• China is studying the effects of Western sanctions on Russia to prepare for any invasion of Taiwan.
• Its officials have visited Russian agencies combating sanctions, The Wall Street Journal reported.
• It also set up an interagency group to provide reports on how to reduce the impact of sanctions.

China is closely monitoring the effects of Western sanctions on Russia in order to prepare for a possible invasion of Taiwan, The Wall Street Journal reported, citing people familiar with the matter.

Unnamed individuals told the outlet that China formed an interagency group in the months after Russia's full-scale invasion of Ukraine in 2022. Its aim was to provide regular reports on how to reduce the impact of sanctions should the US and its allies impose similar measures on China in the event of an armed conflict over Taiwan.

They also said that Chinese officials regularly travel to Moscow to meet with Russia's central bank, finance ministry, and other institutions involved in combating sanctions.

One unnamed person familiar with China's outreach on sanctions said that Beijing is "very interested in practically everything: from ways of circumventing them to all sorts of positive effects, such as incentives for the development of domestic production."

Alexander Gabuev, the director of the Carnegie Russia Eurasia Center, told the Journal that Russia is serving as a "sandbox" for China for how sanctions operate and how they should handle them.

"They know that if there is a Taiwan contingency, the tool kit that will be applied against them will be similar," he said.

The US and its allies have imposed multiple rounds of sanctions on Russia since the start of the war.

Russia has managed to mitigate some of the effects by turning to intermediaries, bartering, and trading with non-sanctioning countries, including China, India, and Turkey.

Even so, Russia's economy has been heavily impacted by the ongoing conflict and the Western sanctions imposed on it.

Russia's central bank hiked its key interest rate to a record high of 21% in October to combat inflation, and last month the ruble dropped to a two-year low against the dollar.

Russian companies and defense firms have recently said they've scaled back their operations and struggled to turn a profit due to high interest rates and sanctions.

Alexander Libman, a professor of Russian and East European politics at the Free University of Berlin, told BI that it doesn't surprise him that China is trying to learn from Russia's experience.

"China has always tried to understand how it can avoid Russia's mistakes, at least since the collapse of the USSR, which was very carefully studied in Beijing," he said.

Libman added that China has probably already learned that its economy can adapt to "nuclear" Western sanctions through trading with other countries, adapting production facilities to quick and unpredictable changes of supply lines, and living without access to Western technology.

"Essentially, the experience of the last three years substantially reduced the fear of large authoritarian states with respect to Western sanctions, and this is very concerning," he said, adding that China-Russia economic cooperation would make any future Western sanctions against China less effective.

People close to China's decision-making process told the Journal that the existence of the research group does not suggest the country is preparing for an invasion of Taiwan, but rather for the "extreme scenario" of an armed conflict and its economic consequences.

However, some military analysts and defense officials have predicted that a Chinese invasion of Taiwan could happen within the next few years.

• The US is planning new curbs on chip exports to slow China's AI development, multiple reports say.
• It could blacklist 200 Chinese semiconductor equipment manufacturers, Wired reported.
• Targeting Chinese chip equipment makers could benefit European firms such as ASML.

The Biden administration is reported to be considering fresh sanctions against Chinese semiconductor equipment manufacturers, pushing up stocks of semiconductor suppliers in Europe and Japan.

Bloomberg reported that while the newly proposed sanctions still targeted Chinese chip fabrication plants, they put greater emphasis on targeting domestic firms supplying manufacturing equipment to chipmakers. The suggested curbs would add an extra 100 Chinese chip equipment makers to the entity list, the outlet reported.

That pushed the share price of ASML — the Dutch firm supplying crucial specialized equipment to chip manufacturers, including China's SMIC — up by more than 4.27% Thursday.

Tokyo Electron, which also sells equipment for manufacturing chips, saw its share price climb by more than 6% on Thursday.

The restrictions, expected as soon as next week, could also add chipmakers to the sanctions list, including key suppliers to the Chinese smartphone maker Huawei, Bloomberg and Wired reported, citing people familiar with the matter. The new proposals would affect fewer Huawei suppliers, the reports added.

As part of the sweeping sanctions, the US could add 200 Chinese chip firms to its trade blacklist, Wired reported. The controls could also include restrictions around trading memory chips, which are crucial for the development of AI models.

'Malicious attempts to block and suppress China'

Chinese stocks were down on Thursday. Hang Seng's stock slid by more than 1%, and the CSI and the Shanghai Composite are also down by 0.57% and 0.10%, respectively.

"This decline is occurring as the Biden administration is considering imposing additional restrictions on the sale of crucial semiconductors to China, possibly as early as next week," Jim Reid, Deutsche Bank's global head of economics and thematic research, said in a research note.

The Biden administration has worked to limit China's progress in the semiconductor industry in recent years by rolling out export controls aimed at cutting off its access to buying advanced AI chips and chip-making equipment.

American chip equipment makers and allies such as Japan and the Netherlands reportedly pushed back against earlier proposals.

Under the new rules, companies and even foreign firms that used American parts or software in designing and manufacturing AI chips will be required to obtain licenses to export to China.

Mao Ning, a spokesperson for China's foreign ministry, said at a press conference this week, "China is firmly opposed to the US overstretching the concept of national security, abusing export control measures, and making malicious attempts to block and suppress China."

The US Department of Commerce didn't immediately respond to a request for comment from Business Insider, made outside normal working hours.