The Sanctions and the System: Chinese Firms and US Responses

Leonardo Gomez, J.M. Lindstrom

In early March 2026, the Democratic Republic of the Congo welcomed outside auditors to review Sicomines, a copper and cobalt joint venture, once heralded as the "deal of the century."1,2 It was the second reckoning in as many years, as Kinshasa had already forced a renegotiation which lifted China's infrastructure commitment from three billion dollars to seven.3,4 This negotiation occurred after an internal audit uncovered that Chinese partners had banked nearly ten billion dollars in profit without delivering more than a fraction of the promised infrastructure-particularly roads and hospitals.5,6 A commercial investor with such exposure would have abandoned such a project to save reputation, finances, and political cover, let alone legal prosecution. Nonetheless, Sinohydro and the China Railway Group are still present in the Congo, recently breaking new ground on novel ring roads outside Kinshasa.7 In Balochistan, Pakistan, mining companies face harassment from local militias and terrorists; however, a Chinese company, Metallurgical Corporation of China, remains at the Saindak copper-gold mine; it is insulated from the same blowback concerns as traditional companies.8,9,10

Washington has an economic arsenal it uses to combat Chinese resource acquisition; in blunter terms, an offensive and defensive chokepoint strategy to match China's own. However, such a policy of economic warfare and sanctions fails to appreciate one simple fact. Sanctions on Chinese government banks and institutions hold little to no bearing on non-governmental enterprises. Despite this, such enterprises and corporations sit in the Chinese government's pocket. The US assumption that the state-owned enterprises, policy banks and logistics contractors are separate entities with separate cost-benefit calculations is simply inaccurate to the Chinese state of play, particularly in China's critical minerals strategy. Rather, they serve as different arms of the same system, coordinated top-down through the State-owned Assets Supervision and Administration Commission of the State Council- known more punchily by the name SASAC.11 SASAC is insulated by policy-bank balance sheets, defended by civil-military planning which treats commercial infrastructure as a wartime asset in waiting. Sanctioning a single firm in this chain- a single branch of this system- doesn't weaken the system; it simply shifts the mandate to the branch still standing.

Washington's arsenal isn't oriented around multiple branches of a system so much as a singular target- the more branches, the more confused US economic policy seems, the inverse of the strategy a successful economic combative policy, such as a sanction, should be. The US must target this chain- the system itself- or else it faces fighting the wrong war, a whack-a-mole instead of a surgical economic strike.

Western frameworks for evaluating foreign acquisitions, project finance, and supply chain security assume that state-owned enterprises, policy banks, and military planners operate as separate entities bounded by clear legal limits and market signals. Applied to China, this assumption misreads how Beijing secures global resources.

China does not rely on arms-length commercial firms or isolated state interventions. Instead, it secures raw materials through three connected institutional layers. The State-owned Assets Supervision and Administration Commission (SASAC) sets strategic goals and mineral targets for centrally administered state-owned enterprises. Policy banks like China Development Bank and China Exim Bank provide long-term loans and structured financing to insulate lenders from political risk.2425,28

These layers form an operational system, but it is not seamless. Tensions exist between SASAC mineral mandates and policy bank risk limits. Bank managers face internal accountability for bad debt, leading to bureaucratic resistance against high-risk proposals. Furthermore, local resource nationalism, such as the Congolese government demanding revised terms for the Sicomines agreement, regularly tests offshore contract protections.5 Still, the system combines state direction with long-term financing and strategic goals in ways Western market economies cannot replicate.

15,19 Unlike private executives accountable to shareholders, central company leaders operate within the Party cadre management system (ganbu guanli): securing a key overseas copper, lithium, or cobalt concession advances an executive's political career, and failing to secure vital inputs harms career prospects regardless of short-term profits.17,1812,13,14

While SASAC sets corporate goals, China's policy banks supply the capital, and they do not evaluate projects purely on commercial risk-adjusted returns. China Development Bank and China Exim Bank use their balance sheets to absorb sovereign risk, secure long term mineral off take, and protect industrial supply lines — where commercial lenders would price political instability into high interest rates and strict covenants, the policy banks extend credit lines to host governments backed directly by future shipments of oil, minerals, or agricultural goods;20,21 write loans with grace periods of five to ten years and maturities extending 20 to 30 years, insulating projects from market downturns; route export revenues through offshore escrow accounts managed by Chinese state banks, with debt service deducted before remaining funds reach host treasuries;21,22,23 and, when debt distress occurs, prefer restructuring, deferred payments, or equity swaps over liquidating assets, keeping physical concessions under state influence.22 This financial backing insulates projects from short-term commodity price swings, allowing Chinese state companies to operate in high-risk jurisdictions where Western commercial firms face prohibitive borrowing costs or strict governance rules.

27,28 In overseas supply chains, this operates primarily as latent dual-use capacity rather than active military command: technical engineering standards, managerial party channels, and mobilization statutes ensure the state can access or redirect critical material flows during strategic crises without requiring routine military oversight during peacetime. In practice, ports, heavy haul rail, and airfields built for bulk minerals are designed with dock capacities, runway lengths, and floor loads capable of handling military transports and strategic stockpiles; senior managers at state run terminals frequently hold party roles or maintain direct channels to military logistics units;26,25 and during national crises or severe supply disruptions, statutory authority allows state agencies to prioritize state shipments, repurpose commercial fleets, or redirect raw materials into national stockpiles (Guojia Chubei).

29 China Exim Bank funded over three billion dollars under a Resource for Infrastructure framework, with mineral sales routed through offshore escrow accounts that guaranteed debt repayments before net revenues reached local government accounts.29,930

A Western, non-governmentally leveraged corporation could not remain in business, or at least remain in the same region, if it were faced with crippling underdelivery of product, governmental audits alleging ten billion dollars in undisclosed profit, and a parliament openly discussing seizure of assets. No Western corporation would stay around given such pressures upon it. Nonetheless, Sicomines remains. Beijing's other policy banks follow the same system of endurance despite illogical cost-benefit ratios. Rather, these banks renegotiated the debt upward from three billion dollars in commitment to seven billion, as well as retaining construction crews on Congolese roads.3,4 A lender protecting its financial interests does not act in such aggressive ways; however, a state protecting a supply line does. If a state can absorb the costs, risks, and legal concerns, the corporation's or bank's progress persists despite economically harmful circumstances. The fact that these Chinese policy banks operate in environments and under audits that would cause Western banks to flee indicates that these corporations are state-backed.

This dispute has not yet been resolved; in March 2026, Kinshasa brought in external auditors to independently review Sicomines' books.1,2 It is only the most recent development in a process which began in 2023 of audits, debt leveraging, and all the while construction continues. Furthermore, 2023 only marked the initial shift of this process- the framework itself was established in 2008, although it has morphed significantly in the 18 years since.6 Regardless of the outcome of this most recent audit, the pattern of audits and repeal is cyclical; contract terms shift, financing terms move; nonetheless, Chinese state control over copper and cobalt remains firmly.

While official statements emphasize market-based development, actual policy bank lending and state company capital deployments reflect shifting state priorities: a clear pivot toward energy transition minerals like lithium, cobalt, nickel, and rare earths, alongside liquidity support for distressed host states holding critical concessions. When projects face local unrest or financial strain, state lenders absorb losses to maintain physical control of supply lines where commercial lenders would exit.

Western economies lack an equivalent state-directed system. Western mining and energy companies owe fiduciary duties to private shareholders, rely on commercial project finance, operate under strict governance mandates, and interact with separate national strategic reserves. Treating Chinese state-backed resource investments as simple commercial ventures misjudges their structural backing. China uses an institutional system that combines executive incentives, state-backed capital, and dual-use logistics capacity, forming a unified approach to global resource statecraft.

The DFC's 2027 budget request is framed around critical mineral lending, which in turn named single deals with commercial return profiles.38 The best example of which is the December 2025 Lobito Atlantic Railway loan, which connected Angola, the DRC and Zambia, with a capacity for 4.6M metric tons.32,33 Not too distant, the February 2026 Serra Verde contract in Brazil established a $565M loan.34 Congress reauthorization in 2025 raised investment for the DFC as well as providing a direct role in the US-Ukraine Reconstruction Investment Fund (URIF); however these follow in individually-priced deals, not open-ended absorption mechanisms, the way the Chinese government is able to absorb costs.38 Furthermore, Trump granted DFC authority for domestic mineral investment through the Defense Production Act of 2025; then the DFC stood up a $20B maritime reinsurance facility during the Iran conflict.38,37 Piece by piece, the DFC is expanding in its utility as well as abilities, nonetheless it proceeds on a deal-by-deal basis because fundamentally it is not a policy bank built to absorb losses indefinitely. Instead it serves as a release valve in regions where China dominates the US due to governmental absorption of risk and costs. The EXIM Project Vault served as a loan to kickstart the Strategic Critical Minerals Reserve; a loan which was approved February 2, 2026.31 The project of Strategic Critical Reserve is directly akin to that of the Strategic Petroleum Reserve in practice as much in name, the stockpiling of critical resources to establish leverage and insulation from chokepoint politics in the future.31,35 Despite that, retaining resources does not alter the fact that China retain the world's processing capabilities, something the US desperately lacks. The result therein is a US with piles of minerals and no real way to refine them. Although it is a strong first step, it does not change the geopolitical landscape of critical mineral competition at face value. EXIM attempts to insulate the US supply from Chinese minerals by directly excluding Chinese-linked projects from its crucial-minerals financing facility, which merely changes the process of screening, not actually absorbing the competition or its costs.35 Additionally this does not prevent Chinese companies circumventing through proxies. The Chinese Military Companies Sanctions program, established through EO 13959 and amended further by EO 14032, provides the Treasury a unique and specific tool for targeting PRC state-linked firms by designating entities; which falls short because it only designates individual firms and entities, not the entire supply chain.40 To cut off one point of the supply chain does not mean the entire chain is dead- one branch on a tree is just that, merely a branch. SASAC however substitutes a different policy bank or consortium for a partner not on that list, thus circumventing the Treasury. Such actions were taken by Russian sanction evasions on the designation of Keremet Bank for contributing to PSB transactions, so the Treasury does have a history of pursuing up the supply chain, but it has not yet been applied to Chinese policy-banks as it has with Russian ones.39 Lastly, the State Department archive describes a final policy, MSP, to evaluate project compatibility with ESG standards and MSP objectives, to screen and confirm the banking system for credibility and risk relative to China.36 FORGE was a successor program established in February of 2026 and serves the same role of policies and projects to advance initiatives to strengthen, and diversify the critical mineral supply chains.36 Fundamentally though, the West still retains a blind spot in the critical mineral supply chain; actions are often seen largely as resolutions, not first steps. However that is exactly what they are, the start of something, not the conclusion. As such, Washington cannot afford to rest on the few laurels it has.

The knee-jerk response seems immediately to be a larger fund for the DFC or a longer sanctions list to limit Beijing's economic power. Instead, it should be underwriting what China is able to underwrite and thereby take when the US flees. DFC's investment committee screens critical minerals the way a commercial bank does, through political risk and exposure, expected return with a project-finance horizon, probability of success and a payout.31 The December 2025 Lobito Atlantic Railway loan as well as the Serra Verde loan both function in the same way, based on commercial viability.32,34 The cost, and room for China to overtake the US as it has, is in the calculations deeming what Chinese policy is able to absorb in such difficult environments. China sees critical minerals not as an investment of the free market but instead as tools for international leverage and necessities of national security. That is reflected in the policies China has enacted in willingness to endure costs in corporate extensions of the government. The issue is fundamentally that China possesses an absorption strategy at the US lacks, the DFC, if made loss-absorbent by design, would provide a critical criteria for establishing real competition with China in the race to claim critical minerals. Five-to-seven year horizon financial defaults, a traditional commercial loan, is unsubstantial in regions of the world which are volatile, highly risk-inducing, but critical for those exact reasons. The 2026 EXIM Project Vault provided a motion in the right direction, in that a price-reference and demand-signal mechanism were modeled on the Strategic Petroleum Reserve as opposed to the whims of the market.31,35 A reserve which instead stabilizes the existing production is not a substitute for financing that outlasts a state-backed competitor at the extraction point. Paired with the minerals coalition Washington now runs through FORGE, the successor framework Secretary Rubio announced in February 2026 to replace the Minerals Security Partnership, a loss-absorption benchmark would let Washington compete on the actual terrain Beijing is playing on, instead of a terrain that only Western firms are constrained by.36

The audit established in Kinshasa will eventually produce a figure which Beijing will agree to, given a revised split of the proceeds. The consortium APCSC appointed in March 2026, led by Mayer Brown alongside ATF-PCSC and SRK Consulting is as such reviewing eighteen years of the program, from the launch in April 2008 to its amending in March 2024.1,6 Washington, as a result, cannot read the result of that review as an establishment of fragile system; Sicomines has survived every renegotiation since 2008.4 The insulation of the company, rather than it's weakness is present. A resilient opponent is much more concerning than a temporarily strong one. China is not a flash in the pan, it is instead working to build an empire of necessities. Such a chokepoint is not plausible for a world of American hegemony.

Notes & References