China’s 2023 Trade and Investment with Iran: Development Trends
By Emil Avdaliani
The President of Iran, Ebrahim Raisi will pay a state visit to China from February 14 to 16. Iran’s foreign policy is often misrepresented. This includes its relations with China, where trade increased 7% in 2022 over 2021. Yet there have been tensions concerning China’s relationships with other Middle Eastern nations while Iran itself is under sanctions and domestic protest stresses. Raisi’s visit will attempt to alleviate some of the sticking points. In this article, we discuss the bilateral trade and geopolitical nuances in the relations between the two countries.
Bilateral Trade
Iran and China traded US$15.795 billion worth of commodities in 2022, 7% higher than in 2021. The figure is just over US$1 billion more than documented in 2021. This constitutes growth in China’s exports to Iran by 14% in 2022 compared to 2021 to reach US$9.44 billion. Of this, China exported US$8.258 billion worth of goods to Iran.
On a recent monthly basis, in December 2022, China exported US$893 million and imported US$312 million from Iran, resulting in a positive trade balance of $581 million, and being indicative of a shift in bilateral trade as China purchases more oil and energy resources from the country. Iran, although heavily sanctioned by the United States concerning its nuclear energy industry, has the world’s fourth largest oil and second largest gas reserves in the world.
China exports to Iran
China’s top exports to Iran are mainly auto-industry related, being Motor vehicles; parts and accessories, Vehicle Bodies (including cabs) Spark Ignition Engines Electric Motors and Engine component parts.
China imports from Iran
China top imports from Iran are Ethylene Polymers, Refined Copper, Raw Aluminium, Iron Ore and Acyclic Alcohols, although this mix can be expected to change with China importing more hydrocarbons.
Iran-China non-oil trade stood at US$14.8 billion in 2021, less than a 1% drop in comparison to 2020 in which the figure was reported to be US$14.9 billion.
As to Iran’s non-oil exports to China, a 2% decrease in 2022 was registered in comparison with 2021. Projections for 2023 vary, but what is largely expected is that Iran’s non-oil exports would reach US$52 billion by the end of the year.
Iran’s share within China’s total global trade in 2022 was only 0.25 percent. China’s global trade reached US$6.308 trillion in 2022, of which US$3.593 trillion were exports, and US$2.715 trillion imports.
Iran’s exports meanwhile reach 145 different Yet nearly 86% of these went to just 10 countries including China, Iraq, Turkey, the UAE, India, Russia, and others. China, with over US$11.854 billion of imports from Iran, has been the number one importer of Iranian produce, which constitutes around 27.51% of the Islamic Republic’s total outbound commodities.
A Focus on Oil
Iran’s oil exports grew exponentially by the end of 2022 with the trend continuing in the first months of 2023. For instance, Iranian crude exports stood at 1.23 million bpd in November, the highest since August 2022 and close to the statistics from April 2019 – 1.27 million bpd. All this has been achieved despite heavy US sanctions and inveterate rhetoric which augurs badly for still lingering hopes about a potential nuclear deal and unfreezing Iran’s economic and trade potential.
Iran is keen to diversify away from its hydrocarbons industry and develop nuclear energy instead and has maintained its program in this regard is for ‘peaceful’ purposes. It certainly has energy-poor potential clients on its doorstep in Pakistan and numerous Central Asian countries. However, its current political stance concerning Israel remains problematic and has incurred severe sanctions from the United States.
That said, the increase in Iran’s oil exports comes despite heavy sanctions reimposed by Donald Trump in 2018 and diligently pursued by the Biden administration. This exists with the goal of curbing Iran’s oil exports as a means to deny revenue to the Islamic government and to force regime change.
China is now increasingly seen as a major lifeline for Iran carried out mainly via Iranian oil purchases that reached US$47 billion since US President Biden came to office in 2021. Though the current numbers are lower below the 2.5 million barrels per day Iran sent out in early 2018, it is far higher than during 2020 when exports fell to less than 500,000 barrels per day.
China is Iran’s biggest oil customer. To get around sanctions, most of Iran’s crude exports to China are rebranded as crude from other countries. For instance, in 2021 China only constituted 28% of Iran’s total oil exports, with Russia, rebranded Malaysian oil and other countries such as UAE and Syria making up the difference. It is therefore considered that the official numbers may not be reflective of a true nature of oil Iranian oil exports to China and the oil sent to Malaysia may be rebranded to skip the sanctions for safely entering the Chinese market.
The extent of Iran’s dependence on oil revenue is reflected in the recently unveiled state budget for 2023. While 40% bigger than what was in 2022, it largely relies on expected exports of 1.4 million barrels of oil per day at an average price of US$85 a barrel. A sticking point for Iran is that it currently exports only 1 million barrels per day, making it difficult to reach its economic goals.
Other estimates made state that Iran will not be able to reach the figure of 1 million barrel per day, meaning that Tehran may plan to sell oil at a higher than US$85-per-barrel price. Current projections indicate this will be increasingly difficult to do because of expected global recession throughout 2023.
Yet others consider Tehran’s price target is as more reasonable as the Brent crude prices is expected to range between $80 and $100 per barrel in 2023, while consumption demand will increase, not decrease in Asian markets. That could mean that Iran will be increasing its oil sales to China and elsewhere. While not improbable, the country will be facing tough competition from Russia which has also tried to sell to the Chinese market with its oil at a relatively low price.
Another headache for Tehran is that China is unlikely to buy oil from Iran for US$85 per barrel, but rather at a substantially low price. This is currently the case with China-Russia trade in oil and gas where Beijing tapped into Moscow’s weaknesses as a result of the Western sanctions.
Chinese Investment in Iran
Russia has now overtaken China as the biggest investor in Iran. This follows Moscow’s conflict with Ukraine from late February last year, as a result of which Iran and Russia have strengthened their economic and investment ties. The UAE, Afghanistan, Turkey and China are the next biggest investors. Although China that was expected in Iran to be the major investor, Beijing reduced its exposure in 2022, and concentrated more on investing into the Belt and Road Initiative infrastructure such as logistics centers, border facilities etc. that would facilitate its own export capabilities to Iran and the region.
Foreign investment flows to Iran have been decreasing from 2012-13 when the volume stood at US$4.5 billion. The lowest level was recorded in 2015-16 with only US$945 million of FDI inflows. UNCTAD estimated that the volume of FDI inflows to Iran stood at US$3.372 billion, US$5.019 billion, US$2.373 billion and US$1.508 billion from 2016 to 2019.
According to the United Nations Conference on Trade and Development, Iran attracted an estimated US$1.425 billion in Foreign Direct Investment in 2021 to register about a 6% rise compared to US$1.342 billion in 2020. In 2022, however, and despite the sanctions, the total volume of investments attracted to Iran hit US$5.95 billion. Out of this figure Chinese companies invested only about US$185 million.
Geopolitical Setting
There is some disillusion in Iran concerning China – political leaders are highly concerned by a recent joint statement issued by Beijing and the Gulf States. The Gulf Cooperation Council and the Chinese side made a reference to three small islands in the Persian Gulf that Iran took over as its historic territory in 1971, but the United Arab Emirates claims as its own. Beyond that, Tehran is also worried about China’s uncomfortable position on Iran’s nuclear program and the stalled negotiations with the collective West.
The Iranian analysts and politicians also argue that the oft-mentioned 25-year comprehensive investment agreement is not something Iran benefits from. It is rather a mere paper just to lure Iran into China’s influence where the latter is unwilling to do its part of the job, namely, investing into Iran’s oil/gas and railway/ports infrastructure. Tehran is now concerned about how to recalibrate its foreign policy which over the past years was built around the idea of finding a common ground with the Eurasian powers.
With Russia there is a significant progress in relations as is also the case with Turkiye, and this has seemed to be the case with China too. Yet it has not turned out that way – in a critical aspect China openly sided with the Gulf states. Iran has also developed serious problems with Azerbaijan.
Yet Iran’s foreign policy is often misrepresented. Tehran does not seek dependence on another country, rather it pursues a balancing game. The same goes with its relations with China. Iran is trying not to seem too desperate in seeking close ties with China. There is an understanding in Tehran that the challenge to the liberal order is a much bigger incentive for China-Iran cooperation and that the fact of Beijing not adequately investing into Iran is a hindrance, but not a reason for fundamental break in bilateral relations.
This also means that in the longer run Iran will remain pragmatic when it comes to China. High expectations will be tampered, but an overall thrust (Tehran’s Asian pivot), though more nuanced, will remain unchanged. China from its side will continue its cautious approach to its Iranian relations knowing full well that the latter has few choices but stick to Beijing and Moscow as viable balances to Western political pressures.
Emil Avdaliani is a Eurasian analyst and may be contacted at emilavdaliani@yahoo.com
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