Tehran - Beijing Trade

Seyyedeh Ameneh Mousavi: The biggest Iranian figure in business with the China claims he is just a retailer and that he holds only a small proportion of China's market. Asadollah Asgaroladi has been dealing with the Chinese for well over 50 years. He has served as the chairman of Iran-China Chamber of Commerce and Industries and he prefers to describe himself as the "advisory arm" of the government and the private sector regarding trade transactions between Tehran and Beijing. Asgaroladi -one of the members of the Iranian delegation that traveled to China alongside the President- sat down with us in an interview to discuss everything from Tehran-Beijing relations to the never-ending issue of low-quality Chinese imports to the mafia behind the Iranian-Chinese transactions.

According to China's customs administration, commercial exchanges between Tehran and Beijing saw a staggering 27-percent increase and reached $9.017 billion in the first six months of Rouhani's administration. Though Iranian officials had asserted that there will be tighter control over the import of Chinese goods, cheap imports from China has remained to be a concern in Iran's economy. Not to mention that Iranian producers and manufacturer find these types of imports detrimental to their business and ultimately paralyze the country's economy.
There are many sides to the Tehran-Beijing relation. First, I need to point out that we have discussed the matter of the "quality" of Chinese exports to Iran and emphasized that we are not interested in purchasing Chinese consumer goods anymore. Instead, we are rather self-confident and prefer to produce consumer goods on our own with the investment and collaboration of the Chinese inside the country in order to feed the domestic market and, at the same time, have an eye on China's market as well as the Middle East. Not only is China a big player in Iran's market, but it has also managed to gain a lot of market share in the neighboring nations such as Iraq, Afghanistan, Tajikistan , Turkmenistan, Saudi Arabia, the UAE as well as Georgia, Uzbekistan and Kyrgyzstan. Their strong penetration in the Egypt and North African markets will enable us to sell joint products. Since the inauguration of the new Iranian government and developments of nuclear talks with the West, Chinese traders have grown afraid of losing ground in Iran's market. But in his recent visit to China, Dr. Ali Larijani, the chairman of the Parliament assured the Chinese of their secure position in Iran's market and stressed that negotiations with the West will not affect them by any means. I, as the chairman of Iran-China Chamber of Commerce and Industries, am in agreement with our high-ranking officials and assume that we need to evaluate the Tehran-Beijing relations in long-term and strictly avoid periodic assessments. We also need to demand that Chinese traders halt the import of poor Chinese products, while taking the status of domestic products into consideration. In other words, we need to move towards importing raw materials, intermediate goods and machinery and embark on producing consumer goods in the country in order to reduce the imports of consumer goods. The law for the Sixth Development Plan which is already being compiled and revised has put a strong emphasis on strategic relations with the Chinese, but it is also asserted in the Fifth Development Plan that Tehran-Beijing ties should be a means of domestic economic growth. We are already selling crude oil to China and are committed to investing a proportion of oil revenues in buying Chinese goods, but these products must meet the standards and need to be purchased according to our needs. We are selling our invaluable oil reserves to China and we need to make sure that Chinese imports will not violate the rights of Iranian manufacturers and industrialists in the first place. Economic reinvigoration is our top priority, because a healthy economy will result in lower unemployment rates and dynamic markets. The Chinese need to understand that the negative mentality surrounding Chinese products is only a result of their low-quality exports and that they need to take the initiative and raise their standards.

It seems that the question of poor Chinese exports is an issue exclusive to Iran. While global markets are full of Chinese products, American and European markets are not at the receiving end of low-quality Chinese merchandise. Why is that so?
The main reason is that the borders of the said countries are under tight observation and supervision. After the Imposed War, we implemented wrong economic policies and acted recklessly with regards to our borders and consequently failed to control illegal borders appropriately. Illegal export is a rarity even at the borders of Hungary and unauthorized merchandise are done away with immediately.

So you hold the supervisory bodies responsible. Is that true?
I believe that supervisory institutions need a boost in performance. Iran's committee against contraband and illegal exchanges needs an overhaul in order to fight the contraband at the borders more efficiently. Unfortunately, ineffectiveness of laws is another obstacle. According to customs' laws, in case a product does not comply with Iranian standards, it will be seized and held in a bonded warehouse. The product will then be branded as abandoned goods after four months and will be put into auction. There is another law regarding the transit of foreign goods from Iran's territory. For example there is a shipment from Bandar Abbas or Bushehr to Azerbaijan, Turkmenistan or Turkey and since the merchandise are not supposed to be supplied in domestic markets, there will be no supervision over product quality. But sadly, importers have gotten to know the ins and outs of transit in the country and once the shipment enters Iran's territory, they offload the merchandise and reload the cargo. Such issues arise from legal inconsistencies and insufficient control over imports.

You spoke of importing capital goods from China. What are the items?
It includes a vast range of products. Assume that we need a series of auto spare parts or need machinery in order not to sell stones in the form of raw materials, but we lack the proper means and technology. These are the types of capital goods we seriously seek for. In the fields of agriculture and industry, capital goods translate into parts and machinery. Through our investment and the technologies of China, we will be able to take advantage of China's significant market share and sell our goods both in the region and all around the globe.

In other words, we can benefit from China's global market share.
This will be to the benefit of joint goods. We provide the money capital and place of investment and the Chinese will be responsible with the necessary technology, machinery and market. It is a basic and fruitful formula.

Are they willing to cooperate the way you want?
Definitely yes. Each country would grasp the opportunity to expand the production of their factories.

President Rouhani voiced Iran's willingness to welcome Chinese investors and spoke of the government's readiness to capitalize on oil revenues from other countries including China. At the same time, Abbas Sheri-Moghaddam, the Deputy Oil Minister of Petrochemical Affairs spoke of the end of financing from China. How can we interpret these contradictory statements?
Continuation of oil export means that we can capitalize on new financial resources and based on this principle, I beg to differ with the Iran's Deputy Oil Minister.

That means that financial resources are far from over.
It might be a closed topic in negotiations, but not in practice.

Are you suggesting that our resources in China are secure?
Of course. As I previously stated, we are exporting new resources day by day and we should add it up to our current resources. In other words, we feed and increase our resources in China.

Oil revenues were also meant to be used as the guaranty of letters of credit for purchasing Chinese products back in 2008, when Ahmadinejad was at the helm.
There was an unexpected change of plan six months after the implementation. The Chinese used the sanctions as an alibi to forfeit their commitments. Both sides ultimately reached an agreement to maintain cooperation in the form of finance. $22 billion of our oil revenues was reserved in China and it was agreed to invest another $22 billion as the guaranty of our finances. Therefore, I am confident that we have notrun out of the finances that the Minister of Petroleum has spoken of and that we are still able to use our finances. We always express our intentions and expectations from our Chinese counterparts clearly. Had we adhered to transparency when signing agreements with the Chinese and fulfilled our commitments, we would not be facing such issues today. We have dealt with the sanctions in our relations with China, Russia and India very convincingly and that should be the case from now on.

The barter with Russians worth as much as $20 billion is slightly different from that with China?
Not really. We look forward to bartering oil with the Chinese as well.

For how much? The same as the $20 billion deal with Russia?
Possibly more, except that our accord with Russians is at the level of negotiations, but talks with the Chinese is at early stages.

So there is no finalized deal yet.
Not yet, but negotiations are underway. The matter was discussed in the recent visit of the President to China. Of course the barter with China is worth $30 billion and negotiations will reach the final stage.

Ali Majedi, the Deputy Oil Minister spoke of the upcoming Iran-Russia Joint Economic Commission in August or September this year and considered expanding commercial ties between the two countries a real possibility. When will we have a similar meeting with the Chinese?
Mr. Majedi is right. Iran-Russia Joint Economic Commission will be held around September, but it would be a good idea to have financial transparency with Russians before the talks.

You mean the dispute around banks?
Exactly. Iranian banks do not recognize Russians, and vice versa. Thus, establishing economic relations between the two countries is a difficult task. Some Russian banks adhere to the US, though a number of banks have proposed to work with Rial and Ruble instead of Euro and Dollar and central banks of both countries are trying to reach an agreement.

How about China? We face the same issues in trade with the Chinese.
Not the Chinese. The Chinese pay the price of oil day by day and we can draw the oil revenues in Yuan. Thus working with the Chinese is no big deal in practice. When we buy a Chinese product, we pay with Yuan and there is little to do with Dollar, but inevitably, our oil sales are done through Dollar and there will always be the need for Dollar. Of course this method of payment will come to an end, once the Chinese accept Rial in trade with us.

When will the $30 billion Dollar barter with China come into effect?
Our business with China is estimated at $30 billion and with the new barter deal, it will worth as much as $60 billion.

How much is the trade transaction with China worth at the moment?
It was worth $43 billion in 2013, 54 percent of which includes the export of Iran's oil, gas and gas condensates and handicrafts. In other words, we managed to export $18 billion worth of traditional merchandise and $25 billion worth of energy resources in 2013, and we anticipate to raise the number to $60 billion in 2014.

What other products can we sell to China besides gas and oil?
Mineral products.

What else?
Agriculture products or services.

Is it possible to transfer the technical knowledge to Iranian engineers?
Yes, but it is a matter of further discussions and negotiations.

In the visit to China along with the President, did you pursue any subject other than the ones you already mentioned?
There are numerous topics and issues to be discussed among Iranian and Chinese officials including transparency in financial relations, expanding the volume of transactions, boosting the investment of the Chinese in Iran, shipping lines, transportation and many other subjects. I wonder if you are aware, but after the implementation of more severe sanctions against Iran, Chinese cargo ships do not berth at Iranian docks anymore. This is a serious matter of contention. The $30 billion deal in question is another important subject to be discussed. By the time the Sixth Development Plan begins, our trade transactions with China will have reached $60 billion from $40 billion in 2013. Numbers and statistics in March 2013 also indicate that China has become our biggest commercial partner.

What areas of investment do we seek in China?
Factories and, specifically, manufacture of consumer goods. We already have many Iranian investors in China. It is interesting to know that China attracts $80 billion worth of foreign investment every year, but the share of Iranian traders is around 2 to 3 billion dollars, which is less that 4 percent of China's market.

That is disappointingly low.
Yes, and that is why we need to take measures to claim as much as 10 percent of market share in China. Unfortunately, Chinese investors have not done much in Iran as well, and their investment is probably less than 5 percent. We need to increase the volume of trade transactions based on mutual investments, removing banking obstacles and boosting commercial ties.

What can be done to end the government's monopoly?
One solution is to open up the gates of investment to the private sector. As of now, 70 to 80 percent of the country's economy belongs to the government, but we need to break up the government's monopoly and drag it down to less than 50 percent. It is not to mention that previous administrations promised to tone down their contribution to economy but failed to do so. During the first term of Mr. Hashemi Rafsanjani as the president, the government's participation in economy was around 70 percent. Mr. Khatami also committed himself to lowering the number but not much happened. That was also the case during Mr. Ahmadinejad's incumbency. 35 years after the Islamic Revolution, government's participation in economy is still hovering at around 70 to 90 percent. Only by turning to the private sector will President Rouhani be able to revive the economy, otherwise he will leave the Office empty-handed much like his predecessors.