Sanctions against Iran drive up China trade tenfold in decade

PUBLISHED : Tuesday, 01 March, 2011, 12:00am
UPDATED : Tuesday, 01 March, 2011, 12:00am

Sanctions against Iran have created more opportunities for trade with China, which totalled US$29.3 billion last year.

'China's economic ties with Iran have to some extent been made easier by Western divestment,' said An Baojun , a researcher at the Chinese Academy of International Trade and Economic Co-operation, which is under the Ministry of Commerce. An spent several years in Iran studying Middle Eastern issues.

The volume of bilateral trade has increased more than tenfold over the past decade, from US$2.5 billion in 2000 to US$29.3 billion last year, according to China Customs trade figures collected by the Global Trade Atlas, a Geneva-based company that provides trade data to the private sector, the UN and the World Bank.

'As some countries retreat from the Iranian market,' An said, 'it actually creates more opportunities for some Chinese companies.'

In 2008, Iran's Pars Oil and Gas Company reached a deal with China National Offshore Oil Corp to exploit the North Pars gas field. The pact was signed after oil giant Royal Dutch Shell and Spanish oil company Respol withdrew from Iran; French energy firm Total had also announced plans to abandon its investment in a gas project in Iran.

More recently, Japan's unilateral sanctions, passed in September, froze the assets of individuals and entities linked to Iran's nuclear programme, banned the provision of insurance or reinsurance services, barred Japanese financial institutions from buying bonds issued by Iran's central bank, and banned financial activity with 15 designated Iranian banks that could contribute to nuclear activities.

Toyota Motor suspended vehicle exports to the country indefinitely in June. In September, South Korea temporarily closed 102 companies believed to be helping Iran's nuclear programme, including the Seoul branch of Bank Mellat, an Iranian bank that handles about 70 per cent of South Korean exports to Iran.

'The sanctions won't cripple bilateral trade,' said Yin Gang, a researcher at the Chinese Academy of Social Sciences' Institution of West Asia and Africa Studies. Most of the bilateral trade in recent years has not involved weapons and other banned goods, such as battle tanks, large-calibre artillery and combat aircraft.

In fact, officials in China and Iran have expressed optimism about boosting trade relations.

'We are doing our best to increase the level of bilateral economic co-operation,' said Yu Hongyang, China's ambassador to Iran, during a commerce meeting with Iranian officials last month.

Trade is expected to hit US$50 billion by 2015, said Asadollah Asgaroladi, chairman of the Sino-Iranian Chamber of Commerce, during a meeting in Beijing last month.

China is Iran's second-largest trading partner, behind the European Union, which traded US$32.3 billion in goods with Iran last year, according to Eurostat trade figures collected by Global Trade Atlas.

Already, China is the largest importer of Iranian goods - last year, the volume was US$18.2 billion, according to China Customs figures from the Global Trade Information Service. China exported US$11.1 billion in goods to Iran last year.

The total trade figures between China and Iran might actually be larger, because much transshipment goes through neighbours, such as the United Arab Emirates. 'An estimated 30 per cent to 40 per cent of trade with Iran is channelled through its neighbours,' An said.

The partnership between the two regions can be traced back to the Silk Road centuries ago. In the late 1990s, China supplied carriages, tracks, signals and other parts to Tehran's first subway lines.

Mineral fuel and oil are by far China's biggest imports from Iran, totalling US$13 billion last year. Iran was China's third-largest oil supplier last year, after Saudi Arabia and Angola, delivering 7 per cent of China's crude oil imports.

Under a trade agreement in 2007, China's state-owned oil giant, Sinopec, gained a 51 per cent stake in developing Iran's Yadavaran oil field, and Iran agreed to supply China with 150,000 barrels of oil a day for 25 years at market price.

At the same time, the two countries' strengthening economic ties have extended beyond oil. 'Trade of non-oil products has been rising,' Yin Gang said.

Iranian exports of minerals and chemicals to China have increased steadily in the past decade, to US$2 billion worth of minerals last year, from US$60 million in 2000. Organic chemical exports, such as methanol and solvents, amounted to US$1.5 billion last year, up from US$36 million in 2000.

Among Chinese exports to Iran, parts for nuclear reactors, boilers and machinery such as air conditioners ranked first or second for more than a decade, according to China Customs figures. These parts totalled US$2.3 billion last year - or 20 per cent of all Chinese exports to Iran, making up by far the largest share of goods.

Concerns over Iran's nuclear ambitions have prompted increasing international and unilateral sanctions in recent years. In June, the UN Security Council, with the support of China, issued its fourth round of sanctions against Iran. The United States, EU, Japan and Australia followed with even harsher sanctions.

Two weeks ago, US lawmakers unveiled a bill that would require companies traded on US exchanges to disclose investments in Iran.

China has repeatedly said it opposes unilateral sanctions against Iran and has pushed for a diplomatic resolution to the standoff. 'We hold the view that sanctions are not an end in themselves, but rather a means of bringing Iran back to the negotiating table,' China wrote in a report to the UN on August 28 last year. 'Sanctions and pressure alone will not resolve the problem; diplomatic negotiations still constitute the best option.'

Another Chinese official visiting Tehran for the Asia Co-operation Dialogue meeting in November told the press UN sanctions had little bearing on China's normal trade with Iran.

'Our policy is very clear. We conduct our foreign policy based on mutual respect and not interfering in each other's domestic affairs,' said Tong Xiaoling, ambassador to the Association of Southeast Asian Nations.

The third part of our series about Iran's efforts to evade sanctions via intricate business networks in Hong Kong and on the mainland.