By Gleb Garanich and Natalia Zinets

BUCHA/LVIV, Ukraine (Reuters) – Moscow signalled on Friday it was scaling back its ambitions in Ukraine to focus on territory claimed by Russian-backed separatists as Ukrainian forces went on the offensive to recapture towns on the outskirts of the capital Kyiv.

In the first big sign that Western sanctions on Moscow were impacting investment from China, sources said state-run Sinopec Group, Asia’s biggest oil refiner, halted talks on a petrochemical investment and a venture to market Russian gas.

In the month since Moscow launched its invasion of Ukraine, Russian troops have failed to capture any major city. Their assault has met stiff resistance from Ukrainian forces and has been halted outside Kyiv.

The Russians have instead been bombarding and encircling cities, laying waste to residential areas and driving around a quarter of Ukraine’s 44 million people from their homes.

More than 3.7 million of them have fled abroad, half to neighbouring Poland. U.S. President Joe Biden travelled to Poland on Friday, meeting soldiers from the U.S. Army’s 82nd Airborne Division bolstering NATO’s eastern flank and getting a look at efforts to help refugees.

“I’m here in Poland to see first hand the humanitarian crisis,” Biden said.

Battlelines near Kyiv have been frozen for weeks with two main Russian armoured columns stuck northwest and east of the capital. A British intelligence report described a Ukrainian counter-offensive that had pushed Russians back in the east.

“Ukrainian counter-attacks, and Russian forces falling back on overextended supply lines, have allowed Ukraine to reoccupy towns and defensive positions up to 35 km east of Kyiv,” the report said. Britain has given Ukraine arms and military training.

In an announcement that appeared to indicate more limited goals, the Russian Defence Ministry said a first phase of its operation was mostly complete and it would now focus on “liberating” the breakaway eastern Donbass region.

“The combat potential of the Armed Forces of Ukraine has been considerably reduced, which … makes it possible to focus our core efforts on achieving the main goal, the liberation of Donbass,” said Sergei Rudskoi, head of the Russian General Staff’s Main Operational Directorate.

A senior diplomatic source in Moscow described the announcement as a possible prelude to a climbdown.

“Their war aims are/were much wider than Donbass, leaving their force divided with poorly coordinated attacks on multiple fronts by unprepared troops,” the source said.

UKRAINIAN COUNTER-ATTACK

Moscow calls its actions in Ukraine a “special military operation” to demilitarise and “denazify” Ukraine. Ukraine and its Western allies have dismissed this as a baseless pretext for an unprovoked war launched on Feb. 24.

Russia’s defence ministry said 1,351 Russian soldiers had been killed 3,825 wounded, the Interfax news agency reported. Ukraine says 15,000 Russian soldiers have died.

Volodymyr Borysenko, mayor of Boryspol, an eastern suburb where Kyiv’s main airport is located, said 20,000 civilians had evacuated the area, answering a call to clear out so Ukrainian troops could counter-attack. Ukrainian forces recaptured a nearby village the previous day and would have pushed on but halted to avoid putting civilians in danger, he said.

On the other main front outside Kyiv, to the capital’s northwest, Ukrainian forces have been trying to encircle Russian troops in the suburbs of Irpin, Bucha and Hostomel, reduced to ruins by heavy fighting.

In Bucha, 25 km (15 miles) northwest of Kyiv, a small group of Ukrainian troops armed with anti-tank missiles was digging foxholes. A Ukrainian soldier who identified himself only as Andriy told Reuters he had enlisted as soon as the invasion began.

“I told my wife to grab the children and to hide in the basement, and I went to the drafting station and joined my unit straight away,” he said.

The United Nations said it had confirmed 1,081 civilian deaths and 1,707 injuries in Ukraine since the invasion, adding that the real toll was likely higher.

The southeastern port of Mariupol, a city of 400,000 before the war, has been among the worst hit by the Russian bombardment. Tens of thousands of people are still believed to be trapped with little access to food, power or heat, while the city around them has been reduced to ruins.

Local officials, citing witness accounts, said they estimated that 300 people were killed in the bombing of a theatre in Mariupol on March 16. The city council had not previously provided a toll and made clear it was not possible to determine an exact figure after the incident. Russia has denied bombing the theatre.

The governor of Ukraine’s Donetsk region, Pavlo Kyrylenko, said Ukrainian forces still controlled Mariupol. Around 65,000 people had fled but efforts to organise mass evacuations under ceasefires had mostly failed.

The cities of Chernihiv, Kharkiv and Sumy in the east have also endured devastating bombardment. Chernihiv was effectively surrounded by Russian forces, its governor said.

‘CANCEL CULTURE’

Western sanctions have isolated Russia from global trade. Moscow warned that billing in roubles for natural gas exports to heavily dependent Europe could be just days away, leaving buyers wondering how they could get their hands on the currency.

Speaking at a meeting with leading cultural figures broadcast on national television, President Vladimir Putin accused the West of trying to cancel Russian culture, including composers Pyotr Tchaikovsky and Sergei Rachmaninov, comparing it to actions by Nazi Germany in the 1930s.

China is the biggest power not to have condemned the Russian invasion and has repeatedly voiced opposition to the sanctions.

The Reuters report that Sinopec had suspended discussions about investments potentially worth $500 million was the first concrete sign that sanctions are affecting trade between Moscow and Beijing.

Beijing has insisted it will maintain trade links. But it is pressing Chinese companies to tread carefully.

“Companies will rigidly follow Beijing’s foreign policy in this crisis,” said an executive at a Chinese state oil company. “There’s no room whatsoever for companies to take any initiatives in terms of new investment.”

(Reporting by a Reuters journalist in Mariupol, Natalia Zinets in Lviv and Reuters bureaus worldwide; Writing by Peter Graff and Nick Macfie; Editing by Angus MacSwan, Andrew Cawthorne and Frances Kerry)