Chinese firms bypass sanctions on Iran, U.S. says

By John Pomfret
Monday, October 18, 2010

The Obama administration has concluded that Chinese firms are helping Iran to improve its missile technology and develop nuclear weapons, and has asked China to stop such activity, a senior U.S. official said.

During a visit to Beijing last month, a delegation led by Robert J. Einhorn, the State Department's special adviser for nonproliferation and arms control, handed a "significant list" of companies and banks to their Chinese counterparts, according to the senior U.S. official, who spoke on the condition of anonymity to discuss a sensitive issue in U.S.-Chinese relations. The official said the Obama administration thinks that the companies are violating U.N. sanctions, but that China did not authorize their activities.

The Obama administration faces a balancing act in pressing Beijing to stop the deals and limit Chinese investments in Iran's energy industry. U.S. officials say they need to preserve their ability to work with China on issues ranging from the value of its currency to the stability of North Korea. But the administration also wants to make progress in efforts to dissuade Iran from building a nuclear weapon and to convince other powerful states that China is not receiving lenient treatment because of its energy needs.

"My government will investigate the issues raised by the U.S. side," said Wang Baodong, a spokesman for the Chinese Embassy.

Einhorn's trip is part of a worldwide effort by the Obama administration to persuade countries to push Iran to enter into negotiations over its nuclear program, which the Islamic Republic says is peaceful. The Obama administration has cobbled together a growing network of countries and companies that have announced measures to cut investments in Iran.

China's involvement in Iran's energy sector and the role that some of its companies are believed to be playing in Tehran's military modernization could disrupt U.S.-Chinese relations. In a recent meetings on Capitol Hill, China's outgoing deputy chief of mission, Xie Feng, was told that "if he ever wanted to see Congress united, Democrats and Republicans, it would be on the issue of China's interaction with Iran," one participant said, speaking on condition of anonymity to disclose a private discussion.

After the U.N. Security Council authorized enhanced sanctions against Iran in June, the United States, the European Union, Japan, South Korea, Australia and Canada passed laws to further restrict investment in Iran's energy sector. The U.S. law authorized the president to sanction any company found to be selling gasoline to Iran or that had invested $20 million or more in Iran's energy sector. INPEX, the Japanese energy giant, announced last week that it was pulling out of Iran.

China thus becomes the last major economy with significant investments in Iran's energy industry. Russia does not have major investments there and recently canceled the sale of an advanced antiaircraft missile to Iran, refunding the $900 million sticker price.

"China now is the only country with a major oil and gas industry that's prepared to deal with Iran," the U.S. official said. "Everyone else has pulled out. They stand alone."

Each nation, particularly permanent members of the Security Council such as China, is responsible for abiding by the U.N. sanctions.

If one country does not, others can point out those failures, which is what Einhorn did. Other nations can also ban their companies from doing business with the wayward firms. The U.S. government did that at least 62 times with Chinese companies during President George W. Bush's first term, generally regarding missile-technology deals with Iran.

The U.S. official speaking anonymously said U.S. intelligence thinks that Chinese companies and banks have been involved in providing restricted technology and materials to Iran's military programs. He said that these deals occurred both before and after the enhanced U.N. sanctions were approved in June.

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