Plans from China and Iran to Strengthen Bilateral Relations

By Dezan Shira & Associates
Editor: Felicia Romain

On September 22, Chinese foreign minister Wang Yi and Prime Minister Li Keqiang met with Iranian foreign minister Javad Zarif in Beijing. The meeting aimed to further bilateral ties between Iran and China. During the visit, both Iran and China predicted a successful future for Iran-China relations, especially with the current nuclear deal – the Joint Comprehensive Plan of Action (JCPOA) – underway.

Through the years, China and Iran have continued to foster an extensive diplomatic relationship. Today, China is the biggest customer of Iranian oil and the first in line for Iranian overseas business. Thus, with the progression of the Joint Comprehensive Plan of Action, strengthening bilateral ties between Iran and China looks inevitable.

Details of the Nuclear Deal (JCPOA) 

Under the JCPOA, Iran is called to enact restrictions on its nuclear program in exchange for the lifting of international sanctions against the country. This will include both multilateral and national sanctions related to trade, technology, finance and energy. The implementation of the deal will ensure the peaceful nature of Iran’s nuclear program, and is endorsed by the United Nations Security Council.

Iran and China have emphasized the importance of sticking to the deal, as its completion is expected to be conducive for stronger bilateral ties between the two. Wang Yi stated that both countries agreed that “it is urgent for all sides to deliver their promises and kick off the first step of the implementation process”. Once the deal is in full effect, China and Iran have plans to deepen their already strong economic ties.

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China – Iran Relations 

In the past, Iran was isolated from the global economy; a position that China capitalized upon by securing trade in both the country’s oil and non-oil sectors. Bilateral trade between Iran and China increased by 72 percent from US$39.54 billion in 2013 to US$51.85 billion in 2014. China has also become the destination for up to 29 percent of total commodities exported by Iran, making it Iran’s largest trade partner. In addition, Iran is expected to become a full member of the Shanghai Cooperation Organization.

The biggest industries that China profits from in Iran are essentially oil and energy. With the new goods-for-oil trade agreement, mutual investment between both nations is encouraged in these industries. China being able to invest in Iran’s oil, while simultaneously flooding Iran’s market with cheap consumer goods, is beneficial to both nations. The goods-for-oil trade agreement allows Iran to receive goods and services as payment for 65 percent of the oil it sells to China, while the remaining 35 percent of it is in cash.

“The China-Iran trade space will be one of the fastest growing globally over the next three years, and this will also have a knock-on effect in other countries, including Pakistan and India”, predicts Chris Devonshire-Ellis, Founding Partner of Dezan Shira & Associates.

Other notable areas of trade between China and Iran include crude oil and products, manufactured goods, electronics and arms. China has also invested in Iran span miring, transportation, power generation and the auto industry.

What do Improved China-Iran Relations mean for International Companies? 

After a long period of negotiations, China has invested billions in the highly anticipated pipeline from Iran to Pakistan. Construction will be financed by a US$2 billion Chinese loan, which will cover 85 percent of the cost.  The pipeline will not only open trade routes for Western China, but will also provide China with direct access to resources in the Middle East. For foreign companies, this will open up multiple projects for investment.

Devonshire-Ellis continues: “With Iran having sanctions against it lifted following its nuclear deal with the United States, and with its membership of the strategic Eurasian grouping of the Shanghai Cooperation Organization pending, China’s efforts to strengthen relations with the country have become much easier. International companies can now start to bid for projects involved in the Iran-Pakistan-China pipeline, taking some of the financial heat away from Beijing”.

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