this decision was clearly well thought through.
Firstly, China delivered a measured counterblow to the EU. Secondly, Beijing openly expressed its dissatisfaction with the state of bilateral relations with Lithuania, signalling that, if the long-standing crisis remains unresolved, Lithuania could become something of a ‘punching bag’. In other words, China’s responses and ‘lessons’ to the EU could increasingly be directed at one particular country – Lithuania,” the expert said.
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