China warns of turmoil over Iran, mute on sanctions

China warned on Wednesday against turmoil in the Middle East from action over Iran's nuclear programme, but declined to comment on the possibility of new sanctions following a UN report that Iran appears to have worked on designing an atomic weapon.

Foreign Ministry spokesperson Hong Lei said China was "studying" the International Atomic Energy Agency (IAEA) report, and repeated a call to resolve the issue peacefully through talks.

"I wish to point out that China opposes the proliferation of nuclear weapons, and disapproves of any Middle Eastern country developing nuclear weapons. As a signatory to the Nuclear Non-Proliferation Treaty, Iran bears the responsibilities of nuclear non-proliferation," he told a daily news briefing.

"The Iranian side should also demonstrate flexibility and sincerity, and engage in serious cooperation with the agency," Hong said, referring to the IAEA.

"I want to stress that avoiding fresh turmoil in the Middle Eastern security environment is important for both the region and for the international community."

Hong made no mention of sanctions, and indicated China was in no rush to take the matter back to the United Nations Security Council, saying only that all sides should do more to promote dialogue and cooperation.

"I've already pointed out that China has consistently advocating using dialogue and cooperation to resolve the Iranian nuclear issue," he said, when asked about the possibility of new unilateral US sanctions on Iran.

Chinese policy-makers are caught between their demand for Iranian oil and worry that the United States and its allies will demand harsher sanctions against Iran, even risk military action, after the IAEA concluded Iran appeared to have worked on designing an atomic weapon.

China has kept close ties with Iran but has also backed past UN Security Council resolutions criticising Iran's position on nuclear issues and authorising limited sanctions.

But China has repeatedly resisted Western proposals for sanctions that could seriously curtail its energy and economic ties with Iran. As one of the Security Council's five permanent members, China holds the power to veto any resolutions.

China has also denounced the United States and European Union for imposing their own separate sanctions on Iran, and said they should not take steps reaching beyond the UN resolutions.

A Chinese state newspaper said a standoff between Iran and the West over Iran''s nuclear plans could erupt in military conflict.

"It is clear that contention between the various sides over the Iranian nuclear issue has reached white hot levels and could even be on the precipice of a showdown," the overseas edition of the People's Daily said in a front-page commentary.

If Iran refused to back down in the face of growing US conviction that it was developing nuclear weapons, "the risks of war will grow", said the paper, noting reports that Israel could consider a military strike on Iranian nuclear sites.

The People's Daily is the top newspaper of China's ruling Communist Party and broadly reflects official thinking, as well as the anxieties weighing on Beijing after the latest UN nuclear agency report.

China's official Xinhua news agency also suggested that Beijing would respond warily to the report. The UN watchdog still "lacks a smoking gun", Xinhua said in a commentary.

"There are no witnesses or physical evidence to prove that Iran is making nuclear weapons," it said.

"In dealing with the Iran nuclear issue, it is extremely dangerous to rely on suspicions, and the destructive consequences of any armed action would endure for a long time."

China is likely to face difficult choices as it tries to keep steady ties with the United States, which is likely to introduce new unilateral sanctions on Iran.

"If these sanctions harm China's substantive interests, then China will have to respond in some way," said Li Hong, the secretary general of the China Arms Control and Disarmament Association, a government-controlled body.

"It would certainly have an impact on bilateral relations," Li said in an interview.

Iran is China's third-largest crude oil supplier, shipping 20.3 million tonnes in the first nine months of the year, up by almost a third on the same time last year, according to Chinese data. Overall trade between the two countries grew to $32.9 billion in value in the first nine months, up by 58 percent.

"The onus will really be on China, as the only country whose economic relations with Iran have grown," Suzanne Maloney an expert on Iran at the Brookings Institution, a think tank in Washington, said in a telephone interview.

Over the past year or more, China has quietly stalled on oil and gas investments in Iran, seeking to ward off stricter unilateral sanctions from Washington while preserving a foothold in Iran. But that implicit deal will come under growing pressure, especially from Congress, said Maloney.

"They've had a compromise for the past 18 months of a go-slow in investment. But it's difficult to see how that bargain can hold in the wake of the latest revelations," said Maloney.

Citing what it called "credible" information from member states and elsewhere, the IAEA said Iran appeared to have carried out activities applicable to developing nuclear weapons, such as high explosives testing and developing a trigger that could be used for an atomic bomb.

This week and last, China urged Iran to show flexibility over its nuclear programme and warned that the use of force to resolve the issue was the last thing the Middle East needed.

Li from the Chinese arms control association said Beijing was worried about the tension, but war remained a slim risk.

"Overall, I think the international conditions show governments couldn't stomach armed conflict over Iran," he said.

"The US economy is in poor shape, and Europe has its debt crisis," he said. "Iran is not like Libya; it has the strength to counter attack."