Iran’s commercial exchanges with its leading trade partner, China, stood at $7.89 billion in the first seven months of 2021, registering an 8.8% decline compared with the corresponding period of 2020.
As per data provided by the General Administration of Customs of the People’s Republic of China, Iran’s exports to China totaled $3.63 billion, indicating a 2.2% increase year-on-year.
In return, China exported $4.27 billion worth of commodities to Iran, indicating a 16.5% YOY decrease.
Trade between the two countries stood at $1.17 billion in July.
The decline in Iran-China trade is mainly due to the Covid-19 pandemic, but the two sides are taking measures to boost trade turnover back to its pre-coronavirus levels.
Iran is an important economic and trade partner of China in the Middle East. China’s trade with Iran dates back to the ancient Silk Road in the first century BC.
In recent years, the two countries have maintained regular high-level contacts and bilateral economic cooperation has continuously deepened. Iran is also an important overseas investment and project contracting market for China, besides being a key source of its energy imports, reads an article published by China Briefing. Excerpts follow:
China and Iran officially established economic ties in 1937, which were reaffirmed as the countries established their modern forms of government in 1949 and 1979, respectively. Bilateral diplomatic and trade relations have remained steady ever since, built largely on Iran’s abundant natural resources and China’s demand for oil.
The two countries have cooperated in a wide range of projects in several sectors, including energy, technology, defense and infrastructure.
In 2019, Iran approved visa-free travel to the country for Chinese nationals, including Hong Kong and Macao residents, possibly as a means of allowing Chinese travelers to visit the country without being penalized by US sanctions.
Iran has also been a vocal supporter of China on the international stage, backing it in key international forums, such as the United Nations.
The two countries have strengthened diplomatic and economic ties and bilateral trade in recent years, despite sanctions placed on Iran by the international community. In 2016, Xi Jinping became the first world leader to visit Iran after the signing of the Joint Comprehensive Plan of Action in 2015, more commonly known as the Iran nuclear deal, which China was party to.
Since the Trump administration withdrew from the plan and reinstated sanctions in 2018, China has repeatedly called for the US to return to the negotiating table, offering to play a mediatory role in discussions.
The sanctions have hurt trade between China and Iran since their reinstatement in 2018. However, more recent activity between the two countries suggests a determination to advance trade and investment despite the restrictions. To this day, China is Iran’s largest trade partner and major source of investment.
In 2019, Chinese companies poured $3.41 billion in direct investment into the country and signed contracts worth a combined $3.11 billion, according to China’s Ministry of Commerce.
China remains the largest buyer of Iranian crude oil, which is one of Iran’s biggest export commodity. This trend appears to have picked up again in 2021, with Chinese imports of crude oil growing despite US sanctions.
Significantly, China and Iran reached a 25-year strategic cooperation agreement in March 2021. As part of the agreement, China is to invest $400 billion into infrastructure projects in Iran, cementing Iran’s position as a critical link along the ‘New Silk Road’ of China’s Belt and Road Initiative, and paving a new path for bilateral trade and cooperation.
Both sides have been low key about the specific commitments alluded to in the agreement, whose objective is likely primarily to create a facilitative environment for Sino-Iranian trade and business.
Over the last two decades, China has emerged as Iran’s biggest trading partner, with the total volume of trade between the two countries exceeding $20 billion annually.
According to Chinese Customs Office statistics in 2019, bilateral trade between China and Iran amounted to $23.02 billion. That marks a sharp drop of 34.5% from 2018, due to the US sanctions.
As a major industrial supplier to Iran, China mainly exports electrical machinery, broadcasting equipment, vehicle parts, organic chemicals, and rubber tires to Iran. In 2019, China exported goods worth $9.59 billion to Iran, down 31.6% year-on-year.
Iran’s share in Chinese international trade is much less significant, making up 0.5% of China’s total foreign trade. In 2019, Iran exported $13.43 billion worth of commodities to China, down 36.4% YOY. The main products that Iran exported to China include crude oil, ethylene polymer, and iron ore.
Although Washington’s withdrawal from the Iran nuclear deal in May 2018 and the reimposition of sanctions on Tehran hit China’s imports of crude oil from Iran, China remains the biggest buyer of Iranian crude oil.
In turn, Iran is China’s seventh largest source of oil imports. Throughout 2019, China imported $7.155 billion worth of crude oil from Iran, accounting for about 6.3% of China’s crude oil imports.
Trade Agreements
China and Iran signed a bilateral investment agreement in June 2000, which came into force on Jan. 7, 2005.
As BITs set out terms and regulations for private investors in the partner country, an important function of BITs is providing protection and guarantees for both individuals and companies in the host country. These are provisioned in addition to protections already guaranteed under a host country’s domestic laws and include mechanisms for foreign investors to raise and settle disputes in a neutral court should the host country fail its obligations to protect their rights.
The existence of the China-Iran BIT guarantees that investors and companies from both countries receive the same treatment by the host country as that awarded to domestic investors or investors from a third country.
Moreover, China and Iran signed an agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income on April 20, 2002, which came into effect on Aug. 14, 2003, and became applicable starting Jan. 1, 2004.
From an investor’s perspective, confusion about international taxation can arise when investors are subject to two potentially conflicting tax systems.
The existence of China-Iran DTA not only provides certainty to investors regarding their potential tax liabilities but also acts as a tool to create tax-efficient bilateral investments where applicable.
Opportunities
Chinese investment in infrastructure projects could properly assimilate Iran into the Belt and Road Initiative as a transit point linking Asia, Europe and the Middle East.
Project contracting is a highlight of China-Iran economic and trade cooperation. Chinese enterprises have contracted many large-scale construction projects in Iran, involving water conservancy, transportation, energy, steel and petrochemicals, among others.
Chinese companies acting as general contractors have led Chinese manufacturers in related industries to export complete equipment and mechanical and electrical products to these large construction projects in Iran.
Future exports and imports among Eurasian countries could be made simple with Iran joining the BRI. However, to make it happen, Beijing will need to strike a balance between its ties with Tehran and the rest of the Middle East, where it is also seeking partnerships.
