China-Iran: a Limited Partnership
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CHINA-IRAN: A LIMITED PARTNERSHIP Prepared for the US-China Economic and Security Review Commission by Marybeth Davis, James Lecky, Torrey Froscher, David Chen, Abel Kerevel, Stephen Schlaikjer CENTRA Technology, Inc. Updated in April 2013 with revisions to page 50 Disclaimer: This research report was prepared at the request of the Commission to support its deliberations. Posting of the Report to the Commission's website is intended to promote greater public understanding of the issues addressed by the Commission in its ongoing assessment of U.S.-China economic relations and their implications for U.S. security, as mandated by Public Law 106-398 and Public Law 108-7. However, it does not necessarily imply an endorsement by the Commission or any individual Commissioner of the views or conclusions expressed in this commissioned research report. Table of Contents Summary ....................................................................................................................................................... 4 Introduction .................................................................................................................................................. 7 China’s Relationship with Iran ...................................................................................................................... 7 Chinese Investments in Iran’s Energy Sectors ............................................................................................ 10 Iran’s Economic and Energy Challenges.................................................................................................. 10 China’s Energy Challenge ........................................................................................................................ 12 China’s Search for Oil and Gas Abroad ................................................................................................... 15 China’s Search for Oil and Gas in Iran ..................................................................................................... 16 China and Iranian Energy Relationship ................................................................................................... 16 China and Iranian Oil Refining ................................................................................................................. 20 China and Iranian Electric Power ............................................................................................................ 21 Is Iran Skirting the Embargo? .................................................................................................................. 21 Chinese Assistance to Iran’s Nuclear Program ........................................................................................... 25 Origins of the Relationship and Context for Concerns ........................................................................... 25 1990s: Balancing a Response to US Concerns with Continued “Peaceful” Assistance ........................... 27 China’s 1997 Commitments to End Nuclear Assistance to Iran .............................................................. 30 Evolution of Safeguards and Export Controls ......................................................................................... 30 Contradictions and Tensions in China’s Policy ........................................................................................ 32 Are Chinese Entities Continuing to Assist Iran’s Nuclear Program? ....................................................... 33 Impact of Chinese Nuclear-Related Technology Transfers on Iran’s Program ....................................... 34 Chinese Assistance to Iran’s Missile Programs ........................................................................................... 35 Direct Support During Iran-Iraq War ...................................................................................................... 35 The 1990s: Chinese Assistance Improves Iran’s Production Base .......................................................... 37 The 2000s: Sanctions Curb But Do Not Halt Chinese Assistance ............................................................ 38 Evolution and Effectiveness of Export Controls ...................................................................................... 41 Impact of Chinese Missile-Related Technology Transfers ...................................................................... 42 Chinese Diplomatic Supports to Iran on Nuclear/Missile Acquisitions ...................................................... 43 Direct or Indirect Proliferation from China through Third Parties .............................................................. 44 Effectiveness of US and International Sanctions Regimes .......................................................................... 45 Links between China’s Iran Policies and Its Broader National Policy Goals................................................ 48 Diverging Interests May Limit Chinese-Iranian Cooperation ...................................................................... 49 Iran’s View of China’s Shifting Policies .................................................................................................... 50 2 Opportunities for the United States ........................................................................................................... 53 Appendix A: US and International Sanctions Against Iran .......................................................................... 54 International Efforts ................................................................................................................................ 56 Appendix B. PRC Entities Sanctions for Weapons Proliferation to Iran ...................................................... 58 Appendix C. Integrated Timeline ................................................................................................................ 64 Appendix D. PRC Diplomatic Support for Iranian Nuclear and Missile Activities (1997-2012) .................. 72 End Notes .................................................................................................................................................... 83 3 SUMMARY Over the past 30 years, China and Iran have developed an active but limited partnership, cooperating across a spectrum of political, security, and economic interests. They have travelled an uneven path together since the seminal year of 1979, which witnessed the revolutionary birth of Ayatollah Khomeini’s Islamic Republic of Iran and the evolutionary unfolding of the Reform and Opening Policy of Deng Xiaoping’s People’s Republic of China (PRC). In 2012, as a broad coalition of concerned countries seeks to halt Iran’s advance towards developing a nuclear weapon, the terms of the China-Iran partnership continue to adjust to changing regional and global environments and to differences in each country’s economic and military imperatives. Emerging out of very different tumultuous histories, the authoritarian governments centered in Beijing and Tehran share an animus towards “hegemonism” and a fear of internal instability. They pronounce support for developing nations’ solidarity and position themselves as leaders of the non-aligned. In recent decades the United States, supported by regional allies and security partners, has represented the principal hegemonic threat to Iran and China in two different regional contexts: the Persian Gulf and the Western Pacific. US human rights policy and pro-democracy activism threaten to stimulate domestic instability in the eyes of concerned officials in both Tehran and Beijing, where at different times throngs of rebellious pro-democracy demonstrators have been beaten back by central government force. A keen sense of past national humiliation at the hands of foreigners—and more general anti-colonial and anti- imperial sentiment—color each country’s historical narrative even as each also extols the wealth and power of past Persian and Chinese empires, connected by the ancient Silk Road. China and Iran share another set of concerns, practical and economic, that have brought them into close cooperation over the past three decades. As China’s modernizing defense industry was looking for export markets, Iran became a major purchaser of conventional Chinese-made weapons during the protracted Iran-Iraq War of the 1980s. In the 1980s and 1990s China’s most advanced industrial and defense technology programs, in nuclear energy and missile production, provided direct assistance to the Islamic Republic. Chinese assistance during this period was an important factor in Iran’s efforts to restart its nuclear program after the 1979 revolution. Reported Chinese sales to Iran of uranium hexafluoride feedstock for enriched uranium and indirect sales of HY-2 “Silkworm” antiship missiles symbolize that era of cooperation. In the early 1990s more direct nuclear cooperation was in the works as China prepared to sell Iran two 300 megawatt (MW) nuclear power reactors. Even though, after a 1997 commitment to US President Clinton by PRC President Jiang Zemin, China ceased further assistance to the Iranian nuclear program— including its involvement in the civil nuclear power sector—and stopped sales of complete missiles, Iran is now reaping “returns” on China’s earlier investments. China has continued measured support to Iran’s defense programs. For example, Jane’s Defence Weekly reported in 2010 that there were cooperative tactical missile programs underway with Iran and China's