This followed U.S. President Barack Obama's statement the previous week saying that while the Russians have become 'forward leaning' on the sanctions issue, China's support remains a question.

Washington's focus on China over the Iranian issue comes in the midst of a rocky patch in overall Sino-American relations. China has consistently resisted the push for sanctions, as they could put Beijing's energy security at risk and curtail its growing bilateral relationship with Tehran. Ultimately, the Chinese do not have to make a final decision on sanctions until the UN Security Council (UNSC) takes a vote. But China has few tools to use against the United States to resist sanctions — and to do so would run the risk of provoking American reactions that China would rather avoid.

Root of Tensions
The Chinese and American partnership has undergone several strains since American financial troubles became global financial troubles in late 2008. Inherent characteristics of the two economies, and their mutual dependence, made it inevitable that economic and trade tensions would arise. China's single largest customer is the United States, to which it exported $220.8 billion worth of goods and services in 2009, 18 per cent of China's total exports. By contrast China is the United States' third largest export market, importing $77.4 billion in total in 2009. In the process of running large trade surpluses, China has racked up $2.39 trillion in foreign exchange reserves and invested about one third of that into U.S. Treasury debt, thereby helping the U.S. Federal Reserve to maintain low interest rates that perpetuate U.S. consumption of Chinese goods.

U.S.-Chinese economic and financial interdependency has called attention to vulnerabilities and disagreements. The Obama administration slapped tariffs on Chinese-made tires in September 2009, and a host of other disputes have arisen at the World Trade Organisation (WTO). While these disputes are mainly political efforts meant to release domestic social pressure, both states are aware that there is potential for protectionist tactics to spiral out of control, making the relationship inherently uneasy and suspicious.

Economic tensions are coupled with military ones. There is already lack of trust between China and the United States on the question of defence. Beijing's military power has increased as its economic success has enabled greater reforms and better weaponry, and Beijing's rising military profile has caused concern among states that doubt its intentions. Meanwhile the United States is the world's leading military power by far, and not only dominates the oceans with naval power (implicitly threatening China's vital supply lines) but also maintains strong alliances with states on the Chinese periphery, including Japan, South Korea and Taiwan, a territory Beijing claims as its own. Military-to-military talks were cancelled in 2008 when the Bush administration agreed to a new arms package to Taiwan, and briefly restarted when China cancelled them again in 2010 following the Obama administration's approval of the deal.

These broader national security issues have become entangled with the trade spats. China has threatened sanctions on American arms manufacturers for making the weapons that Washington is selling to Taiwan in the most recent U.S. arms package. China's threat to introduce retaliatory sanctions marks a harsher reaction to such arms deals than in the past. On a separate front, a conflict has erupted over China's Internet control policies and American cyber-security. China has also reacted sharply against American criticism of its policies in dealing with ethnic minorities and separatism in Xinjiang and Tibet, which has created another diplomatic row in light of President Obama's meeting with the Dalai Lama on February 18.

Resistance to Sanctions
While trade and defence tensions have long been present in the Sino-U.S. relationship, the controversy over the Iranian nuclear programme — and the U.S. push for sanctions — have introduced a new, urgent and potentially destabilising element into the dynamic. China has rejected the idea of new sanctions since the Obama administration launched negotiations in mid-2009, and the Chinese have shown increasing displeasure with the U.S. sanctions drive since late December 2009 by postponing and sending lower-level officials to negotiations with the P-5+1 group, which consists of the five permanent members of the UNSC (China, the United States, the United Kingdom, France, and Russia) plus Germany. China's Foreign Ministry has continued its rejection of sanctions in 2010.

China's position on Iran follows from its concerns for energy security. China imported about 51 per cent of its oil in 2009, and Iran was the third largest supplier, providing about 11.4 per cent of its imports — after Saudi Arabia (20.5 per cent) and Angola (15.8 per cent). While the current batch of proposed sanctions do not target Iranian oil exports, they would escalate tensions in the Persian Gulf overall. China fears that a military conflict could erupt that would threaten supply lines from other Gulf providers, such as Saudi Arabia or Oman, since the Iranian retaliation might target the Strait of Hormuz through which roughly half of China's total oil imports transit. Without a steady stream of Gulf oil, China's ability to maintain economic growth would be threatened. And China is not willing to take such risks with its energy supply.

Moreover, China's exports of gasoline and refined oil products to Iran have grown in recent months. Iran's dysfunctional domestic energy situation forces it to import these goods, and China has excess refining capacity. This growing area of trade would specifically be targeted in international sanctions, as the Americans have long signaled that Iran's dependency on external sources of gasoline is its Achilles' heel. Sanctions against Iran would also interfere with China's investments in Iran's energy sector — including China National Petroleum Corp's (CNPC) planned exploration of Iran's massive South Pars natural gas field in March, as well as deals for oil production involving CNPC in Iran's North Azadegan and Sinopec in the Yadavaran oil field. In other words, while China will not base its decisions solely on its exports to and investments in Iran, those considerations are substantial and will not be ignored.

China also has a reputation to uphold. Especially in recent years, China has positioned itself as a global leader, seeking to complement its economic power with rising military and political status. Beijing has made its voice heard at the United Nations, the G-20 and other global forums as a leader of the developing countries and a counterweight to the developed countries. Simultaneously, China has sought to play a more active role in international security operations, including peacekeeping and disaster relief, and has taken a leading role in the international anti-piracy efforts off the coast of Somalia, all with the intention of enhancing its prestige and developing powers outside the economic sphere.

These efforts are also meant to present China as a potential alternative global leader to the United States, and to earn supporters and followers. A substantial amount of credibility thus rests on China's defending of states like Iran that are antagonistic toward the United States — if China turns its back on Iran, then countries in Latin America, Africa and Southeast Asia that might have thought they could count on Beijing in a pinch will have to rethink their policies. On the contrary, if Beijing can prolong negotiations and delay serious action on Iran, it can extend the time in which the United States is bogged down in the Middle East, winning more room to manoeuvre towards meeting domestic and international objectives.

Limited Options
Beijing's problem is that it has very few tools with which to influence the United States' behaviour in general, not to mention towards Iran. China's only tools to pressure the United States are economic — specifically through trade disputes and purchases of U.S. debt — and they would backfire. Beijing is also not able to directly affect negotiations between the United States and Russia on sanctions. And if sanctions are proposed in the UNSC, China can veto them only if it is prepared for the blowback from the United States.

China's chief weakness lies in the fact that it cannot escape economic troubles until its export sector revives, but the United States has the ability to put pressure on this sector. The Obama administration has shown a willingness to exercise Section 421, an American law that China admitted into its WTO accession agreement in 2001 that gives the United States the right to enact barriers when it perceives that a dramatic increase in Chinese imports into the American market could disrupt domestic producers. The significance of the September tire tariffs was primarily to warn China that Washington is willing to use this prerogative and there is little China can do about it. If Beijing should seek to retaliate through its own tariffs, it risks provoking a trade war with the United States that it could not win, since its economy is too fragile to sustain the shocks that could be caused by a more aggressive use of Section 421, or more drastic measures.

Even China's great advantage of being the United States' primary creditor does not provide as much leverage as one might think. At the latest tally (in December 2009), China held around $755 billion in U.S. Treasury debt, about 6 per cent of total U.S. government debt. Slowing or stopping the purchase of U.S. Treasury bonds could have an effect on the U.S. economic recovery, were it feasible for China to do so. But selling off large chunks of American debt would not only require finding lots of very rich buyers, but would leave Beijing with nowhere to invest its surplus dollars month after month, since the other deep debt markets are unsafe (Japan), vulnerable to exchange rate risk (Europe) or too small (everyone else). Investing that much cash into commodities would both roil global debt markets and drive commodity prices sky high. Even if Beijing could successfully diversify away from U.S. debt, the move would cause interest rates to rise in the United States and disrupt U.S. consumption patterns crucial for China's economy (and global economic stability).

A Russian Turn?
Recently, prominent Russian authorities have made statements implying that Moscow was becoming more willing to endorse sanctions. As long as Russia appears intransigent on the U.S. call for sanctions, it provides China with diplomatic cover. But if a Russian shift is in fact under way — and there is no hard evidence yet that the United States has offered the concessions necessary to win Russia over — then it will have an impact on China's strategy.
Moscow is critical to the efficacy of any sanctions regime because it can circumvent sanctions by means of its communication and transportation routes through the Caucasus and Central Asia to Iran. Without Russia, international sanctions will not work. Unlike Russia, however, China is not capable of making or breaking sanctions covertly through its participation or lack thereof — its links to Iran go over sea routes, making them vulnerable to American naval power (while the land routes from China to Iran are logistically unfeasible and still hinge on Russian influence). Finally, the United States and European allies are not likely to bring sanctions to a vote at the UNSC unless they have already gained the assurances they need from Russia — and China has no ability to impact these negotiations.

If a resolution authorising sanctions goes to the UNSC, China will have to determine whether to approve, abstain or to exercise its veto (and China has only vetoed sanctions once, sanctions against Zimbabwe in 2008). Voting for sanctions, China will be stuck with enforcing them (and all that enforcement entails) and managing the domestic and international blow to its reputation for caving to American demands despite its much-vaunted rising power status. Still, this is a path that China has taken before, and is also likely to take in the event that sanctions are watered down. But even if China abstains from voting to register its displeasure, it will be bound by law to enforce the sanctions, or else it will be publicly exposed for undermining them and subject to a harsh reaction from the United States.

Alternately, if the Chinese were to veto a sanctions resolution, they would risk marginalising the UNSC's role in dealing with Iran. The United States has shown before that it is willing to act with an international coalition outside of the United Nations, and Iran presents just the type of scenario in which the United States can do so with broad international support, including all the leading European powers and possibly even Russia. Since the UNSC is a key arena for China in attempting to expand its global influence, Beijing would suffer the effects of both isolating itself from the American coalition and seeing the influence of its UNSC seat dwindle.

Looking Ahead
With little impact on the international negotiations, and limited ability to challenge the United States, Beijing can only attempt to play the diplomatic game and stall. The Russians have not yet signed onto sanctions, and as long as they remain in limbo, Beijing does not have to commit. Nevertheless, exposure to the United States is the reason that China's Communist Party leadership has become consumed with furious internal debate over the country's path forward. Beijing is fully aware that the United States plans to withdraw from the Middle East in a few years, which raises the frightful question of where the superpower will focus its attention next. China is afraid that it is the next target, and sees renewed U.S. attention to Southeast Asia as the beginning of a full-scale containment policy. The problem for China is that to decrease its vulnerability to foreign powers will require difficult reforms, and at a time when the Communist Party is approaching a leadership transition in 2012 and the course ahead is uncertain. With these considerations in mind, China must weigh whether it can afford to break with the United States now over Iran, or whether it could better spend its energies fortifying against what it sees as a likely onslaught of geopolitical competition from the United States in a few short years.
— Stratfor

. top