At least four shell companies operating out of Hong Kong are facilitating the shipment of restricted military technology to Russia, according to an investigation by The New York Times published on July 25.

The revelations come as Ukrainian Foreign Minister Dmytro Kuleba travels to China for meetings with his counterpart in an effort by Kyiv to loosen ties between Beijing and Moscow ahead of a mooted second peace summit later this year.

The investigation revealed that these companies, located on the seventh floor of 135 Bonham Strand near Hong Kong's financial district, are owned by Russian oligarchs with ties to the Russian defence industry. They have reportedly funnelled millions of microchips and sensors to sanctioned Russian defence technology firms. These components are critical for various military applications, including the Kh-101 cruise missiles used in the July 8 attack on the Okhmatdyt children's hospital in Ukraine, the NYT reported.

Russia's mutual trade with China has soared in recent years to over $200bn of, making China Russia’s biggest single trade partner. Part of that trade is for dual-use items that have helped Russia dodge the technology sanctions imposed following the invasion of Ukraine in 2022.

The US Office of Foreign Assets Control (OFAC) has been tightening the noose to better enforce the rules, with smart sanctions introduced in December, and has followed up with strangulation sanctions that have targeted the banking sector, which are making it harder for Russia to pay for banned imports.

However, the volume of Russia’s imports of technology in 2023 was only 2% less than pre-war levels in 2023 and Hong Kong is one of the most important facilitators of this business.

While China has been careful not to openly sell Russia overtly military supplies, it has bent the rules to near breaking. During the recent Nato summit the US directly accused China of supplying Russia with arms and ammunition for the war in Ukraine for the first time in a declaration, although that declaration also stopped short of accusing China of explicitly selling weapons to Russia.

The sanctions are supposed to restrict the export of military-grade electronics to Russia, but a study by Kyiv School of Economics (KSE) found that up to 95% of the components in recently manufactured Russian missiles originated in the West. Approximately $4bn worth of sanctioned chips entered Russia last year, according to NYT.

The report found that Moscow has managed to maintain nearly the same level of chip imports in the last quarter of 2023 as in the final quarter of 2021, indicating a robust sanctions evasion network. China was identified as playing a pivotal role by exporting dual-use goods to Russia, which can serve both civilian and military purposes.

China's Ministry of Foreign Affairs has stringently denied supplying military equipment to either Russia or Ukraine. In a statement to NYT, the ministry said: "What the United States should do is reflect on its responsibility for the Ukraine crisis rather than shirking responsibility to China."

The US may have banned the sale of technology to Russia and restricted its exports to China under the CHIPS act introduced last year, but exports of technology to China continue.

Kuleba in Guangzhou

Tensions between the US and China continue to escalate steadily; however, it is widely acknowledged that Beijing will play a crucial role as a media in any peace talks, as momentum for peace talks mounts.

The Hong Kong revelation coincides with Kuleba's three-day visit to China, his first since the 2022 invasion, to bring Beijing on side ahead of a mooted second peace summit that Ukrainian President Volodymyr Zelenskiy proposed on July 15, to which both China and Russia will be invited.

During talks with Chinese Foreign Minister Wang Yi in Guangzhou on July 24, Kuleba reported that China reaffirmed its commitment to Ukraine's territorial integrity. Additionally, Chinese officials reiterated their promise not to supply Russia with weapons, as confirmed by Ukrainian President Volodymyr Zelenskiy in his evening broadcast the same day.

Kuleba reported that his Chinese counterpart told him: “The position on supporting the sovereignty and territorial integrity of Ukraine is unshakable for the PRC,” in an interview following his meetings with Wang.

However, China remains on the fence and calls the war in Ukraine a “Ukrainian crisis” and not a war, Kuleba said.

Nevertheless, China is clearly in favour of de-escalation and finding an end to the conflict. The head of the Chinese Foreign Ministry said during the meetings that Ukraine needs a “fair and lasting peace.”

Beijing has been a stalwart supporter of Russia and President Xi Jinping exclaimed China now has a “no-limits” partnership with Russia during a key trip to Moscow last year. But there are, in fact, limits to that partnership, according to Wang, who told Kuleba that “China will only stand on China’s side,” Kuleba said regarding the PRC’s position in the war in Ukraine.

Russia's clash with the US and Nato has raised the stakes for China, which is increasingly being sucked into the conflict. As the West needs to ensure Ukraine does not lose the war, likewise, Beijing does not want to see Russia lose either, which would have the effect of isolating China, which has its own escalating tensions with the US.

However, Kuleba struck a defiant tone in the context of the growing calls for talks to begin, telling his interlocutor: “No one will persuade Ukraine to negotiate, because it is impossible to persuade us.”

The meeting was important, as China offered its own 12-point peace plan on the first anniversary of the start of the war, which Kyiv dismissed out of hand, as it would in effect freeze the conflict and turn most of eastern Ukraine into a demilitarised zone. Kyiv prefers Zelenskiy’s own 10-point peace plan, which he presented at the G20 summit in November 2022.

But that plan is now losing credibility following the failed Swiss peace summit held on June 16-17, where Zelenskiy presented a watered-down version of the plan that only included three of the least contentious points – food security, nuclear safety and POW swaps. Even that version struggled to get delegates to the summit to sign off on the final communiqué.