The US Treasury Department has moved aggressively against a sanctions-evasion network linking Russia and China, exposing a secret payment channel used to facilitate cross-border transactions for sensitive exports and designating a Kyrgyz Republic-based financial institution accused of helping Moscow evade restrictions, according to the US Treasury’s official press release.

Inside the Evasion Network

The scheme relied on so-called “ruble clearing platforms” that facilitate non-cash mutual settlement for payments tied to sanctioned goods. US-designated Russian financial institutions including Sberbank, Alfa-Bank, Sovcombank, T-Bank, and Bank Tochka were reportedly participants. Treasury identified Russia-based and China-based trading companies acting as counterparties in the network, while also designating Keremet Bank, which Treasury says was purchased specifically to create a new sanctions-evasion hub for Russian import payments and export receipts. Treasury simultaneously re-designated nearly 100 entities under Executive Order 13662, reinforcing risk exposure for any foreign party continuing to work with Russia’s military-industrial base.

China’s Banks Start Saying No

The pressure appears to be working, at least partially. Russian banking sources describe a dramatic slowdown in cross-border payment flows, not only with China but also with Central Asian intermediaries such as Kyrgyzstan and Uzbekistan. A Moscow-based banker quoted by CEPA described the situation bluntly, noting that money has largely stopped flowing and only a narrow set of intermediary countries remain viable, according to CEPA’s analysis of the sanctions squeeze. Chinese banks have reportedly begun refusing payments from Russia and rejecting transactions where Russian names appear anywhere in supporting paperwork — a shift CEPA attributes to a US threat late last year to impose secondary sanctions on Chinese banks, cutting them off from dollar access.

The Scale of China’s Role

China has become indispensable to Russia’s wartime economy. Bilateral trade between the two countries hit a record $237 billion in 2023, up nearly 70% since 2021, and China has supplied more than 90% of Russia’s semiconductor imports since the invasion of Ukraine began, more than half of which were Western-branded or produced, according to CSIS’s research on sanctions and Russia’s economic transformation. China’s imports from Russia rose 60% between 2021 and 2024, according to a Congressional Research Service report.

The Crypto Workaround — And Its Limits

As traditional banking channels tighten, Russian banks are being pushed toward cryptocurrency settlement, though CEPA reports Chinese counterparties treat crypto transactions with Russia as fast but increasingly costly, further raising the effective price of Russian imports. The sanctioned Russian exchange Garantex has been under US sanctions since April 2022, and few jurisdictions remain willing to accept Russian crypto transfers, though Russian bankers reportedly expect the UAE to emerge as a more permissive hub for such flows.

The EU’s Parallel Track

The squeeze is not solely an American project. The European Council voted on June 18–19, 2026, to extend EU economic sanctions against Russia for a further twelve months, through July 2027, while calling for swift adoption of a 21st sanctions package targeting Russia’s shadow fleet, energy revenues, and banking system, according to the Council of the EU’s official statement. For global banks and multinational corporates, the compounding effect of US and EU enforcement means compliance risk tied to any residual Russia exposure — even indirect exposure routed through Chinese or Central Asian intermediaries — is rising sharply heading into the second half of 2026.

China has now recorded six consecutive quarters of falling prices, a deflationary cycle that Beijing’s traditional playbook of aggressive monetary easing and fiscal stimulus has so far failed to break, with the leadership instead pursuing a more cautious approach aimed at avoiding a renewed run-up in debt, according to GIS Reports’ analysis of the country’s economic trajectory.

A Property Crisis That Won’t Bottom Out

The roots of China’s deflation trace back to a real estate sector that once contributed around 20% of GDP and now risks becoming a persistent drag on growth instead. Citi Research estimates housing investment may continue to contract by 13% in 2026, with supply curbs remaining the primary tool for rebalancing a sector still searching for its floor, according to Citi’s 2026 outlook. The World Bank’s China Economic Update projects growth slowing to 4.4% in 2026 from an estimated 4.9% in 2025, with consumer spending expected to stay subdued due to a soft labor market and continued adjustments in property prices, per the World Bank’s report.

Manufacturing capacity utilization has fallen to 73.9%, nearing a decade low outside the early-2020 pandemic shutdowns, according to the US-China Economic and Security Review Commission’s June bulletin, even as fixed asset investment in manufacturing turned negative in April despite Beijing’s stated priority of using investment to drive growth, per the USCC’s bulletin. Local governments have begun redirecting bonds originally earmarked for infrastructure toward cleaning up hidden debt and buying back land from struggling property developers, a stopgap measure that props up real estate without resolving its underlying oversupply problem.

Exports Are Filling the Gap, But Not Forever

With domestic demand weak, China’s export machine has carried an outsized share of growth. Net exports contributed 1.4 percentage points to GDP growth, with the trade surplus approaching $1.2 trillion, Citi’s research shows, while China’s passenger car exports rose 60.6% year-on-year in the first quarter as Beijing’s “anti-involution” campaign against excessive domestic price competition pushed a surplus of lower-priced vehicles toward overseas buyers, according to the USCC’s May bulletin.

That export dependence is now running into limits. Citi expects export growth to slow to around 3.0% in 2026 from 5.1% in 2025, as a moderation in global nominal GDP growth outside China weighs on headline export figures, even as Chinese manufacturers continue gaining global market share through lower relative pricing and steady quality upgrades. The Economist, cited in USCC reporting, has separately argued Chinese exports will keep rising, but the broader risk is clear: an economy leaning this heavily on external demand is vulnerable to any slowdown among its trading partners, and the EU has already accused Beijing of triggering a “China Shock” as EV imports drive record trade surpluses with the bloc.

Xi’s Politburo Pivot Toward Household Savings

The clearest signal of a strategic shift came from a Politburo meeting that made strengthening domestic demand the explicit top goal for 2026, with the readout stating plainly that China “must adhere to domestic demand as the main driver and build a strong domestic market,” according to Asia Times’ coverage of the meeting. The strategy centers on unlocking an estimated $22 trillion in household savings that Chinese consumers have kept largely in deposits rather than deploying into consumption or risk assets, a pattern that has persisted since 2022 despite repeated policy efforts to shift it.

Societe Generale economist Wei Yao told Bloomberg that benchmark Chinese bond yields could fall to record lows in 2026 as the central bank continues easing monetary policy, telling the outlet that “if deflation is still the dominant factor here, then, yes, bond yields will be lower or cannot rise.” China’s base case for 2026 includes roughly RMB 1 trillion in additional fiscal stimulus alongside 20 basis points of rate cuts and 50 basis points of reserve requirement ratio cuts, according to Citi’s modeling, though the emphasis remains on supply-side reform over broad-based demand stimulus.

A Currency Question the IMF Keeps Raising

Underlying all of this is a currency dispute that has simmered for years. The International Monetary Fund estimated in early 2026 that the yuan was undervalued by 16%, and continues pressing China to allow appreciation to help stabilize global trade, arguing that China’s export-led growth model and trade surplus are unsustainable for the broader global economy, according to the Congressional Research Service’s analysis. Beijing’s own 2026 Government Work Report signaled the yuan would remain “generally stable” at an “adaptive, balanced level,” language that suggests any revaluation, if it comes, will be gradual rather than the kind of sharp move the IMF’s undervaluation estimate might otherwise justify.

China’s broader fiscal deficit, including off-budget support through special bonds and strategic-industry funds, is projected to reach 9.2% of GDP in 2026, even as the headline deficit target remains fixed at 4%, the CRS report notes. Total non-financial sector debt, spanning households, corporations, and government, reached 296% of GDP in the third quarter of 2025, with the bulk of that debt concentrated in private firms and provincial and local governments rather than the central government balance sheet.

Reform Without a Reset

Deutsche Bank’s Private Bank Chief Investment Office frames the overarching message from the National People’s Congress and the new 15th Five-Year Plan as a pivot toward stability and risk management rather than aggressive demand stimulus, a pragmatic approach that the bank says will create a distinct mix of investment opportunities and risks for the years ahead, according to Deutsche Bank’s assessment. Whether that reform-first approach can actually break a deflationary cycle already in its sixth quarter remains the open question hanging over Chinese markets heading into the second half of 2026.

Two of China‘s best-known hedge fund managers have told clients that the global rally in artificial-intelligence stocks has crossed from exuberance into what they are calling a “super bubble,” a warning that has already rattled semiconductor markets from Seoul to Santa Clara. Wealspring Asset, founded by Yang Dong — a manager credited in China with correctly calling the peak of the 2007 bull market — and Shanghai Banxia Investment Management Center issued the warnings in investor letters that quickly circulated beyond their client base.

The letters carry weight precisely because of who wrote them. Fund managers who navigated China’s own boom-and-bust cycles are now applying the same skepticism to a global AI trade that Western allocators have largely treated as a structural, multi-year growth story rather than a bubble in the classical sense.

The Case for a ‘Super Bubble’

Yang Dong‘s Ningquan Asset — the vehicle behind the most quoted warning — argued in its H1 2026 investment report that global AI stocks have formed a bubble condition with a collapse point that “may not be far away,” according to reporting from KuCoin’s news desk. The fund went further, projecting that a substantial share of the most popular AI-linked A-share stocks could fall by 80% or more once sentiment turns.

Wealspring, which manages more than $1.4 billion in assets, framed its skepticism around business fundamentals rather than pure valuation math. The firm argued that many of China’s AI infrastructure companies lack a durable competitive moat, run comparatively ordinary business models, and require continuous capital expenditure just to sustain current growth rates, according to Bloomberg’s original reporting carried by Yahoo Finance. The firm drew an explicit parallel to China’s 2015 equity bull run, describing current buying patterns in domestic AI infrastructure names as reminiscent of the “brainless buying” that preceded that crash.

Shanghai Banxia, a smaller fund managing roughly $294 million, took a different angle, pointing to a specific and testable trigger outside China’s borders: pressure on Anthropic‘s revenue growth trajectory. Banxia predicted that Anthropic’s annualized revenue run-rate — a metric closely tracked by AI bulls as a proxy for enterprise adoption — will fall short of market expectations as large technology companies push back against rising token costs and as competitors erode the company’s standing among software developers.

Market Reaction Has Already Arrived

The warnings did not stay confined to investor letters. Global chip stocks fell sharply in the days following the letters’ circulation, with the Nasdaq Composite dropping 2.2% on June 23 and South Korea‘s KOSPI sinking nearly 10% — a decline severe enough to trip a circuit breaker for the first time since March, according to analysis published by NAI 500. Micron Technology plunged more than 13% in the same window, and Nvidia slid as investors reassessed whether AI infrastructure capital expenditure could continue delivering earnings growth commensurate with its valuation.

The severity of the Asian sell-off reflects the region’s outsized exposure to the AI hardware supply chain. South Korea’s chip-heavy index had surged nearly 100% earlier in the year, powered by a rally in SK Hynix and Samsung Electronics, making it disproportionately vulnerable to a sentiment reversal. China’s own CSI Artificial Intelligence Index had climbed more than 35% year-to-date heading into the warnings, far outpacing the roughly 5% gain in the broader Chinese benchmark — a valuation gap the hedge funds argue is unsustainable.

At least four additional Chinese hedge funds expressed reluctance around AI exposure in a monthly summary of fund positioning compiled by CSC Financial Co., with only four funds registering a positive stance and seven declining to take one at all — evidence that the skepticism extends well beyond the two most-quoted names.

A Test of Who Is Early Versus Who Is Right

The central tension in the AI bubble debate is not whether artificial intelligence will reshape enterprise software and global productivity — most market participants, bullish and bearish alike, accept that premise. The dispute is whether current public equity valuations have already priced in an adoption curve, margin structure, and pricing power that has not yet been proven at scale. As framed by NAI 500’s analysis, the AI trade has moved from “look what this model can do” to “show us the business case” — a materially higher evidentiary bar for markets to clear.

Institutional voices remain split. The Bank of England warned in prior analysis that AI-linked equities had become a growing share of total US market capitalization, with some valuation metrics approaching dot-com-era extremes, while Morgan Stanley‘s 2026 outlook estimates that nearly $3 trillion in AI-related infrastructure investment could still flow through the global economy by 2028 — suggesting the capital expenditure cycle, whatever its near-term valuation risk, is far from complete.

Why the China Angle Matters Globally

What distinguishes this warning from generic bubble commentary is its origin. Yang Dong‘s track record calling the 2007 peak gives his current call outsized credibility inside China’s domestic investor base, while Banxia‘s Anthropic-specific thesis offers international investors a concrete, trackable metric rather than an abstract valuation argument. Because Anthropic remains a private company, the revenue data underpinning Banxia’s thesis is not independently auditable — a caveat that tempers, without eliminating, the weight of the warning.

For investors and strategists tracking Asia’s exposure to the AI capital cycle, the practical takeaway is that the region’s chip manufacturers, foundries, and AI infrastructure suppliers now carry two distinct risk vectors simultaneously: the conventional cyclical risk of semiconductor demand, and a newer, sentiment-driven risk tied directly to whether frontier AI developers can convert capital expenditure into durable revenue before investor patience runs out. The next disclosed revenue milestone from a major AI lab, whichever company reports it first, is likely to become the market’s de facto referendum on which side of this debate was correct.