Inside Iran’s China-Backed Trade Network That Sidesteps US Sanctions

Iran has used a barter-like arrangement to convert revenue from oil sold to China into funding for Chinese goods, allowing imports to continue without conventional international banking channels.

According to Reuters, around $2 billion to $2.5 billion flowed through a special-purpose vehicle over the past year. That figure refers specifically to money handled through the SPV, rather than the entire China-Iran trade mechanism.

The arrangement gives Tehran a way to turn oil-sale proceeds into imports without relying on conventional cross-border payments. For China, it helps preserve access to discounted Iranian crude while reducing the direct exposure of companies and financial institutions involved in the trade to transactions that could attract US sanctions.

The system separates the movement of oil from the conventional movement of money. Iranian oil can be sold to a Chinese buyer, while the proceeds are routed through another channel to finance goods entering Iran.

How The Barter-Like System Actually Works

The arrangement is not a traditional barter exchange in which a shipment of oil is directly swapped for a shipment of Chinese goods. It is closer to a financial pool built around oil revenues.

A buyer acting on behalf of Chinese state-owned oil trader Zhuhai Zhenrong was, at least until this year, depositing hundreds of millions of dollars a month with an obscure China-based entity known as ChuXin, Reuters reported.

Roughly 70% of the proceeds handled by ChuXin went towards infrastructure projects in Iran, according to sources cited by Reuters. The remainder was channelled into an SPV used to pay companies supplying goods to Iran.

That structure reduces the need for an Iranian bank or importer to make a conventional international payment directly to a Chinese exporter.

For Tehran, it creates a way to convert oil earnings into access to imports while operating outside much of the conventional financial architecture targeted by US sanctions.

What Are ChuXin And The SPV?

Reuters sources described ChuXin as an obscure China-based financial entity through which part of the oil proceeds are channelled.

Reuters said it could find no record of a financial institution called ChuXin in Chinese company registries. One source suggested the name might exist only on a spreadsheet. Reuters also could not independently verify the existence or ownership of several other entities said to be involved.

The SPV is a separate layer, its funds were managed by two entities, one said to act on behalf of China's Ministry of Commerce and another linked to Iran's central bank. According to sources cited by Reuters, the Iran-linked entity would notify the Chinese side when authorised Iranian importers could access the funds.

The roles are distinct: ChuXin is described as a conduit for part of the oil proceeds, while the SPV channels another portion towards suppliers of goods to Iran.

What Is Iran Getting From China?

The arrangement has been used to obtain medicines, vehicles and communications equipment. The manufacturers were not necessarily dealing directly with Iran, and no indication has been found that those manufacturers themselves were violating sanctions.

The reporting also points to a potentially more sensitive use.

This arrangement had been used at least once in the past year for contracts involving air-defence equipment worth millions of dollars.

The significance is therefore the possibility that a mechanism used to facilitate ordinary trade could also be used for more sensitive imports. The alleged military transactions remain unverified.

Why China Matters So Much To Iran's Oil Trade

China is by far Iran's biggest oil buyer, it accounted for more than 80% of Iran's shipped oil in 2025, at an average of about 1.4 million barrels per day.

US Treasury has separately described China as the world's largest purchaser of Iranian oil and highlighted the role of Chinese independent “teapot” refineries in buying Iranian crude.

That gives both sides a strong incentive to preserve the trade. Iran needs buyers willing to purchase its oil despite sanctions, while China has an incentive to secure Iranian crude, particularly at discounted prices.

China has defended its lawful trade and economic cooperation with Iran while rejecting unilateral US sanctions that it says lack a basis in international law. That position does not confirm the specific ChuXin-SPV mechanism described by Reuters.

A Shadow-Banking System Is Already In Place

This arrangement sits alongside a broader Iranian network of shadow banking, front companies and alternative financial channels that US authorities have repeatedly targeted.

US Treasury has described Iranian sanctions-evasion networks involving shadow-banking networks, front companies, foreign bank accounts and exchange houses to move the proceeds of sanctioned trade.

A June Treasury action, targeted an Iranian network that used front companies in the UAE and China, foreign bank accounts and Iran's shadow fleet to move Iranian-origin LPG while concealing its source. Treasury has also targeted overseas exchange houses and other intermediaries that it says help Iran move and repatriate funds.

The broader point is that Iran's sanctions-evasion architecture can move value through intermediaries rather than through a direct payment between an Iranian bank and a foreign supplier.

The Chuxin Mechanism Has A Precedent

The basic architecture also has a documented precedent.

The US-China Economic and Security Review Commission (USCC) reported in 2025 that Chinese buyers of Iranian crude were using an obscure Chinese financial institution called Chuxin in an oil-for-infrastructure arrangement.

According to the commission, Chinese buyers' payments for Iranian oil could be channelled through Chuxin, which then financed Chinese contractors working on infrastructure projects in Iran. USCC estimated that $8.4 billion moved through the oil-for-infrastructure arrangement in 2024.

That provides important context for the Reuters investigation, but the figures should not be conflated. It shows that using Chinese financial channels to convert the value of Iranian oil sales into other forms of economic activity has a documented history.

Why Washington Is Trying To Close These Channels

Washington has increasingly targeted not only Iranian oil producers and sellers, but also the networks that move the proceeds.

Iran's sanctions-evasion networks involve front companies, foreign accounts, exchange houses, shadow-banking networks and shadow fleets. The US sanctions have sought to disrupt Iran's ability to generate, move and repatriate funds.

The sanctions have also targeted China- and Hong Kong-based entities that have helped Iran procure weapons and move transactions through clandestine banking networks.

The focus is therefore increasingly on the facilitators and financial infrastructure around sanctioned trade, not just the original oil transaction.

The China-linked mechanism adds another layer to that challenge because the financial value of the oil transaction and the final import into Iran do not necessarily appear as one conventional cross-border payment.

Why China Would Accept The Risk

China has clear economic reasons to preserve its trade with Iran, particularly its access to discounted Iranian crude.

Beijing also has an interest in demonstrating that US secondary sanctions cannot automatically force China to sever commercial ties with Iran.

At the same time, Chinese banks and companies have an incentive to limit exposure that could trigger US sanctions or restrict access to international financial markets. Beijing has also said it will defend the legitimate rights and interests of Chinese companies against what it considers unjustified extraterritorial sanctions.

That creates a delicate balance: preserve the underlying China-Iran trade while limiting the exposure of major Chinese financial institutions and companies to the US sanctions regime.

Can Sanctions Actually Stop This Trade?

The significance of the arrangement is that the financial value of an oil transaction can be separated from the physical purchase that the value ultimately finances.

Iranian oil can move to a Chinese buyer, its proceeds can enter an intermediary structure, and another pool can then finance Chinese goods or services destined for Iran. The final Iranian importer does not necessarily have to make a conventional international payment directly to the Chinese exporter.

That does not make the trade immune to sanctions. But it means Washington must identify and disrupt the intermediaries and financial structures connecting the two sides rather than simply target the original oil transaction.

The investigation suggests that the challenge for Washington is therefore becoming less about stopping a single transaction and more about dismantling the network that allows oil revenue, finance and trade to be separated from one another.