The leaders of China and Iran have agreed to try and raise their bilateral trade to US$600bn within a decade, a week after the west lifted sanctions on the Islamic Republic.
At a meeting in Tehran, Xi Jinping and Hassan Rouhani agreed 17 accords which will deepen ties on energy and infrastructure and which will cement China’s position as Iran’s primary superpower ally.
Bilateral trade ties are already very strong, with China being Iran’s largest trading partner for six consecutive years. Trade between the two has increased four-fold since 2005, while Chinese state-owned enterprises have been investing in Iranian projects for many years.
Iran took on a ‘Look East’ policy in the 2000s in response to its continued isolation from western markets, with China being the primary source of trade and investment ever since.
“Chinese imports from Iran are dominated by energy imports. Iran provides 8.9% of Chinese oil imports. In addition, China is the largest provider of good to Iran. The market potential of Iran is very significant for Chinese exporters, for example in the automobile and high-tech sector,” Moritz Rudolf of the Mercator Institute for China Studies tells GTR.
Iran is expected to become an important hub on China’s One Belt One Road (OBOR) infrastructure splurge, with the country’s fledgling high-speed rail network thought to be a focus of Chinese investment.
Given that bilateral trade just recently surpassed US$50bn, the target figure of US$600bn seems wildly optimistic – especially since the base is already relatively high. Trade with western nations can expect to grow at exponential levels, on the other hand, given the fact that it is starting out at virtually nil.
“The case of Russia illustrates that China recently failed to reach its trade targets. Russia and China had aimed to increase bilateral trade in 2015 to US$100bn. But instead of increasing, bilateral trade plummeted to US$64.25bn,” Rudolf says.
International banks in Hong Kong still refused to be drawn on their post-sanctions plans for Iran this week, even after the news on China’s interest was clear. HSBC, JP Morgan and Standard Chartered, all of which have been heavily fined by US authorities for breaching sanctions in the past, declined to comment on the latest development when contacted by GTR.
“The privileged position that China has recently enjoyed in the country’s economy is likely to be eroded over time,” Tom Rafferty, EIU
One trade lawyer in the city confirmed that he had been working on Iranian business for companies not restricted by sanctions, but confirmed that banks have yet to resume financing. Enquiries over OBOR opportunities, however, continue to pile in, according to another source.
“The lifting of sanctions provides a major opportunity for economic development. Given the traditionally friendly relationship between China and Iran, you can expect Chinese firms and banks will be at the forefront of this investment. We’re already advising clients on major infrastructure and investment deals as part of One Belt One Road, so the economic effect is already being felt throughout the region,” Linklater’s managing partner in China, Fang Jian, tells GTR.
The political machinations behind the summit are also abundantly clear, coming days after the US-led sanctions regime on Iran was relaxed, and Iran was freed up to trade with the large swathes of the world from which it was cut off for decades.
Western firms have been vocal in their support of the lifting of sanctions and eyeing up trade and investment opportunities in Iran. Xi’s visit to Tehran, then, can be interpreted as an attempt to solidify the strong ties and to earn China preferential treatment from Iran, amid huge interest from around the world.
“In theory, an easing of restrictions on trade and investment with Iran should make life easier for Chinese firms doing business there. However, the lifting of sanctions also gives Iran an opportunity to diversify its investor base and attract western companies.
“As such, while there remain political and economic incentives to further deepen Sino-Iranian ties, the privileged position that China has recently enjoyed in the country’s economy is likely to be eroded over time,” Tom Rafferty, China economist at the Economist Intelligence Unit told GTR in an email exchange.
Meanwhile, Iran may hope to leverage the support of China, a permanent member of the UN Security Council, in future diplomatic issues.
In the aftermath of his meeting with Xi, the Iranian Ayatollah Khomeini was in belligerent form, saying that Iran does not trust the west and praising China’s longstanding commitment, throughout the long period in the wilderness.
He said: “The Islamic Republic will never forget China’s co-operation during the sanctions era. Westerners have never obtained the trust of the Iranian nation. The government and nation of Iran have always sought expanding relations with independent and trustful countries like China.”