China Looks Towards Iran

CAMILIA RAZAVI and DANIEL KHALESSI take an in-depth look at China's growing footprint in Iran.

In 138 BC, a Chinese imperial envoy named Zhang Qian set out to traverse the dangerous plains of Central Asia on horseback, ultimately entering the Persian Empire. On January 30th, 2016, Chinese President Xi Jinping descended from his airplane in Tehran, marking the continuation of a two-thousand-year-old relationship between the two civilizations.

"Iran has historically been one of China's most significant trading partners," says Dr. Lu Yang, Professor in the Department of History at Peking University. "For centuries, Persia and China engaged in trade over land and sea. During the Tang Dynasty, Persia transferred important technology for sea travel to China."

Today, Chinese leaders and entrepreneurs are reinvigorating the history of close economic ties between the two countries. President Xi became the first foreign head of state to visit Iran in the aftermath of the recent nuclear deal and the suspension of international sanctions against Iran. After a series of meetings between President Xi and Iranian leaders--namely Supreme Leader Ali Khamenei, President Hassan Rouhani, and the Majlis (Iran's parliament) -- the two governments ambitiously agreed to increase bilateral trade from $55 billion to $600 billion over the next decade. In September 2015, only a few months after the P5+1 finalized the nuclear deal, a single Chinese businessman Sheng Kuan Li invested $200 million in a steel mill in Zarinabad, even bringing laborers from China to work at the facility.

"Iran and China have become natural allies because of practical necessities and not certainly due to ideological compatibility," says Monshipouri. "Iran is a stable country in a region of political instability and has a great deal of resources that China needs."

President Xi's decision to increase bilateral trade with Iran, however, coincides with recent economic problems in China. Last year, China's 6.9 percent increase in GDP marked its slowest growth rate in a quarter century. Likewise, the economic activity of China's manufacturing and services sectors experienced a slowdown. Despite these challenges at home, China has continued to place a high value on its increased trade and investment in Iran.

China's greater involvement in Iran can also be viewed as a means of strengthening its strategic and economic foothold in the Middle East. "Chinese officials frequently emphasize their interest in maintaining a balance of power in the region," says Paul Haenle, Former China Director on the National Security Council staffs of the Bush and Obama administrations and Founding Director of the Carnegie-Tsinghua Center. "China sees Iran as a Middle Eastern partner in ensuring the United States is not dominant in the Middle East." Moreover, China's partnership with Iran and the recent multilateral negotiations over Iran's nuclear program may have been mutually reinforcing.

Despite receiving little media attention, the economic relationship between China and Iran played an important role in the outcome of the nuclear negotiations. "During the P5+1 negotiations, China was able to offer Iran the prospect of greater bilateral economic cooperation that would benefit Iran's stressed economy if an agreement was reached," says Mr. Haenle. Indeed, China argued that the suspension of sanctions would create immense economic advantages for Iran. According to Mr. Haenle, "China repeatedly called on Iran to take advantage of the opportunity to lift the economic burden caused by international concerns about its nuclear program and reap subsequent economic benefits, including Chinese investment and joint infrastructure development."

While many experts and policymakers discuss the merits of an American pivot to Asia, China is pivoting to the world, starting with Iran.

Before this agreement however, sanctions prevented European countries from accessing Iranian oil markets, allowing China to purchase oil from Iran and invest in Iran's energy production sector. Indeed in 2014, China doubled its quota for infrastructure investments in Iran. As reported in the Chinese newspaper Xinhua, President Xi stated that China and Iran would be "natural partners" in his One Belt, One Road Initiative, which attempts to promote greater economic connectivity between China, Central Asia, and the Middle East.

Some scholars, however, point out that the partnership between the two countries is more likely grounded in pragmatism than political ideology. "Iran and China have become natural allies because of practical necessities and not certainly due to ideological compatibility," says Mahmood Monshipouri, Visiting Professor at UC Berkeley and Middle East expert. "Iran is a stable country in a region of political instability and has a great deal of resources that China needs." The proxy wars and conflicts between Iran and Saudi Arabia can increase regional instability and pose risks to China's ease-of-access to Iran's resources.

Despite tensions between Iran and Saudi Arabia, it is important to note that President Xi visited both nations during his Middle East tour. The simultaneity of President Xi's economic diplomacy with the two geopolitical rivals of the region could potentially allow China to serve as a third party mediator in the event of a conflict. According to Monshipouri, the rationale for these strategic visits might be to show the world that China is "keen on maintaining stability in the region and has worked assiduously and diligently to have bilateral relationship with all key countries in the region." Greater regional stability, in turn, can strengthen the confidence of Chinese investors as they contemplate new ventures in the Middle East.

The trade and investment trends emerging in the aftermath of the Iran nuclear deal provide a valuable window into China's possible strategic ambitions in the Middle East. In the midst of economic challenges at home and brewing tensions in the Middle East, President Xi's historic visit to Iran and the new $600 billion trade deal may be part of China's larger strategy of sustaining a balance of power against the United States while reaping the economic benefits of a more globally integrated Iranian economy. While many experts and policymakers discuss the merits of an American pivot to Asia, China is pivoting to the world, starting with Iran.

Camilia Razavi is a Middle East analyst, graduate of UC Berkeley, and former intern at the White House Domestic Policy Council. Contact her at crazavi@berkeley.edu.

Daniel Khalessi is a Yenching Scholar at Peking University and graduate of Yale's Jackson Institute for Global Affairs. Contact him at daniel.khalessi@aya.yale.edu.