China’s Multilateral Trade With Iran, Situation and 2023/24 Prospects
By Farzad Ramezani Bonesh
The history of trade relations between Iran and China goes back to the first contact between the two governments in 140 BC. In the past century, the new economic relations between the two countries have been accompanied by ups and downs. Since 1952, the economic relationship between Iran and China has developed, and since 1972, a new relationship between Tehran and Beijing has been established. In the last four decades, relations have become more prominent, and with the least fluctuations in commercial and economic relations, many Iranian officials and leaders have visited this country. The trade relations between Iran and China have become closer during the last decade, reaching US$15.83 billion in 2022, and also resulting in a 25-year cooperation agreement being signed the previous year.
The relations between Tehran and Beijing have been upgraded to the level of comprehensive strategic partnership, including relations in all economic, political, security, military, cultural, social, educational, scientific, and other fields.
According to President Ebrahim Raisi, Iran and China are “friends in difficult circumstances”. From Tehran’s point of view, the ‘look-to-the-east’ policy, cooperation with Asia, relations with China in the Belt and Road Initiative, getting closer to BRICS, China’s initiative to increase the number of BRICS members, and the establishment of Iran’s commercial offices will increase Iran-China trade and economic interactions.
From this point of view, with Iran’s recent and full membership in the Shanghai Cooperation Organisation, Iran can take advantage of China’s weight in neutralizing sanctions and confronting American unilateralism, de-dollarization in trade, and reopening financial resources and investment.
With last year’s visit of the Vice Prime Minister of China to Iran and the visit of the President of Iran to China, good understandings and commercial contracts were established and helped to develop relations. During Ebrahim Raisi’s visit to Beijing in February 2023, the two countries signed a long term, 25 year agreement including multiple agreements in trade, transportation, information technology, and tourism.
Over the past year, there have also been agreements on deepening comprehensive strategic partnerships, strengthening joint financial-banking mechanisms, developing and promoting economic relations, providing an executive platform for the steering agreement, implementing a comprehensive cooperation program, increasing cooperation in the fields of trade, agriculture, industry, and renewable energy, infrastructure, holding the 18th meeting of the Iran-China Joint Trade Committee in 2023, participation in the production and increase of high-quality goods in Iran, development of e-commerce, and so on.
Recently, the Consulate General of China has been opened in Bandar Abbas (southern Iran), which can play a valuable role in developing the relations between the two countries and deepening the logistics and commercial cooperation between China and Iran, and especially along the INSTC.
Energy and mines
Iran has the highest natural gas and proven crude oil reserves in the world. In China’s energy diversification policy, Iran has significant potential in contributing to China’s energy security. In the last decade, despite the US sanctions, China has been the biggest buyer of Iranian oil. China has become much more cautious but has continued to exchange oil with Tehran and has maintained its share.
While Iran’s oil exports have grown in 2022 and the first months of 2023, China is the largest customer of Iranian oil and set a new record in December 2022. Also, strengthening cooperation and developing cooperation with the aim of increasing the share of renewable energies in Iran is considered by both sides. China needs Iran’s raw materials and minerals. Iran has rich resources such as iron ore. Also, strengthening cooperation in industrial and mining capacities in Iran is being considered by both sides as the INSTC, which bisects Iran, is expected to help boost Iranian manufacturing. At the same time, Iran is one of the main exporters of iron ore and steel ingots to China.
The Belt & Road Initiative
In 2016, President Xi Jinping made a successful visit to Iran, with the two countries establishing a comprehensive strategic partnership and signed a memorandum of understanding on the “Belt and Road” cooperation. In fact, with the BRI, China seeks to expand transportation and logistics infrastructure, trade links, and increase cultural exchanges. Beijing also needs Iran’s active support for the BRI. In another dimension, Iran has a strategic position along the old Silk Road, and it seems that China sees Iran as a route for better access to the Middle East, Central Asia, and the Caucasus.
Tehran’s role in the BRI and Route Three, or the Kazakhstan-Uzbekistan-Turkmenistan corridor, and Route Four, or the Kyrgyzstan-Uzbekistan corridor and Turkmenistan-Iran corridor, are prominent. In this regard, in June 2022, China’s first international freight train to Iran was opened, and a new logistics channel was opened for trade with Iran.
The 25-year Memorandum of Understanding Between Iran and China
In March 2021, Tehran and Beijing signed a 25-year cooperation document worth US$400 billion to deepen trade relations, but there are still many implementation challenges, such as sanctions. Among the important parts of the cooperation document in fields such as oil, mining, industry, transportation, and agriculture, promotion of banking, financial, and insurance cooperation and opening of bank branches and establishment of the Iran-China Joint Bank, construction of the railway, development of fossil energy infrastructure, strengthening the strategic corridors, the development of Makran beaches, and increasing the export of oil products to China. The MoU also suggests opportunities for cooperation in petrochemicals, renewable energy, highways, and ports and promoting Iran’s participation in the BRI.
With the start of the implementation of the document in 2022, if China enters Iran’s projects in the form of financing or direct investment, it will promote investment.
China, with its banking sector assets, is the center of attraction of foreign investment and an important country for foreign direct investors in other countries, and because of its largest foreign currency reserve is under consideration by Tehran.
It seems that Beijing has concentrated on establishing innovative infrastructures of the Belt & Road Initiative, such as logistics centers, the high-speed rail system of Tehran and Mashhad, and the improvement of Imam Khomeini Airport.
Beijing is the fourth largest investor in Iran and has invested US$2.5 billion in Iran over the past 12 months. Apart from the 150% growth of Chinese investment in Iran during 2022, some Iranian sources believe that an additional US$16 billion are being invested in the form of finance. In addition, during 2022, the interest of Chinese companies to enter the Iranian market and the signed contracts between the two countries in the field of joint projects have grown appropriately.
Agriculture and other fields
Along with China’s assistance to Iran to improve food security and production capacity of agricultural products, Beijing is also willing to cooperate with Iran in agriculture and import more Iranian quality agricultural products.
Iran appreciated China for creating a “green channel” for exporting Iran’s agricultural-food products to China. Several agreements were signed last year, such as plant quarantines, health permits, food export, dairy export, kiwi export, and citrus fruits.
In addition, the private sector of the two countries are pursuing joint cooperation. The 25-year agreement foresees the expansion of bilateral cooperation in other economic sectors, training of manpower, technology, and tourism. China can help Iran reach 20 million foreign tourists. The announcement of the cancellation of Iranian visas for Chinese tourists has also helped in the expansion of tourism.
China-Iran trade exchange in 2022 has reached US15.83 billion, with a growth of 7% compared to the previous year. China’s exports to Iran have reached US$9.5 billion. China’s imports from Iran have reached US$6.4 billion. Iran’s share of China’s total global trade was 0.25 percent, signifying plenty of room for growth.
The main export goods of Iran to China include crude oil, minerals, petrochemical derivatives, construction materials, bitumen, steel products, iron, and other semi-finished metals, food, dry fruits and saffron, rubber, leather, bags, accessories, and so on. China exported motor vehicles, car body parts and accessories, industrial oils, fertilizers, medicine, machinery, electronic devices, steel products, fabric, rubber, car accessories and parts, paper, and cardboard, and food products.
China was at the top of the list of Iran’s trading partners in Iran’s trade exchanges this spring, and the a record volume of Iran’s exports to “China” has been achieved. However, the UAE was in first place among countries that import goods from Iran.
The China-Iran Vision
The embargo policies have created problems in the trade and sale of oil and caused damage to the relations between Tehran and Beijing, and some Chinese companies have been sanctioned. Iran is also facing secondary and (FATF) sanctions.
Therefore, some Chinese companies fear that they will face restrictions such as sanctions if they enter Iran. The import of 2,000 items banned by Tehran has a negative effect on the volume of trade with China.
The challenges in the economic relations between Iran and China are important, and without the revival of the JCPOA for large economic projects, the 25-year agreement with China cannot be fully implemented at this stage. However, the prospects for the growth of relations without the JCPOA can also be significantly expanded.
Considering the complementarity of economic capacities and the existence of various fields of cooperation, bilateral and multilateral cooperation in the fields of energy, investment, and the BRI, the expansion of trade between the two sides is practical.
It seems that Tehran will create new opportunities to attract Chinese investment by covering and guaranteeing investment. Also, the cooperation between Beijing and Tehran in opposing the imposition of US sanctions against Iran, the process of “de-dollarization” in global trade, bilateral currency exchanges, and the use of the national currency, barter exchanges, and other indirect payment channels can lead to the development of commercial relations.