China and Iran: Ancient Partners in a Post-Imperial World

9. The Sino-Iranian Energy-Economic Relationship

9 / The Sino-Iranian Energy-Economic Relationship china’s role in iran’s industrial development I ran’s 1979 revolution had a profound impact on Sino-Iranian economic relations. It is impossible to compare Sino-Iranian trade before and after the revolution and infer that increases were due to the change of Iranian regime because there was a profoundly important exogenous variable: China’s post-1978 opening to the world and the consequent explosive growth of China’s exports to all countries. In one way, however, it is clear that Iran’s revolution had a deep impact—it led to the exit from Iran of several of Iran’s traditional major trading partners, especially the United States and Britain. Their departure created opportunities for China. Figure 9.1 shows that in 1978 the United States accounted for 21 percent of Iran’s imports, but by 1991 had fallen to 3 percent, and by 2003 to zero. The United Kingdom’s share declined from 8 percent in 1978 to virtually zero in 1991, before rising to 3 percent in 2003. China’s share of Iran’s imports grew from 1 percent in 1978 to 2 percent by 1991 and to 8 percent by 2003. Those figures do not include arms sales or Chinese goods smuggled into Iran from the United Arab Emirates. If sipri estimates for prc arms sales to Iran in 2003 are added, plus another estimated 12 percent of the value of registered trade for Chinese goods smuggled into Iran from Dubayy, China’s share of Iranian imports for 2003 rises to 9.5 percent. China has shoehorned itself into the lucrative Iranian market. Sino-Iranian trade has grown steadily and rapidly, as shown by table 9.1. Average annual growth in two-way trade between 1990 and 2001 was 55 per237 figure 9.1: China’s Role in Iranian Imports, 1978, 1991, 2003 source: International Monetary Fund, Direction of Trade Statistics Yearbook United States 21% Japan 13% Japan 4% Australia 2% United States 3% Australia 1% France 5% Austria 2% Austria 1% Japan 16% Belgium- Luxemburg 2% Belgium 2% Germany 11% France 9% Belgium 2% Germany 21% Italy 8% Netherlands 2% Spain 2% Sweden 2% Switzerland 1% United Kingdom 3% China 8% India 3% Korea 6% Singapore 1% Thailand 1% France 6% Italy 6% Germany 19% Netherlands 3% Sweden 4% Switzerland 2% China 2% Italy 6% Netherlands 2% Korea 3% Turkey 3% UAE 5% Spain 1% Sweden 1% South Africa 1% United Kingdom 8% Argentina 2% Switzerland 2% China 1% Korea 1% Brazil 2% Romenia 1% 1978 2003 1991 United Kingdom 0% Source: International Monetary Fund, Direction of Trade Statistics Yearbook Rest of World 11% Rest of World 20% Rest of World 36% cent. Excluding the outlying postwar year 1990, when trade rose nearly three times, the annual growth rate is still a healthy 33 percent. Iran ran a chronic deficit in trade with China until the 2000s, when large Chinese oil purchases gave Iran a large and apparently continuing surplus. China has provided a stable customer for Iran’s major export, petroleum. The fact that this customer was unlikely to capitulate to Western demands for economic sanctions against Iran was also important to Tehran. The iri has continually faced strong economic pressures. The combination of war with Iraq and revolutionary turmoil, nationalizations, and emigration produced a precipitous economic decline during the 1980s. Religious and nationalist fervor mitigated popular discontent with that decline, but the end of the war with Iraq in August 1988 and the death of Khomeini in June 1989 unleashed that discontent. By 1989 Iran’s leaders, or at least the more pragmatic among them, believed that rapid and substantial improvement in economic conditions was essential to the health of Iran’s Islamic revolution— essentially the same conclusion reached by Deng Xiaoping a decade earlier about the fate of China’s ccp-led revolution. Thus, in 1989, Tehran launched a major eªort to rehabilitate and reconstruct Iran’s economy: the First Five Year Economic, Social, and Cultural Development Plan (1989–93). China would be a major partner in Iran’s postwar development. A serious problem for China’s eªorts to expand cooperation with Iran has been that the technological level of Chinese capital goods (machinery, equipment , and embedded technology used in manufacturing, mining, and transportation sectors) was often inferior to that of Western countries. Iranian managerssometimes(perhapseventypically)preferredmoreadvancedWesterntechnology .Inthe2004viewof oneChinesediplomatwithextensiveexperienceintheMiddleEast...