China is no saviour for sanctions-hit Iran

Despite US sanctions increasing China’s importance for Iran, the relationship remains far from straightforward.
Sunday 17/02/2019
A 2016 file picture shows Iranian officials applauding on the platform as a train connecting China and Iran arrives at Tehran Railway Station. (AFP)
Hope springs eternal. A 2016 file picture shows Iranian officials applauding on the platform as a train connecting China and Iran arrives at Tehran Railway Station. (AFP)

“The Chinese are coming to Iran not just to convince Iranian merchants to buy from them but as a nation studying other countries’ history,” said a middle-aged Tehran professional. “They remind me of British travellers some years ago, with paper and a pen, writing down information.”

In the early 2000s, the Chinese built three lines of the Tehran metro, power stations and a highway from Tehran to the Caspian Sea. Haier, the white goods group, opened a joint venture production line at Isfahan. Tehran’s first Chinese-run restaurant opened with waitresses in Chinese tunics and hijabs.

Iranian shoe and textile manufacturers complained of an influx of Chinese plastic sandals apparently intended for Africa and cheap polyester blankets adorned with Superman and other emblems but still, by 2010, Iran’s trade with China surpassed that with Europe.

While welcoming Chinese energy companies, Iran has long rated their technology below that of European majors such as Total. In 2014, a dissatisfied Tehran ended China National Petroleum Corporation’s role in the major Azadegan field, although the project’s status is unclear.

Iran recently expressed disquiet over progress in phase 11 of the South Pars gas field, where the Chinese firm became the lead developer after Total exited in fear of sanctions introduced after US President Donald Trump withdrew from the 2015 nuclear deal.

Iran’s preference for Europe is evident outside the energy sector. When the European Union ended financial and energy sanctions after the 2015 nuclear agreement was signed, bilateral trade with Europe leapt 53% in 2017.

Despite US sanctions increasing China’s importance for Iran, the relationship remains far from straightforward.

First, Beijing’s state-run energy companies drive hard bargains in buying oil and in oil recovery projects.

Second, Iran is relatively low in Beijing’s calculations. At $500 billion, China’s annual exports to the United States dwarf its trade with Iran of about $40 billion. While Iran supplied China with an average 588,000 barrels per day (bpd) of crude in 2018, Beijing bought more from Russia (1.44 million bpd) and Saudi Arabia (1.14 million bpd).

An analysis by London business analysts Bourse & Bazaar suggested that China’s exports to Iran dropped 70% from October to December after two months of tightened US sanctions. Iranian customs figures reported by Radio Farda suggest a 12% year-on-year fall in Chinese exports in the nine months of the Iranian calendar ending December 20.

Bourse & Bazaar attributed the fall to a decision by China’s Kunlun Bank to put Iran trade on hold and, in December, to restrict it to humanitarian goods. Oddly, Kunlun is already sanctioned by the US Treasury for involvement with Iran and had been processing trade in euros and yuan.

Two other factors are in play. High inflation in Iran has probably dampened demand. Iran also has a growing commitment to self-sufficiency or the resistance economy: imports from China of $16.4 billion in 2016 were down from the record $24.3 billion of 2014.

“The authorities, including [Iranian] President [Hassan] Rohani, have been telling people that buying too many Chinese goods means exporting jobs,” said the Tehran professional. “[State] television has been showing emotional videos supporting Iranian products.”

Politically, China condemned US withdrawal from the nuclear deal and, like Russia, rejected Europe’s protests over Tehran’s missile programme. “No country is under any obligation to observe sanctions unilaterally imposed by the United States,” opined the Communist Party’s China Daily, which criticised America for risking “what the international community has achieved on the nuclear issue… [while] further destabilising the Middle East.”

And yet Ali Akbar Salehi, head of Iran’s Atomic Energy Organisation, recently reiterated complaints of the Chinese dragging their feet in redesigning the Arak heavy water reactor according to the terms of the 2015 nuclear deal. Salehi attributed this to Beijing’s fears of US sanctions.

Chinese Foreign Ministry spokesman Geng Shuang this month welcomed Europe’s establishment of the Instrument in Support of Trade Exchanges (INSTEX), a special purpose vehicle (SPV) to protect Iran trade from Washington’s sanctions. Geng hinted China might use INSTEX, a move that could enhance the international role of the yuan, which was accepted as a reserve currency by European banks in 2018.

“This is an ever-more complicated situation with Iran, China and the US,” said an Arab security analyst in Europe. “We don’t expect the SPV to be commensurate with the grand talk. It will basically do food and medicine.”

Any Chinese participation would be cautious, he added, and with an eye to its more important dealings with the United States.

“China has a lot to lose from this trade war [with Washington], especially at a time when [its] economy is slowing. I don’t think US-China relations will return to where they were even if the Democrats win the White House in 2020, because there is bipartisan concern over China’s threat to US predominance. The Chinese are ahead in many crucial areas like artificial intelligence, quantum computing, 5G, fintech [financial technology] and electric cars.”