Economy, Domestic Economy

China Looks Toward Iran

China Looks Toward IranChina Looks Toward 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.

In January 2016, Chinese President Xi Jinping descended from his airplane in Tehran, marking the continuation of a 2,000-year-old relationship between the two civilizations, reads an article recently published in American news aggregator and blog The Huffington Post. Parts of the article are presented below.

“Iran has historically been one of China’s most significant trading partners,” says 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 top Iranian officials, 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.

President Xi’s decision to increase bilateral trade with Iran, however, coincides with recent economic problems in China. Last year, China’s 6.9% 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,” he said.

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 among 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 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.