HONGKONG: A move by some Chinese commercial lenders to stop doing dollar business with most Afghan banks is connected to Beijing’s concern over recent unrest in China’s western Xinjiang region, two senior Chinese banking sources said on Friday.

But in Kabul, senior industry officials said the move came as a result of US pressure on banks to stop clearing dollar transactions originating from Afghanistan due to money laundering concerns.

Afghanistan’s central bank governor Noorullah Delawari said on Thursday that Chinese banks had stopped dollar transactions with most Afghan banks, making it difficult for businesses to pay for imports from one of Afghanistan’s biggest trading partners.

The two Chinese banking sources, from two separate commercial lenders, confirmed that their banks had effectively stopped doing such business with Afghan banks.

They declined to be identified, including the names of their banks, as they were not authorised to speak to media.

It was not immediately clear whether authorities in Beijing had evidence that the Afghan banking system was being used to channel funds to groups such as the East Turkestan Islamic Movement (ETIM).

But such a clampdown would mark a new front in Beijing’s battle with groups such as ETIM, which it says are separatists seeking to form their own state that have been responsible for many of the militant attacks to have hit Xinjiang and elsewhere in China.

China is also concerned over reports that there are hundreds of Uighur separatists hiding in the lawless tribal region straddling Afghanistan’s border with Pakistan who have repeatedly vowed to attack Chinese targets from their hideouts.

ETIM was designated as a terrorist organisation by the United States in 2002, and China has said before that it has proof that ETIM fighters have received training in Afghanistan.

There is, however, disagreement among security experts of the nature of ETIM. Rights organisations say there is little concrete evidence the group has carried out most of the attacks for which it has been blamed and that Beijing uses ETIM as an excuse to impose repressive policies on Uighurs.

Neither the two Chinese sources, nor another from a third bank who said the bank had slowed business with Afghanistan to a trickle, said they had received any specific instructions from authorities to halt the transactions.

In Kabul, senior banking officials said they had not heard of the Uighur connection and linked the Chinese move to Afghanistan’s failure to pass laws meeting global standards against money laundering and terrorist financing.

That has prompted banks from various countries to halt trade with its commercial banks.

“They (Chinese banks) just clearly said, their correspondent banks - the Bank of America, Citibank and also the Bank of New York - are not accepting any more (transfers) from Afghanistan,” said Ahmad Siar Khoreishi, CEO of Ghazanfar Bank.

“That’s it They sent a swift message (saying) we are going to stop (Afghan transactions in dollars) but in other currencies we can support you,” he said. China’s central bank did not respond to questions sent by Reuters.

Published in Dawn, May 24th, 2014