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06BEIJING24492 2006-12-13 11:22:00 CONFIDENTIAL Embassy Beijing
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1. (C) Noting President Hu Jintao's commitment that China
will support UN sanctions on items that could contribute to
Iran's nuclear program, MFA International Organizations
Department UN Affairs Division Director Yang Tao told Poloffs
December 13 that Beijing is comfortable with reftel draft
text except for "financial sanctions." Yang said poloffs
that Beijing appreciates the latest EU-3 efforts to revise
the UNSC resolution text, claiming that it lays a strong
foundation for finding a consensus. Beijing also "hopes"
that the UNSC will be able to unanimously adopt the
resolution. Stressing the PRC desire to be able to vote in
favor of the draft, Yang said China is "unlikely to veto a UN
Security Council resolution."

2. (C) Yang cautioned that "at this time" the PRC does not
consider financial sanctions against Iran necessary and
stressed that the Russians also share this position.
Expressing understanding for the theoretical argument in
favor of sanctions to block WMD financing, Yang insisted that
they would not work in practice. He stated that China views
financial sanctions as a "very serious move that would hurt
Iran's entire economy as well as the Iranian people."
Foreign investment in Iran would be interrupted as banks
would question exactly how the sanctions apply in business
transactions, Yang argued. "This would have a spill-over
effect on the world economy," he claimed. Yang stated that
financial sanctions are "too expensive a bet" for the UNSC
for now, arguing that this type of pressure may backfire
since some in the Iranian leadership would use financial
sanctions to justify speeding-up Iran's nuclear weapons
program development. Such financial sanctions should be a
future step applied against Iran if it refuses to comply with
the current draft UNSC resolution.

3. (C) Poloffs stressed the need for strong, concerted and
effective UNSC action to respond to Iran's continuing
intransigence. Noting Yang's argument that financial
sanctions should be saved for later, Poloffs pointed out that
this does not imply optimism about Iran's willingness to
cooperate with the international community.