Five years in the making…

The signing of a $400 billion accord between China and Iran late last month took much of the diplomatic world by surprise. WiC spoke to geopolitics expert Terry Su ­– the president of the Hong Kong-based think tank and online publishing firm Lulu Derivation Data– for more on the significance of the deal. Educated at Peking University and Oxford, Su spent two decades working at international investment banks and corporations and is a regular contributor of op-eds to the South China Morning Post. He spoke to WiC about the ramifications of the new Sino-Iranian deal.

In late March China’s Foreign Minister Wang Yi agreed a major economic package with his counterpart in Tehran. Hua Liming, former Chinese ambassador to Iran, has called it “a momentous change” in China’s relations with Iran. What’s your view on the significance?

I totally agree with his terminology. It is momentous. It marks a new beginning of China’s policy in this region. More importantly it also marks a new beginning in China’s relationship with the United States in a global context.

There are three major parts of the agreement that Foreign Minister Wang signed with his counterpart in Iran. One is China’s 25-year commitment to help build up Iran’s banking system, telecoms network and other infrastructure. Another is to buy oil from Iran, denominated in renminbi – that’s quite a significant deal. And also importantly China will make available its BDS [also known as Beidou] navigation system to Iran – the Chinese version of GPS. That will substantially enhance Iran’s military capabilities in its stand-off with the US. So the major parts of the agreement are really meaningful. It’s a lifeline for Iran which has been sanctioned by the US for so long. It’s a timely rescue package from China, so to speak.

For China the significance goes far beyond the bilateral relationship with Iran. We have to look at this from the grand global geopolitical point of view – i.e. China versus the US as a superpower rivalry. The major point of significance is that China is no longer constrained by its long-held and self-imposed position of prudence in its relations with the US – where it was always concerned with what the US would say or do when it came to certain geopolitical issues like Iran. Given the changes in the geopolitical situation, China is no longer so concerned about how the US will react in these situations and has instead prioritised the pursuit of its own interests. This is the most important aspect of the matter.

So it’s a decisive break with the Deng Xiaoping policy of hiding China’s ‘brightness’ and keeping a low profile in foreign affairs?

Yes, I agree. Effectively China has broken away from Deng’s famous admonition for quite a while but this deal is the latest remarkable sign of it. That’s really part of the momentous change.

Will this long-term oil purchase have a material impact on China’s energy security?

Without a doubt it is very significant. China is not only a net oil importer, it is the top oil importer. As the second biggest economy in the world and as the number one industrial producer it now imports more than 70% of the oil it needs. The deal serves to alleviate this problem as Iran is such a rich oil producing nation. ­

But having said that, this is not the overarching issue in the deal in terms of China’s security concerns. I think the other half of the oil deal – the use of renminbi as a payment currency – is more important. The $400 billion economic package is effectively denominated in renminbi too, which is another breakthrough in China’s strategy of internationalising the renminbi. And the agreement becomes symbolic in terms of promoting the Chinese currency in international trade, and therefore rocking the boat of US dollar supremacy.

A bit more on the renminbi internationalisation implications of the deal: let’s not forget that, while Henry Kissinger is perhaps best remembered for his role in breaking the ice in the Sino-US relationship half a century ago, he actually pulled off another trick of no lesser importance in the Middle East by getting oil-producer countries to settle their transactions in dollars – or the petrodollar, as it was called – therefore sustaining America’s supreme status in the world economy after it effectively defaulted on its gold standard commitment.

In a sense, America’s ability to maintain its economic expansion for the past 50 years has been dependent on the greenback being used as the world currency. Now China is starting to challenge that.

Was the agreement a long time in the making or more of a reaction to the recent ‘frosty’ Alaska summit between the US and China?

It was obviously a long-brewed plan. We now know that the talks were initiated long ago – at least five years ago. The negotiations were accelerated towards the end of the Trump administration and were finally concluded when Beijing realised that the Biden administration was just as determined as its Trump predecessor in its policy towards China. So the deal was kind of a natural reaction to what happened in Alaska too.

So it wasn’t a coincidence it was formalised a few days after the stand-off between the two nations’ top diplomats Yang Jiechi and Antony Blinken?

The linkage between the two is so obvious. The whole world was stunned by the almost theatrical scenes of blame and counter-blame at that two-day meeting – much of it in front of the media! It was acrimonious and the accusations made clear just how confrontational the bilateral relationship has become.

From the Chinese point of view they had reason to believe this was the latest demonstration of Washington’s determination to hold back China’s rise on the international scene – which the Chinese see as their rightful entitlement.

So another aspect of this has been that China has been patient and had played a game of proactive reaction to see whether things could take a turn for the better after the dramatic anti-China moves by the Trump administration. In Anchorage they were hugely disappointed to find out this was not the case. Biden’s chief diplomat Tony Blinken and Jake Sullivan, the National Security Advisor, showed they had not moved that much away from the confrontational path of the previous administration.

Beijing is effectively saying enough is enough. Hence we witnessed the outburst by Yang and some of the things we have seen since, like Wang hosting a visit from the Russian foreign minister. The pair [of foreign ministers] then issued a joint communique that some observers – not without reason – have read as signalling a quasi-alliance. And this was followed by Wang’s visit to Tehran, where this agreement was signed.

This was a very important step in showing China would go its own way and was not as concerned about upsetting the US, which had been a policy priority for so many years dating back to the Deng Xiaoping era. It is a new beginning.

So what happened in Anchorage was the catalyst for pulling the trigger, so to speak, on a pre-agreed deal with Iran?

Yes, it was a pre-agreed deal and had been under discussion for so long. But while it was pre-planned, both sides – China and Iran – harboured the hope that a new administration in the US might adopt a softer stance, so that both nations would not have to be as confrontational. But it turned out that they were disappointed.

Iran had reason to be frustrated: the previous nuclear agreement agreed by the Obama administration was supposed to be a multilateral one – ‘P5 plus 1’ – but it was torn up by Trump in his own characteristic way. It wasn’t just Tehran that was upset: Beijing and a number of US allies in Europe were unhappy too. French and German companies had to pull out of Iran as a result of the tearing up of the agreement, for instance. As a result both China and Iran had their reasons to seize the moment to finalise their deal and then to let the whole world know about it.

Is this also a reaction to Western governments criticising China’s policies in regions like Xinjiang, and the sanctioning of officials?

That’s a good point. It is not only the incoming Biden administration that has done this. Biden has followed through on his pre-election promise to form a united front against China. The EU’s reaction on Xinjiang is part of that, and China’s surprisingly swift and harsh retaliation does show a change of pattern on the Chinese side.

However, we should not forget that prior to Biden being sworn in as president there were already two key trade agreements in play: the 15-nation RCEP trade deal in Asia and the EU’s investment agreement with China, which hugely upset the Trump administration in its last few days in office.

After a recent EU summit German leader Angela Merkel made it clear that the EU remained a key ally of the US and that Germany would be harsh towards China on the issue of Xinjiang. But she also said that the EU cannot always be identified with the US in regards to their China policies.

So perhaps we can interpret it that the EU sides with Washington diplomatically and even militarily, but that because of vital economic considerations it has decided it can’t afford to alienate China that much. It simply can’t afford to be left out of the strongest international supply chain, encompassing Japan, South Korea and the ASEAN region. So I do not foresee that the recriminations between the EU and China will have that much impact on their mutual relationship, far from it.

On the Iran deal, what does it say that an Islamic country has reached an agreement with China in spite of the allegations about Xinjiang and the treatment of its Muslim Uighurs?

I wouldn’t put that much emphasis on this comparison. Even ahead of this event, people already noticed that while Western countries headed by America had become so harsh towards China about Xinjiang, in general the Muslim world has kept a low profile on this topic. It has been like this for quite a while but people came to notice it more because the Iran deal was such a high-profile event.

I would like to add that a recent article in The Economist made the point that we have to consider carefully how we brand what’s happened in Xinjiang. It said that if we use the term ‘genocide’ we mean something that is ultimately extremely serious. If we believe it is genocide in Xinjiang then we must act accordingly. But it pointed out we are not acting accordingly in terms of the literal meaning of the term ‘genocide’. That means, it added, there is an awkwardness in the positions held by many in the Western world. That this over-accusation, made by Mike Pompeo on literally the last day of the Trump administration, was accepted and weaponised by Blinken is obvious. [Editor’s note: The Economist article to which Su refers was published on February 13 and said that “ ‘genocide’ means killing a people… China’s persecution of the Uighurs is horrific… But it is not slaughtering them… By accusing China of genocide, America is sending the signal that China’s government has committed the most heinous of crimes. And yet at the same time it is proposing to deal with it over global warming, pandemics and trade.”]

Critics will say it now looks more likely Iran will get nuclear weapons. What’s your view on that?

I don’t necessarily agree with that scenario. We can use the North Korea case as a point of reference. China doesn’t want nuclear proliferation. But as with North Korea, Beijing will say this is first and foremost Washington’s problem to tackle. Of course, we don’t want nuclear proliferation and Washington should come back to the Iran nuclear agreement to try to resolve it.

What do we take from Wang’s language to “unswervingly maintain its friendly policies towards Iran”. Is Iran moving towards a similar status that Pakistan enjoys with China?

That wording is interesting. In a sense it is logical to make the comparison with Pakistan. In the medium term China will bring Iran into its broader strategy known as the Belt and Road Initiative. For the next 10 years the impact in trade and investment will be huge if the key points of the agreement are put into practice.

But there is a subtle difference between the two cases. The primary reason is geographical. We know how close Pakistan is to China in terms of geography and how close it is to India too. We also know how the India and China relationship has played out over past decades, which makes Pakistan’s reliance on China existential. So there is that difference to the Pakistan and Iran relationships.

To digress a bit, we may say that America has made a grave mistake of making Tehran its enemy for so long. The Khomeini revolution in 1979 was largely a result of domestic contradictions reaching a point of explosion. Washington could have used its enormous leverage to bring Iran back into the international community instead of leaving it in angry isolation, which forced Iran to lean towards the former Soviet Union and then to China.

Yet Iran also carries its ancient Persian gene and does not really repudiate its connections with the West. Its unique electoral system, which incorporates a popular vote, also tells of its civilisational capabilities to adapt to modernity.

It’s a pity that the US allowed itself to be so tied up with the interests of Israel and Saudi Arabia, creating a ‘tail-wag-dog’ drama, so to speak. And now China joins the fray.

Iran boasts an ancient civilisation, like China. Does that create a sense of empathy between the two nations, given that both also complain about how they have faced ‘humiliation’ by foreign powers in their recent history?

This is a very good point, in the sense that it adds another dimension to our estimate of Iran’s future viability. Most people know China is an ancient civilisation. However, not so many realise that Iranian civilisation is among the oldest in the world. The ancient Persian tradition still lingers.

As said above, the country has established its own electoral system – different from Western nations but still a system of popular participation in its own way. It says something about the civilisational perseverance of the country relative to what you see in other parts of the region. Perhaps it also speaks to the potential of the Iranian people once their external circumstances turn more benign. That’s why I am so bullish about the economic and technological improvements which could be delivered by the deal with China.

And yes both ancient civilisations have suffered humiliations, mainly at the hands of Western powers. So we have to empathise with them because of this. But at this stage of their national development both countries are mature enough to handle them – and that is epitomised in this agreement between the two nations.

Does such a long-term oil purchase jar with China’s commitment to carbon neutrality targets?

Well, we have to see that international politics is an art of prioritisation. The rivalry between China and the US means the geopolitical consideration has been put first. This is the most important thing on Beijing’s mind. And near term, the Chinese economy is still running on oil. So the country’s leaders need to make sure that demand for oil is matched with the economy’s sustainable development.

When President Xi Jinping made that pledge on carbon neutrality last year the target date was 2060. So we still have some time to go and this Iran agreement does not conflict with that timeframe.

Plus, China is at the forefront of nuclear power technologies. I don’t pretend to know much about the complexities of the sector but the advantages enjoyed by China in this field over the longer term will make it unlikely that fossil fuel consumption will hamper the country’s other policy priorities.

Might China promote its Hualong nuclear power technology in Iran, as it has done in Pakistan?

Absolutely, and not only Iran. The way I see it is that China has a huge domestic market in which it can further develop its nuclear technology and make it more sophisticated. Then the Chinese will go all out to export it.

There is a similarity here with Huawei and 5G. The logic is the same. If you are smart enough, hard working enough and have the economies of scale at home to hone your products and technologies, then you are in a position to leverage them and go international.

So I see it as very likely that Iran could use China’s nuclear power technology down the road.

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