China may yet reconsider its ties with Iran

Last month the Chinese communist party (CCP) launched its five-year plan for the period until 2030. This is a serious statement of intent and economic strategy by the leaders of the world’s second largest economy.

The plan sees China moving away from lower-end manufacturing and instead seizing “the commanding heights of science and technological development”. The CCP wants to dominate fields such as AI, quantum computing and robotics. It also aims for GDP growth of 4.5 to 5 percent – down from the double digits of earlier this century but still significant.

High-end manufacturing, AI and technology mean energy – and lots of it. China is a leader in renewables and nuclear power and has plenty of coal but it is also the world’s largest energy importer – to the tune of about 10.3 million barrels per day (bpd) of oil, according to analytics firm Kpler.

A good deal of that oil (and gas) comes from the Arabian Gulf. China’s interests in the Arab countries of the Gulf Cooperation Council are almost exclusively economic, as AGBI columnist Jonathan Fulton has written.

Beijing imports hydrocarbons and in return Chinese companies sell goods and build infrastructure. Jonathan noted last year that the synergy between China’s Belt and Road Initiative and Gulf Vision agendas has created “tremendous opportunities” for Chinese contractors.

However the CCP’s relations with Iran are even closer. Last year Beijing bought more than 80 percent, or 1.4 million bpd, of Iran’s cheap oil exports, Kpler says.

Previously, in 2021, Beijing and Tehran signed a comprehensive strategic partnership agreement which covers economic, security and technological cooperation over a 25-year period, according to the US-China economic review commission.

Tehran has even said that it will accept payment in yuan for the tolls it wants to charge shipowners for passage through the Strait of Hormuz.

The relationship extends into the military sphere. Beijing has previously sent anti-ship cruise missiles to Iran, reverse engineered as the Nour. And the US has said that China is supplying portable shoulder-launched missiles, so-called Manpads. President Trump said that one such shot down the US F-15 warplane from which a pilot was rescued earlier this month.

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For the record, CCP spokespeople have denied that China has supplied Iran with weapons.

The denials are indicative of the dilemma in which the CCP now finds itself. To hit the growth rates and come close to attaining the tech ambitions of the five-year plan, it needs not only energy but, above all, a prosperous international economy.

China is still struggling with the effects of a real estate downturn inflated by a thin-to-non-existent social safety net, construction over-capacity, and a suppressed savings system.

The Chinese economy is massively export orientated. It does not need a world where 20 percent of shipped oil supply is stopped inside the Strait of Hormuz and where potential customers are labouring with high energy prices, inflation and interest rates to match.

In this emerging scenario, growth of 5 percent looks unrealistic to the point of pipe-dream territory. Will China reconsider its support for Iran?