Chinese banks turn off tap to Iran on US pressure

Iranian traders have faced difficulties in the past week in opening letters of credit with Chinese banks, restricting a key instrument in trade that could harm business ties, an Iranian official was quoted as saying.

China has become an increasingly important trading partner with Iran as expanding UN and US sanctions over Iran's disputed nuclear programme have encouraged Western firms particularly to scale back dealings with the Islamic republic.

Beijing has been resisting moves to further penalise Iran but the US said on Monday it had agreed with China on the basis for more UN sanctions to push Tehran to halt work the West says is aimed at making atomic bombs. Iran denies this.

Asadollah Asgaroladi, head of the Iran-China chamber of commerce, was quoted as saying that Chinese banks "did not open letters of credit for Iranian traders during the past week."

"Chinese banks did not give any reason for the move and if this trend continues it will harm the two countries' economic cooperation and trade exchange," he said in remarks reported first by ISNA news agency and carried by newspapers on Monday.

He did not name any of the Chinese banks. Asgaroladi could not be reached for comment on Monday.

Iranian business executives have also recently spoken of difficulties in opening letters of credit with Chinese banks.

A Chinese source who follows Iranian-Chinese commercial ties said there had been no official Chinese announcement on financial limitations on Chinese banks doing business with Iran.

"Maybe this [action by the banks] is according to some internal risk management because every bank has their own risk management," he told Reuters. He said sanctions could affect such an assessment.

But he added: "Right now the relationship between Iran and China is really good."

Commercial worries

The source put bilateral trade in 2006 at about $15 billion and said it could hit $20 billion in 2007. Asgaroladi had said the $20 billion target could be missed if difficulties with letters of credit persisted.

Iranian business consultant Saeed Laylaz suggested Chinese banks may be concerned about payments with more sanctions threatened but said he did not see China changing its policy of backing trade with Iran.

"[The banks'] worry is commercial but it is based on [Iran's] political case," he said.

A delegation has been sent to China to try to resolve the letter of credit issue, said Asgaroladi. He also said Iran's central bank was working on the case but gave no more details.

Iranian central bank officials had no immediate comment.

During a visit to the Islamic republic in November, Chinese foreign minister Yang Jiechi was quoted as saying Beijing wanted to expand ties with Tehran.

A senior Iranian official said last week Chinese oil firms had renewed contracts to buy crude from Iran, the world's fourth largest oil producer, for the next year and wanted more.

China's Sinopec is also involved in protracted talks on developing Iran's Yadavaran oil field. Chinese oil officials say commercial terms, not politics, are delaying a deal. (Reuters)