The US is drawing up sanctions that could cut some Chinese banks from the global financial system, according to the Wall Street Journal.

Secretary of State Antony Blinken, due in China on Wednesday, will outline this financial threat in a bid to stop Beijing's financial backing for Russia's military production, the paper said on Monday, citing sources.

Blinken on Friday (April 19) criticized Chinese support for Russia's defence industry, saying Beijing was the primary contributor to Moscow's war in Ukraine through its provision of critical components for weaponry.

The question is whether this potent threat can dent the China's booming trade with Russia that has enabled Moscow to rebuild its military after losses in Ukraine, the report said.

China 'fuelling the biggest threat to EU security'

Speaking after a meeting of G7 foreign ministers in Italy, Blink said: "When it comes to Russia's defence industrial base the primary contributor in this moment to that is China. We see China sharing machine tools, semiconductors, other dual use items that have helped Russia rebuild the defence industrial base.

"China can't have it both ways. It can't afford that. You want to have positive, friendly relations with countries in Europe, and at the same time, you are fuelling the biggest threat to European security since the end of the Cold War," he said.

In recent weeks, US officials have intensified pressure on China, warning that Washington stands ready to take action against Chinese financial institutions facilitating trade in goods that have both civilian and military applications.

The People's Bank of China and the National Financial Regulatory Administration, China's top banking regulator, didn't immediately reply to Reuters' requests for comments.

Trade in yuan instead of dollars

China and Russia have fostered more trade in yuan instead of dollar in the wake of the Ukraine war, an effort that could shield their economies from potential escalating US sanctions.

"This has ultimately enabled the Kremlin to speed up its weapons production, including armour, artillery, missiles, and drones, and put up an effective defence against Ukraine's 2023 counter-offensive," Max Bergmann, a senior fellow at the Center for Strategic and International Studies, a Washington-based think tank, was quoted as telling the WSJ.

According to the WSJ, officials hope diplomatic pressure will avert the need to take any action that could break fragile relations between China and the US.

"Cutting banks off from access to the dollar — the denomination of most of the global trade — has much broader implications than normal sanctions targeting individuals and firms, and so are often reserved as a last resort," it added.

Blinken and other US officials have previously warned China against providing Russia with lethal military aid and urged Beijing to use its influence over Moscow to help end the war.

Reuters with additional input, editing by Jim Pollard