Time to send the big guns....

China secretly sends enough gear to Russia to equip an army

Shipments of military-capable hardware expose a China-sized loophole in Western sanctions.

BY SARAH ANNE AARUP, SERGEY PANOV AND DOUGLAS BUSVINE

The pictures posted on the Chinese company’s website show a tall, Caucasian man with a crew cut and flattened nose inspecting body armor at its factory.

“This spring, one of our customers came to our company to confirm the style and quantity of bulletproof vests, and carefully tested the quality of our vests,” Shanghai H Win, a manufacturer of military-grade protective gear, proudly reported on its website in March. The customer “immediately directly confirmed the order quantity of bulletproof vests and subsequent purchase intention.”

The identity of the smiling customer isn’t clear, but there’s a fair chance he was Russian: According to customs records obtained by POLITICO, Russian buyers have declared orders for hundreds of thousands of bulletproof vests and helmets made by Shanghai H Win — the items listed in the documents match those in the company’s online catalog.

Evidence of this kind shows that China, despite Beijing’s calls for peace, is pushing right up to a red line in delivering enough nonlethal, but militarily useful, equipment to Russia to have a material impact on President Vladimir Putin’s 17-month-old war on Ukraine. The protective gear would be sufficient to equip many of the men mobilized by Russia since the invasion. Then there are drones that can be used to direct artillery fire or drop grenades, and thermal optical sights to target the enemy at night.

These shipments point to a China-sized loophole in the West’s attempts to hobble Putin’s war machine. The sale of so-called dual-use technology that can have both civilian and military uses leaves just enough deniability for Western authorities looking for reasons not to confront a huge economic power like Beijing.

The wartime strength of China’s exports of dual-use products to Russia is confirmed by customs data. And, while Ukraine is a customer of China too, its imports of most of the equipment covered in this story have fallen sharply, the figures show.

Russia has imported more than $100 million-worth of drones from China so far this year — 30 times more than Ukraine. And Chinese exports of ceramics, a component used in body armor, increased by 69 percent to Russia to more than $225 million, while dropping by 61 percent to Ukraine to a mere $5 million, Chinese and Ukrainian customs data show.

“What is very clear is that China, for all its claims that it is a neutral actor, is in fact supporting Russia’s positions in this war,” said Helena Legarda, a lead analyst specializing in Chinese defense and foreign policy at the Mercator Institute for China Studies, a Berlin think tank.

Were China to cross the red line and sell weapons or military equipment to Russia, Legarda said she would expect the EU to enforce secondary sanctions targeting enablers of Putin’s war of aggression.

But, she added, equipment like body armor, thermal imaging, and even commercial drones that can be used in offensive frontline operations are unlikely to trigger a response.

“Then there’s this situation that we’re in at the moment — all these dual-use components or equipment and how you handle those,” Legarda explained. “I would not expect the EU to be able to agree to sanctions on that.”

Disappearing customer

Shanghai H Win, like other Chinese companies producing dual-use equipment, has enjoyed a surge in business since Russia’s full-scale invasion of Ukraine.

“Because of the war, a lot of trading companies are looking for us and ask: 'Are you making this kind of vest?' We received a lot of inquiries,” a sales representative told POLITICO over the phone.

At first, the representative said Shanghai H Win wasn’t allowed to export directly to Russia unless the Chinese military issues a certificate and it can provide documentary proof of its final customer.

Yet when asked who the man in the pictures was, and where he was from, the representative denied that he was even a customer — even though the website said so. 

“He is our customer's customer. We cannot ask him directly, 'Where are you from?' But I guess maybe he is from Europe — maybe Ukraine, maybe Poland, even maybe from Russia. I'm not sure.”

Shortly after the call, Shanghai H Win took down the post featuring the mystery shopper from its website.

Who are the buyers?

So, who exactly are those customers? Evidence of deals — importers, suppliers, and product descriptions — can be found in a registry of declarations of conformity by anyone with access to the Russian internet who is familiar with international customs classifications.

In an earlier story, POLITICO searched these filings and found evidence that sniper bullets made in the United States were reaching Russia, where they were freely available on the black market.

The declarations enable the final buyer to certify that the products are genuine and, in effect, make it possible to import goods without the express consent of the maker. If goods are traded through an intermediary, the maker may not even be aware that its goods are going to Russia. The registry is, however, searchable so it’s still easy to find the ultimate buyers of the Chinese kit.

One is Silva, a company headquartered in the remote Eastern Siberian region of Buryatia. It filed declarations in January of this year detailing orders for 100,000 bulletproof vests and 100,000 helmets. The manufacturer? Shanghai H Win.

Such importers often bear the hallmarks of “one-day" firms, as shell companies are known in Russia, set up by actors who want to conceal their dealings. They tend to be new, listed at obscure residential addresses, and have few staff or assets. Their financial statements often don’t report the levels of turnover that the filings would imply.

According to public records, Silva was registered only last September. It reported zero revenues for 2022. A Google Street View search of its address in Ulan-Ude, the capital of Buryatia, takes visitors to a dilapidated apartment block.

POLITICO tried to contact Silva but the phone number given on its filings rang off the hook and a message sent to its email address bounced. 

Another Russian company called Rika declared a smaller shipment of body armor from Shanghai H Win in March. Before that, in January, Rika declared a consignment of helmets from a company called Deekon Shanghai, which shares an address with Shanghai H Win. The two companies are affiliated, another Shanghai H Win representative said.

A woman who answered the phone at Rika said: “We buy in Russia, not in China.” The company didn't reply to a follow-up email from POLITICO.

The denial is hardly plausible: In addition to the protective gear, a search of declarations by Rika threw up hits for deals for thermal optical equipment from China. That was corroborated by customs data accessed by POLITICO, which revealed more than 220 shipments, worth $11 million, for thermal optics and protective equipment since the outbreak of the war. Rika advertises Chinese-made night sights right at the top of its website.

Another Russian company called Legittelekom, whose homepage reveals it to be a Moscow freight forwarding company, also appears as a buyer of 100,000 items of headgear and 100,000 suits of outerwear from Deekon Shanghai, according to filings dated last November 24.

A man who answered a call to Legittelekom declined to comment on POLITICO’s findings and would not say whether the company supplied the Russian military. 

“This is a commercial activity and we do not disclose our commercial activities,” the man said in response to both questions.

Bigger deal

Then there’s Pozitron, a company based in Rostov-on-Don, the southern city briefly captured by warlord Yevgeny Prigozhin’s Wagner mercenaries in their failed uprising last month. It imported more than $60 million-worth of “airsoft helmets,” “miscellaneous ceramics,” and other items from Chinese firm Beijing KRNatural in November and December 2022, according to customs data shared by ImportGenius.

These flows check out with Pozitron’s own declarations of conformity between late October and December 2022, for a total of 100,000 helmets. The declarations also reveal that Pozitron acquired a range of drones from Chinese multinational SZ DJI Technology Co., Ltd last December.

Although the quantity is unclear, the models specified include ones known to have been used in the Ukrainian theater of war, like DJI’s Mavic 2 Enterprise Advanced quadcopter or the Mini 2 lightweight drone.

At first sight, the product descriptions in the declarations and customs records appear harmless enough — the “airsoft helmets,” for example, are said to be for use in paintball games and “not for military use, not for dual use.”

Sanctions and defense experts say, however, that it’s common practice to mislabel dual-use goods as being for civilian purposes when they’re in fact destined for the battlefield.

At any rate, Pozitron, which was only founded in March 2021, is having a very good war: Its revenues exploded from 31 million rubles — around $400,000 — in 2021 to 20 billion rubles — almost $300 million — in 2022, according to its financial statement.

Reached by email, Pozitron’s general director, Andrey Vitkovsky, said that his company has “never imported drones and similar products” from the People’s Republic of China.

“The main activity of Pozitron LLC is the purchase and sale of consumer goods, sporting goods, and fabrics, both produced in the Russian Federation and imported from China,” Vitkovsky added, saying that his company’s activities were “exclusively peaceful in nature, in compliance with all rules and restrictions.”

The denial is typical — Russian companies have good reason to fear Western sanctions if they are implicated in trade that supports the Kremlin’s war effort. After POLITICO reported in March that a company called Tekhkrim was importing Chinese assault weapons, and declaring them as “hunting rifles,” the firm was sanctioned by the United States.

Pozitron is on the West’s radar, said one sanctions expert, who was granted anonymity as they are not authorized to speak publicly.

As for Beijing KRNatural, POLITICO was able to trace a company with a similar name at the address given in the Pozitron filings. The company, Beijing Natural Hanhua International Trade Co., Ltd, is listed as a “small and micro enterprise.” It was founded in April 2022, a few months before the Pozitron deals. Nobody answered when POLITICO called.

Heavenly mechanics

In contrast to the bulk consignments of protective gear that appear intended to equip a large fighting force, the orders for drones found by POLITICO are more dispersed among different buyers — both companies and individuals.

In addition to Pozitron, buyers of drones from DJI and its subsidiaries include firms called Gigantshina and Vozdukh — neither of which responded to emailed requests for comment. Another is Nebesnaya Mekhanika (“Heavenly Mechanics”), which before the war was the Chinese company’s official distributor in Russia.

A DJI spokesperson said that the company and its subsidiaries had voluntarily stopped all shipments to, and operations in, Russia and Ukraine on April 26, 2022 — two months after the war broke out. 

“We stand alone as the only drone company to clearly denounce and actively discourage use of products in combat,” the spokesperson said in comments emailed to POLITICO.

DJI said it had also broken off its relationship with Nebesnaya Mekhanika, although the Russian company filed further declarations for shipments of the Chinese company’s drones last September 15 and on March 27 of this year.

The spokesperson said that DJI was not in any way involved in the drafting of the declarations of conformity found by POLITICO: “These documents would have been filled out by Russian parties, and they do not indicate in any shape or form who ex- or imported the products that are being declared conform.”

“We have seen media reports and other documents that appear to show how our products are being transported to Russia and Ukraine from other countries where they can be bought off-the-shelf,” the spokesperson added. “However, it is not in our power to influence how our products are being used once they leave our control.”

Still, a search of ImportGenius shows that a Chinese company called Iflight has continued to ship DJI drones to Nebesnaya Mechnika via Hong Kong, care of a local company called Lotos. The most recent consignment was delivered last October 10. In an apparent anomaly, Russia is stated as the country of origin for the shipments.

Nebesnaya Mekhanika, which still advertises DJI drones on its website, did not respond to a request for comment.

Political will

The trafficking of low-tech body armor to high-tech drones and thermal optics highlights a vulnerability in the Western sanctions regime. The ambiguity surrounding the dual-use status of this equipment, coupled with the fact that a significant portion of it is manufactured in China, seems, at least for now, to have placed the possibility of the West taking meaningful action beyond reach.

Then there is the flow of technology through China that may include components made in the West that could be of direct military use.

Russia is fully aware of the China loophole and is using it to buy Western technology to fight its war against Ukraine, according to a recent analysis by the KSE Institute, a think tank affiliated to the Kyiv School of Economics. More than 60 percent of imported critical components in Russian weapons found on the battlefield came from U.S. companies, the researchers found.

It’s an issue that U.S. Secretary of State Antony Blinken brought up on a visit to Beijing last month — the first by Washington’s top diplomat in five years. He told reporters that China had given assurances that “it is not and will not provide lethal assistance to Russia for use in Ukraine.” Blinken, however, expressed “ongoing concerns” that Chinese firms may be providing technology that Russia can use to advance its aggression in Ukraine. “And we have asked the Chinese government to be very vigilant about that.”

France is also concerned that China is delivering dual-use equipment to Russia. “There are indications that they are doing things we would prefer them not to do,” Emmanuel Bonne, President Emmanuel Macron’s top diplomatic adviser, told the recent Aspen Security Forum. Pressed on whether China was supplying weapons, Bonne said: “Well, kind of military equipment ... as far as we know they are not delivering massively military capacities to Russia but (we need there to be) no delivery.”

Yet there’s little the West can do to twist Beijing’s arm into halting flows of dual-use products into Russia. Only the United States would have the real power to impose an outright ban on dollar-denominated transactions — as Washington did when it sanctioned Iran over its secret nuclear program.

The EU, however, lacks such a strong sanctions weapon because the euro is far less ubiquitous on global markets. It’s also been hesitant to act. In its latest package of Russia sanctions last month, the EU compiled a list of seven Chinese companies that shouldn’t be allowed to trade with the bloc. But, after lobbying by Beijing, Brussels dropped four companies from the blacklist.

Elina Ribakova, one of the authors of the KSE Institute report, said indirect shipments via China pose challenges in terms of both the scope and enforcement of Western sanctions. Secondary sanctions may not be sufficient, she said. She called for manufacturers to be forced to take responsibility for where their products end up — just as banks were required by regulators to step up customer oversight and anti-money laundering operations in the wake of the 2008 financial crisis.

“What we can do differently is to create the same infrastructure for the corporates,” explained Ribakova, who is director of the international program at the Kyiv School of Economics. “We have to threaten them with serious fines.”

Maxim Mironov, a sanctions expert and assistant professor of finance at the IE Business School in Madrid, reckons that the West, despite expanding sanctions to punish Putin’s helpers, lacks the political conviction to enforce them against Beijing.

“Do politicians have enough will to put sanctions on China? Basically, the answer is no,” said Mironov.

“China signals: You can try, but I don’t care what you are trying to do,” Mironov added. “And the European Union is like: If you don’t like it, we are not going to do it. And if the Chinese see that, they are just going to continue doing what they think is in their best interest.”

The European Commission, the U.S. National Security Council and the Chinese Mission to the EU did not respond to requests for comment.