China is reportedly forbidding banks from issuing letters of credit (L/Cs) for shipments in and out of Baltic ports amidst growing tensions between Lithuania and China.

The tensions were triggered when Lithuania allowed Taiwan to open a representative office in the Lithuanian capital of Vilnius last month. Beijing sees this as a violation of its 'one-China' principle that asserts that there is only one sovereign state under the name China, and Taiwan is part of China

China responded to the opening of the Taiwanese representative office in Lithuania by downgrading diplomatic relations with the Baltic state, prompting Vilnius to withdraw its diplomats and their families from Beijing.

L/Cs forbidden

Amongst several tit-for-tat actions, the People's Bank of China is rumoured to have forbidden banks from issuing L/Cs for transactions with shipments in or out of any port in the Baltic states.

It is not clear specifically which ports China's central bank has barred from L/C transactions but it is apparent that Beijing is using Lithuania's EU membership to pressure more powerful European member states into bringing Vilnius into line.

Pressure on EU states

German and French firms have reportedly been told not to ship goods with Lithuanian components to China, a move that could block substantial numbers of containers already in transit.

Chinese importers meanwhile have been unable to list Lithuania as a country of origin in China's customs databases.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.