China Investments in Iran Near $27b

EghtesadOnline: China invested $26.92 billion in Iran from 2005 to 2019.

News ID: ۷۴۹۵۰۴

21 January 2020

The American Enterprise Institute added that of the total investment volume, 1.53 billion were made in chemical industries, $11.1 billion in energy, $4.96 billion in metals, $160 million in real estate, $6.92 billion in transport and $2.25 billion in utilities, according to Financial Tribune.

Among Iran’s neighboring countries, China invested $56.33 billion in Pakistan, $3.48 billion in Afghanistan, $6.8 billion in Turkmenistan, $1.92 billion in Azerbaijan, $15.96 billion in Turkey, $23.95 in Iraq, $41.16 billion in Saudi Arabia and $34.7 billion in the UAE over the period.

The value of China’s overseas investment and construction combined since 2005 exceeds $2 trillion.

In 2019, the average size of Chinese construction deals overseas shrank and investment fell outright. Greenfield investment and the Belt and Road Initiative became relatively more important.

The American Enterprise Institute for Public Policy Research, known simply as the American Enterprise Institute, is a Washington-based think tank that researches government, politics, economics and social welfare. AEI is an independent nonprofit organization supported primarily by grants and contributions from foundations, corporations and individuals.

Iran's Biggest Trading Partner

Besides making huge investments in Iran, China has for long been Iran's biggest trading partner.

Latest data released by the Islamic Republic of Iran Customs Administration show Iran's non-oil exports to China constituted 24.87% of total exports in terms of tonnage (103.58 million tons) and 11.01% of overall value of exports ($31.9 billion).

Last fiscal year's exports to China stood at $9.3 billion to register a 2% rise compared to the year before.

Imports from China dropped more than 28.5% in weight and 22% in value year-on-year, IRICA reported without mentioning the value and volume of imports.

Iran's ambassador to China, Mohammad Keshavarz-Zadeh, said the future of bilateral relations is promising and any Chinese investment in financial and scientific fields will be advantageous for Iran.

Addressing a Students Day commemoration ceremony in Beijing in December, the ambassador referred to the 25-year strategic plan between Iran and China, and said it has a great impact on developing and strengthening the two countries' relations.

The official noted that there are currently about 1,700 Iranian students studying in China, adding that there are opportunities to increase that number.

"We are witnessing an increase in the number of Iranian students in China every day," he said.

Iran-China Private Negotiations

Iran’s private sector is in negotiations with the Chinese for creating a barter trade system, the president of Tehran Chamber of Commerce, Industries, Mines and Agriculture said upon returning from a recent visit to China.

“Negotiations are in their final stages and when implemented, barter trade will be carried out in cooperation with China and Hong Kong, which will facilitate and speed up our commercial ties,” Masoud Khansari was quoted as saying by the news portal of Iran Chamber of Commerce.

The official added that Iran and China’s private sectors have agreed to launch an arbitration center to settle any commercial disputes between traders and businesspeople of the two countries after the reimposition of US economic sanctions against Iran.

“We had meetings with officials of Beijing and Shanghai Chambers of Commerce as well as Iranians residing in China … The Chinese sides expressed their willingness to invest in Iranian mineral, power plant and agricultural projects, which promise early profit returns, but said their investments will be indirect due to the sanctions against Iran,” he said.

Khansari noted that Iran is aiming to increase the share of Chinese tourists in its inbound tourism and agreements have been made for China’s tourism agencies to introduce Iran as a destination to their clients.

Doing Business Despite Sanctions

The relationship between China and Iran goes back thousands of years, but has come under greater scrutiny since the United States withdrew from the Joint Comprehensive Plan of Action.

On Sept. 25, 2019, the US blacklisted Chinese companies for importing Iranian oil in violation of US sanctions for the second time in three months.

Since the US pullout from JCPOA in May 2018, China has reiterated its intention to uphold the deal and protested Washington’s unilateral actions. It even said it will continue trading with Iran, even though it could be susceptible to US sanctions, the Atlantic Council wrote.

The most important aspect of the China-Iran relationship is Beijing’s oil imports. From 2017 through September 2018, China imported at least 630,000 barrels per day (bpd) from Iran. In anticipation of the US reintroducing sanctions on Iran’s oil sector in November 2018, China reduced its purchases of Iranian oil by about two-thirds in October.

Days after the oil sanctions went into effect, the US announced that eight countries—including China—were receiving waivers allowing them to purchase Iranian oil for 180 days.

China’s waiver reportedly allowed it to import 360,000 bpd, but Beijing resumed imports of at least 390,000 bpd in November. By March, China was importing over 613,000 bpd and in April its imports reached 800,000 bpd, as the waiver period came to a close.

After the waivers expired in May, China stopped importing Iranian oil at first, but soon resumed taking shipments. Reports suggest that China imported between 163,000–186,000 bpd in June, 101,000–226,000 bpd in July and 105,000–186,000 bpd in August.

It’s worth noting that bilateral trade has also fallen drastically. Chinese imports of Iranian goods fell almost 70% from October to December 2018. Between October 2018 and February 2019, Chinese exports to Iran dropped from $1.2 billion to $428 million.

While bilateral trade did increase up to the oil waiver’s expiration, it cooled off over the summer, falling back under $2 billion in June and July. In 2018, trade in those months was around $3-3.5 billion respectively.

Much of the drop-off in trade is because of a policy change at the key financial conduit for transactions between the two: the Bank of Kunlun.

In 2012, China picked the Bank of Kunlun, owned by CNPC, as its main bank for processing payments between China and Iran to shield other Chinese banks from dollar-based sanctions. That same year, the US Treasury Department sanctioned the bank for violating sanctions.

Following the US withdrawal from JCPOA, the bank suspended euro-denominated transactions with Iran in August and then yuan-denominated transactions in November. It resumed yuan-based trade in January, but in compliance with US sanctions. This means Iran would be unable to repatriate its earning and the bank would only service humanitarian goods exempt from sanctions.

As sanctions were reimposed, many worried that Chinese companies would come to dominate the Iranian market, as they replaced the withdrawing European companies. However, it is difficult to ascertain whether this has happened, as English-language reports on the topic are scarce.

One clear-cut case has been the South Pars Gas Field. France’s Total and CNPC originally held shares in a project to develop the gas field, but CNPC took over the former’s share in November 2018 after Total withdrew because of US sanctions. CNPC then suspended the deal the following month.

The lack of reporting is particularly so regarding the many deals China and Iran made for subway cars and other rail projects like the Tehran-Mashhad electric rail line. Nonetheless, several deals have been made since the US withdrawal, particularly in the energy sector.

In July 2018, officials from Yazd Province signed an agreement with Chinese and Italian firms for several solar projects, and shortly after oil sanctions were reimposed, construction started on a power plant in Alborz Province with a Chinese company.

Similar to the South Pars project, reporting has been more common with Chinese investments in Iran’s energy sector. Like South Pars, Sinopec offered to invest $3 billion in the Yadavaran Oilfield in January 2019, only to freeze its investment plan in May.

A Chinese company is also reportedly proceeding with development of Abadan Oil Refinery and an offer was made to build a $2 billion refinery along the Caspian Sea. By January, China was said to have already invested $2 billion into the former.

In August, it was announced that China had also “reengaged” in the South Pars Gas Field, Yadvaran Oilfield and the Jask Oil Terminal projects, with another report saying negotiations about South Pars are ongoing.

More generally, a Global Times article from January states that some Chinese companies left Iran while others stayed, often making a healthy profit by doing so.

Along these lines, an aluminum refinery that a Chinese company was involved in opened in July and a smelter that company is building is expected to come on stream in March 2020.