China Cementing Its Position as Iran's Top Trade Partner

EghtesadOnline: From bilateral trade to finance contracts and civil projects, China arguably has the strongest presence in Iran among all other countries.

News ID: ۷۸۲۱۲۱

14 March 2018

The Islamic Republic of Iran Customs Administration's monthly data, reviewed by Financial Tribune, shows non-oil trade between Iran and China amounted to $19.7 billion during the 11 months to Feb. 19, marking a $3 billion (18%) growth compared with last year’s $16.8 billion.

Iran exported $8.2 billion worth of non-oil goods commodities to China during the 11-month period. Non-oil exports to China amounted to $7.3 billion during the corresponding period of last year.

Imports from the East Asian country grew by $2.1 billion (22.5%) to reach $11.5 billion, according to Financial Tribune.

The volume of trade between Iran and China is targeted to rise between 15-20% annually by the end of Iran’s Sixth Five-Year Development Plan in 2022.

To reach the target, the two countries have recently started talks over the possibility of ditching the US dollar in bilateral trade. The issue was discussed during a meeting between a Chinese delegation and the Central Bank of Iran in late December.

Chinese Foreign Minister Wang Yi, during a meeting with his Iranian counterpart Mohammad Javad Zarif in June, reiterated his country's support for Iran's accession to Shanghai Cooperation Organization, to which Iran is an observer member.

> Transport & Infrastructure

Iran has signed several large deals with Europeans since the removal of sanctions; contracts with Airbus, ATR and Total are notable examples.

Europeans have to take cautious steps for rebuilding ties with Iran due to the US pressure.

Experiencing less pressure from the US, China and to an extent Russia managed to expand their presence in Iran’s post-sanctions economy, especially in its infrastructural projects.

In fact, transportation and infrastructural projects have become the axis of cooperation between Iran and China, chiefly due to Iran’s “vital” position in China’s multibillion "One Belt, One Road" initiative which aims to revive the ancient Silk Road and ease Chinese’ access to Europe.

Iran finalized a €2.2 billion deal with China National Machinery Import and Export Corporation to electrify a 926-km railroad from Tehran to the northeastern city of Mashhad. China opened a $1.7 billion line of credit for the project in December 2017, five months after a contract was signed for the project in Tehran.

Last week, two rail-related contracts were signed in Tehran between the companies of the two countries. A contract worth $790 million was signed between Iran’s Construction and Development of Transportation Infrastructures Company and China Machinery Industry Construction Group Inc. for the construction of Section-1 of the 446-km Shiraz-Bushehr Railroad.

Another €500 million contract was signed between the Industrial Development and Renovation Organization of Iran and CRRC Nanjing Puzhen Company, a Chinese railroad rolling stock manufacturer, for the design, procurement, supply, manufacture and delivery of 450 subway wagons for the Iranian cities of Ahvaz, Shiraz and Tabriz.

It was also announced last week that China Railway Rolling Stock Corporation Changchun Railway Company and Tehran Wagon Company have won the tender to build and supply 630 cars for Tehran’s Subway. The project is worth more than €782.66 million and will be financed by the Chinese side.

A high-speed line from Tehran to Qom and Isfahan is another major railroad project Iran is carrying out with the help of Chinese firms, for which Iran has already signed a contract with China Railway Group Limited.

“Although the contract, which is currently in effect, was signed in 2015 with an estimated value of €1.8 billion, its scope and value are expected to expand,” Asghar Fakhrieh-Kashan, deputy minister of roads and urban development, told Financial Tribune in May.

Earlier this week, officials from Qeshm Island Free Trade Zone travelled to China to conclude a contract with Aviation Industry Corporation of China over the development of an airport City on the southern Iranian island.

Iran is also expected to finalize a contract for the development of Tehran-Hamedan-Sanandaj Railroad with Chinese firms, Iran's Ministry of Roads and Urban Development announced on Monday.

China has also established a direct cargo train to Tehran. The first-ever train traveling the long route from China to Iran set off from Yiwu City in China’s Zhejiang Province on Jan. 31, 2016. It covered 10,399 km, passing through Kazakhstan and Turkmenistan, to reach the border station of Incheborun after 14 days. Several more such trains have traveled the route ever since.

> Finance & Banking

Five Iranian banks jointly signed a finance deal worth $10 billion with CITIC Trust, a Chinese state-owned investment company, in September to fund development projects in Iran.

A memorandum of understanding was also signed between 14 Iranian banks and the Development Bank of China on financing construction and production projects worth €15 billion.

Talks are also underway over a $10-billion credit line from China’s Eximbank, sources familiar with the issue told Financial Tribune.

In the latest development, an unnamed Chinese company recently signed an MoU with Iran Air to finance the flag carrier’s massive plane orders.

Earlier in January and after weeks of speculation about the banking problems of Iranian students and businesses in China, Chairman of Iran-China Chamber of Commerce Asadollah Asgaroladi said Iranian bank account closures were being resolved and that certain Chinese banks were calling on Iranians hit by the closures to reopen their accounts.

Earlier in December, Exim Bank of China and China Development Bank signed a contract with Iran’s Health Ministry to extend $2 billion in finance for the construction of five hospitals in the Islamic Republic.