A Reappraisal of China-Iran Ties After US JCPOA Withdrawal

On May 8, after weeks of negotiations with European leaders, US President Donald Trump withdrew the US from the Joint Comprehensive Plan of Action (JCPOA), the nuclear deal signed between Iran and several other world powers, citing concerns that the JCPOA had failed to constrain Iran’s progress in nuclear weapons development.

Not all world leaders shared Trump’s approach. Apart from Iran’s leaders, who, naturally, objected to the imposition of renewed sanctions on their country, European and Chinese leaders both expressed discontent, and have since worked with Iran to preserve elements of the existing deal (Anadolu Agency, May 16). While Britain, Germany and France might find themselves adversely affected by US withdrawal, China and, to a certain extent, Russia, might gain. The reactions of each of the world powers following Trump’s announcement reflect this understanding.

Several days after the announcement of the US withdrawal, Germany’s second-largest bank, DZ, announced it would freeze all Iran-related financial transfers starting from July, pending clarification of the situation. (Reuters, May 18) US withdrawal also seems to have endangered Iran’s planned purchases of passenger planes from France, the US, and Italy (The National, May 9).

Business As Usual for China

China, however, has continued efforts to build ties, which it initiated after sanctions were lifted (Al Jazeera, January 24 2016). Within two days after US announced its withdrawal, China inaugurated a new railroad connecting Bayannur, in Inner Mongolia, to Tehran. The railroad was planned beforehand and its construction begun several years before, but the timing of the inauguration was not coincidental; rather, it was meant to convey a message of partnership to the Iranian people (Xinhua, May 10). Additionally, a few days later, PRC Foreign Minister Wang Yi, hosted his Iranian counterpart, Mohammad Javad Zarif, for the first meeting in a series meant to save the nuclear deal (SCMP, May 13). China also invited Iranian President Hassan Rouhani to the Shanghai Cooperation Organization (SCO) summit on June 9-10, in order to express their support, and discuss with the other members of the conference the best ways to maintain stability Rouhani welcomed the efforts by Russia and China in maintaining the JCPOA, and detailed the global and regional challenges. The main challenges according to him are: “terrorism, extremism, separatism and drugs”. He offered to use Iran virtues to promote “original international economic cooperation”. (Tehran Times, June 10).

Differing Chinese and European reactions derive from the profound differences in their business environments. European multinational companies typically maintain extensive ties to the US economy. Contravening US sanctions might place their US market share at risk, or, worse, could place them at risk of fines or prosecution by US authorities. Since European companies are private businesses, management would have to explain the losses to angry shareholders.

On the other hand, Chinese companies operating in Iran maintain close ties with the Communist regime and the Communist Party and thank to this fact they are protected. This protection comes from “Beijing’s careful strategy of keeping their key economic assets isolated from wider global market transactions” (The Washington Times, June 7, 2018). The new situation could be even better than in the past for Chinese companies: “By driving away American, European and Japanese companies, the sanctions could increase opportunities for Chinese businesses,” according Hu Xingdou, an economist at the Beijing Institute of Technology (SCMP, May 18). Less stringent enforcement by Chinese authorities also means that that a Chinese company, unlike its European counterpart, can more easily set up front companies, to obscure from the United States the parent company’s relationship with Iran.

These and other factors have helped drive forward Chinese business in Iran: in May, Sinopec, the Chinese oil giant, signed a $3 billion deal to develop the Yadavaran oil field in southwest Iran, replacing the British-Dutch oil giant, Royal Dutch Shell, which concluded operations in Iran were too risky. China National Petroleum Corporation (CNPC) is also hoping to acquire the French oil company Total’s share in the development of the South Pars gas field. The French company withdrew from the project after Trump withdrew from JCPOA (The Middle East Monitor, May 30).

Indeed, the previous round of sanctions did not deter deep Chinese involvement in Iran, and following the partial lifting of sanctions in 2015, the PRC’s presence in Iran strengthened even further; China is now Iran’s largest trading partner, and trade between the two has continued to grow. During the past year Iranian exports to China increased by about 25 percent, while China’s exports to Iran increased by about 20 percent (Financial Tribune, February 6). Apart from the aforementioned deals by PRC petroleum majors, large PRC infrastructure projects in Iran have gone forward, including agreements to supply the Tehran subway, and the operation of a railway connecting Tehran with the Chinese trade hub of Yiwu (Xinhua, September 12 2016; The Diplomat, March 20 2016).

Statements made by Chinese officials confirm that China will step up its cooperation with Iran. For example, during a press briefing, Chinese Foreign Ministry spokesman Geng Shuang said that Iran and China would “maintain normal economic ties and trade”, adding, “I want to stress that the Chinese government is opposed to the imposition of unilateral sanctions and the so-called long-arm jurisprudence by any country in accordance with its domestic laws (PRC Foreign Ministry, May 9).”

The View from Iran

Analysis of the Iranian attitude toward closer relations, on the other hand, should be divided between the regime and its citizens. The regime is maneuvering to preserve a status quo in which the US alone is boycotting Iran, while Europe and members of the SCO maintain normal ties (Press TV, June 10). In the service of this objective, regime-linked media has sought to portray President Trump as an irresponsible enemy of the world order, in contrast with European and Chinese leaders’ concern with maintaining stability (Tehran Times, May 8).

The regime cooperates with China for several reasons, foremost among which is China’s use of its permanent seat on the UN Security Council to shield Iran from sanctions, on the grounds that they would be “counterproductive” (Tehran Times, September 7, 2006). Another is Iran’s wish to expand its links with the SCO in order to find new partners for trade and cooperation, as a way to diminish American influence in Asia. The most fundamental reason, however, is because the regime requires buyers for its oil; its nightmare scenario is losing control of the country because of a lack of financial resources (Times of Israel, June 30, 2018).

Both regimes make reference to their long heritage and shared history of trade and cultural exchange, presenting the ties between them as strong and understandable. They contrast this with the US’s involvement in a region where it has neither heritage nor history, portraying themselves as brothers suffering from boycotts and sanctions imposed by an arrogant West (People’s Daily, January 12).

The attitude of Iranian citizens towards their country’s ties with China are more complicated than that of the regime. Many Iranian citizens see China not as an ally, but as an opportunist taking advantage of Iran’s situation. In an interview, an international relations specialist working for a local government in Iran said, “Iranian’s attitude toward China is similar [to the rest] of the world, a country [that makes junk] and cannot be reliable beyond its own interests, with or without sanctions.” However, PRC efforts to shape Iranian perceptions may be gaining traction. For example, the Chinese government has invested significant resources in providing Iranian students with scholarships to study in China. Raza, an Iranian student living in China while pursuing his MA, confirms that he went to China thanks to a generous Chinese government scholarship. “This scholarship”, he says, “is much higher than my salary in former city, Shiraz”.

The attitudes of Iran’s citizenry towards China may be tied up in their feelings towards their government’s spending habits. After the signing of JCPOA in 2015, many Iranians expressed discontent that funds released by the deal did not reach the public, but were rather directed towards the Syrian regime, the Houthis movement in Yemen, and Hezbollah and Hamas. The public was not supportive of the regime’s use of the new resources to support its expansionist ambitions, and saw little change after Chinese companies began to displace their European and American counterparts. For example, the Chinese automotive brand Geely, which set up factories in Iran to replace departed European companies, came in for a great deal of criticism for its quality from Iranian consumers. “It’s an appalling car manufacturer, and yet another one floating Iran with cars made on old platforms.” (The Guardian, February 20 2013).

The renewal of US sanctions, with Europe perhaps soon to follow, has the potential to bring the Iranian people out on the streets to demand a government that seeks cooperation with the West, rather than supporting regional terror. To forestall such instability, the Iranian regime may seek to rely on China for economic and political assistance. China’s global ambitions may lead it to accede to such a request. As a result, Sino-Iranian ties may be on the brink of a new era, one that may disproportionately benefit China, which will enjoy a market with very little competition and huge energy reserves.

Roie Yellinek is a PhD student in the Department of Middle Eastern Studies at Bar-Ilan University in Israel, studying Middle Eastern countries’ response to the growth of China, from 1992-2015. Currently, Roie works and writes for the Begin-Sadat (BESA) Center for Strategic Studies, the Kohelet Policy Forum, and the China-Med project.

Notes

[1] Author’s interview, August 6 2018.