CORRECTED COPY: PRC/IRAN: BEIJING RESPONDS TO

C O N F I D E N T I A L BEIJING 024499 SIPDIS SIPDIS USUN FOR PHEE NSC FOR WILDER E.O. 12958: DECL: 12/13/2026 TAGS: PREL MNUC ETTC IR CH SUBJECT: CORRECTED COPY: PRC/IRAN: BEIJING RESPONDS TO DEMARCHE ON UK-FRENCH DRAFT RESOLUTION REF: STATE 197807 Classified By: Political External Unit Chief Edgard Kagan. Reasons 1.4 (b/d). ¶1. (C) Noting President Hu Jintao's commitment to President Bush in Hanoi 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. Randt