Will China Give Iran a Big Credit Line?



This past week, news that China will grant Iran a $400 billion credit line turned out to be false. But the two countries are exploring ways to boost finance and investment opportunities that have dropped since the United States withdrew from the Iran nuclear deal and reimposed sanctions against Iran in May 2018.
Since March 2019, Beijing and Tehran have examined ways to circumvent US sanctions. In April, Iran sent a high-level delegation to attend a forum of the Belt and Road Initiative in China.
China-Iran trade talks have not been as promising as the two sides had hoped for, but they have sought to address the challenges in order to sign mutually beneficial trade deals. In May, Washington’s revocation of oil waivers slowed down trade between China and Iran by at least half its volume. The waivers allowed China to import oil from Iran despite the sanctions. China has also curbed Iran’s access to its financial and banking sectors in order to avoid any major violation of US sanctions.
This took place despite otherwise optimistic projections for trade. In mid-2018, the Iranian Chamber of Commerce said that Iran-China trade would reach $42 billion by the end of the year. From January to November 2018, the bilateral trade volume was $33.39 billion. The figure was not very different from 2017, when trade between China and Iran reached $37.1 billion. By June 2019, figures showed that the Iran-China trade volume declined by 35 percent. But there is still hope on both sides that trade could reach the levels seen before 2014 when it stood at $52 billion.
The reporting of China’s new credit line of $400 billion to Iran was carried out against the backdrop of economic uncertainty. Initially, the report came out in Iran, and it was published by several hardline papers, based on a statement by the Iranian Money and Capital Market Commission of the Tehran Chamber of Commerce.
The news then spread across credible international media outlets that failed to check the facts. It also led to unrealistic policy speculations inside Iran. Iran’s Energy Bourse, a body responsible for financing oil and gas projects, predicted that Iran would soon turn into West Asia’s energy hub.
These speculations forced Iran’s Ministry of Economy and Finance to deny that a credit line was granted. According to Saeed Mohammad Ali Hosseini, a deputy at the ministry and head of the Investment and Technical Economic Aid Organization, the Chinese credit line is only at the proposal stage and part of a larger financing project that Iran, China, and Russia aim to develop. While talks on the issue have been held, they are not final and no agreement for a $400 billion line of credit has been signed.
Even if it had, the credit line does not justify the transfer of huge sums of money to Iran. The line is designed to offer step-by-step financing for defined projects that more than likely would materialize slowly over several years, and most of them would cost less than a few billion dollars.
There is no project large enough to absorb the entire sum of the credit, even in Iran’s oil and gas fields that require in total an annual sum of $40 billion to $60 billion to boost production.  US sanctions have prevented Iran from attracting foreign investment for even much smaller energy projects.
So far, according to Hosseini, Iran is trying to quickly approve projects to receive future financing from China, with projects granted  eligibility  every two to three weeks.
The move aims to strengthen the comprehensive strategic partnership signed between China and Iran, put in place as part of Beijing’s economic partnership diplomacy in 2016.
US sanctions have hindered any large-scale Chinese investment in Iran. But China is emphasizing its strategic partnership with Iran as Beijing faces tariff and trade wars with the United States. Even so, it is highly doubtful that China would jeopardize its trade relations with the United States because of Iran. China-US trade reached $660 billion in 2018. Moreover, China’s Belt and Road Initiative is estimated to raise some $600 billion to $800 billion in the next three to five years, and it is unlikely that Beijing would invest nearly half of that sum in Iran.
Capital injection from China into Iran’s economy has remained slow, but it has provided China with numerous advantages over other investors, such as increasing its ability to win bids and to receive priority in forthcoming bids. In addition, it has increased Beijing’s leverage inside Iran, even allowing it to avoid bidding in order to quickly win contracts that Iran planned to offer foreign investors to develop major infrastructure projects including in its oil and gas fields.

Editorial Team