Chinese firms get lessons in the law to avoid conflict with US over Iran sanctions
Beijing is against Washington’s unilateral action, but trade group says companies that do business with Tehran must avoid legal pitfalls
Chinese companies doing business with Iran can tap into a government trade organisation to prepare for US sanctions that are set to take effect against Tehran next week.
The China Council for the Promotion of International Trade has said it has invited legal and trade experts to join company representatives at a seminar this week to assess the possible implications of Washington’s actions for the shipping, shipbuilding and port industries, and how firms could best deal with them.
“US sanctions on Iran will have a big impact on Chinese enterprises,” the council said in a notice.
The planned conference comes after the trade body last month issued a statement advising member companies to assess the risks associated with their Iran-linked operations.
On May 8, US President Donald Trump pulled America out of the Iran nuclear deal after accusing Tehran of breaching the terms of the agreement. Trump said he would reimpose sanctions – after a 90-day grace period for firms to wind down their activities – that had been lifted when the deal was agreed in 2015.
The deadline for the sanctions, which will affect the markets for cars and metals, as well as financial transactions denominated in the Iranian currency, the rial, is August 6.
Washington said it would also introduce a second round of sanctions, after a further 90-day grace period, on November 4. These will not only affect port operations, shipping, and financial services and settlements, but also make the purchase of Iranian oil illegal.
Any company or individual that conducts business with Tehran in breach of the sanctions could be subject to a fine, the freezing of assets or even imprisonment, the United States said.
Despite the warnings from Washington, Beijing said it would maintain normal trade ties with Iran, on the grounds that it opposed unilateral sanctions.
While the trade council said it “support[s] the government’s stance and thinks the US should obey the international [Iran] deal”, it added that Chinese companies needed to be aware of the risks “from a legal perspective” of breaching the sanctions.
A raft of industries and sectors, including energy, cars, shipping, banking, insurance, gold and other precious metals, steel, aluminium and coal, were likely to be affected, either directly or indirectly, by the trade restrictions, it said.
Companies should therefore perform due diligence to determine whether their dealings with Iran were covered by the sanctions list, and suspend any that would be deemed by the US as unlawful.
The council also advised financial agencies to exercise caution when handling fund flows related to Iran so as not to violate the US regulations.
An adviser to Beijing on Middle East issues, who took part in the negotiations for the 2015 nuclear deal, said Chinese firms were worried about breaking the sanctions as “no one dares to lose the US market”.
Nevertheless, he said that against the backdrop of an escalating trade dispute and growing political rivalry with Washington, Beijing should consider an alliance with Iran.
“No major country stands with us in the trade war,” the adviser said. “China should have something in hand when bargaining with the US. Iran can help.”
He added that Beijing should be able to find ways to circumvent the US sanctions and continue doing business with Iran.
One possibility would be for China to settle its trade with Iran in yuan, which Tehran could then use to pay for its Chinese imports and so bypass the restrictions on rial settlements, he said.
But the benefit of such a move would be limited because the yuan was not readily convertible and Iran was likely to favour hard currencies, such as the euro, which could be used to pay for goods from European suppliers, the adviser said.
China is Iran’s biggest trading partner, with two-way trade rising 19 per cent last year to US$37.2 billion.
Crude oil, minerals, plastics, steel, fruit and nuts are among China’s biggest imports from Iran, while mechanical equipment, textiles and chemical products are its biggest exports to the Middle Eastern nation, according to figures from the commerce ministry in Beijing.
Iran is also a major destination for China’s engineering and technology exports, and more than 100 Chinese companies operate there in areas as diverse as oil and gas exploration, rail and subway construction, telecommunications and car production.
While pressure from Washington has led to many companies in Europe, Turkey and India cutting their purchases of Iranian oil, Chinese firms have yet to do so.
As the world’s biggest importer of crude oil, China buys about a third of all Iranian shipments. Its daily average crude imports in the first five months of this year rose 10 per cent to 718,000 barrels from the same time last year, according to Chinese customs data.
Iran is the third-largest member of the Opec oil producers’ cartel. Its crude oil exports rose to 2.5 million barrels per day in May, their highest level since the sanctions were lifted in 2016, though are forecast to fall by as much as two-thirds when the restrictions return.
Despite sourcing a huge volume of its crude from Iran, the sanctions would not pose a serious threat to China’s overall oil purchases, a Chinese academic said.
“China has sought to diversify its global supply network over the past decade and has several alternatives [to Iran],” said Wang Lian, a professor of international relations at Peking University.
And while China might oppose Washington’s sanctions, like many other nations, it was not going to risk losing a market as significant as the US.
“Major countries are facing huge trade pressures from the US and want to avoid getting involved in any further conflicts with it,” Wang said.
“No one is going to sacrifice a core interest for [the sake of] Iran.”