This is an edited transcript of Dr. Garver’s presentation at the Wilson Center July 14, 2005.
The opinions expressed here are those of the author and in no way represent the views or opinions of the Woodrow Wilson International Center for Scholars.
Ancient Partners Building a Post-Imperial World
John W. Garver
Sam Nunn School of International Affairs
Georgia Institute of Technology
Chinese Capital Goods for Iranian Crude Oil
The crux of the contemporary Sino-Iranian relationship is, I would argue, the exchange of Chinese capital goods, industrial technology and engineering services for Iranian crude oil and strategic minerals. China supplies a large and growing quantity of machinery, equipment, technology, and engineering know-how for Iran's industrial, mining, transportation, construction, and energy sectors. Since the beginning of Iran's post-war [that is the Iran-Iraq war of 1980-1988] development drive, China has supplied equipment and technology for hundreds of major industrial projects in Iran. Every year numerous Iranian delegations tour China scouring for machinery, equipment, technology, and production methods that could upgrade Iran's economy. Chinese delegations similarly tour Iran scouting out opportunities for "expanded cooperation" in various sectors of Iran's economy. Cooperation is extensive in mining, hydropower generation and irrigation, railway construction, housing construction, manufacturing and metallurgy. There is expanding cooperation in satellite telecommunications and in energy. In 2004 China's Sinopec secured its first major involvement in Iranian oil production with its perhaps $1 billion investment in the rich Yadavaran field.
In 2003, machinery, electrical appliances, equipment, vehicles, and instruments made up 47 percent of Iran's imports from China. Textiles, plastic and rubber goods, and chemical products made up another 28 percent of Chinese exports to Iran.
While China's cheap consumer goods offer the same attractions to Iranians that they do consumers elsewhere around the world, Iranian economic planners fear that China's cheap imports will overwhelm Iran's indigenous producers of similar goods. Tehran strives for indigenous industrialization, self-sufficiency, and job creation for Iran's burgeoning and young population. Elimination of Iranian industry via Chinese competition would not further these ends. Importation of Chinese capital goods and technology, on the other hand, accelerates Iran's industrialization and job creation in the industrial sector. Chinese capital goods sold to Iran are often improved by assimilation of technology from Western companies over the previous decade or so, and yet are typically cheaper and somewhat easier to operate than the most up-to-date Western technology. The Chinese engineering services associated with installation, operation, and repair of Chinese capital goods are also typically much cheaper than comparable services associated with Western equipment.
China takes Iranian crude oil in exchange for the manufactured capital and consumer goods it supplies to Iran. In 2003 crude oil constituted 80 percent of China's imports from Iran. Minerals (sulfur, copper, zinc, aluminum, granite and marble) make up another 14 percent of China's imports from Iran.
To some extent, the supply of Chinese capital goods is a response to a chronic failure to increase China's purchases of Iranian non-oil commodities. Since the development of the post-war Sino-Iran relation in the early 1990s, Tehran has pushed China to diversify its imports from Iran by purchasing more non-oil goods. In spite of efforts by both sides, not much progress has been made in this area. The simple fact is that Iran does not produce a lot that China needs other than oil and minerals. Most of the manufactured goods that Iran could sell, can be purchased more cheaply in China itself. The dominance of oil in China's Iranian purchases has been a chronic Iranian grievance in the Sino-Iranian economic relationship. But by linking oil-dominated Chinese imports to promotion of Iranian industrialization through becoming a major supplier of capital goods, Beijing has at least ameliorated this Iranian grievance. Beijing is helping Tehran realize major objectives of industrialization and job-creation in the industrial sector. Some Iranian leaders envision Iran's industrial development tied to, powered by, and emulating China's powerful economic locomotive.
China's role in Iran's foreign trade benefited tremendously from the reorientation of Iran's international economic relations that resulted from Iran's 1979 revolution. In 1978, the last year of the Shah's rule, China supplied only 1 percent of Iran's imports --- compared to 21 percent by the United States, 19 percent by Germany, 16 percent by Japan, and 8 percent by Britain. By 1991, the United States and Britain were virtually out of the Iranian market (with a 3 and less that 1 percent respectively), while China's share had doubled to a still modest 2 percent. By 2003, however, China's share had risen to 8 percent compared to 11 percent for Germany, 9 percent for France, and 8 percent for Italy. The figure of 8 percent for China (derived from U.N. data) did not include Chinese goods sold to other Gulf countries, especially UAE, and the reshipped to China. Nor did it include most Chinese munitions, most of which were outside Chinese customs statistics. With the end of the Iran-Iraq war the Soviet Union (and then Russia) replaced China as Iran’s major weapons supplier, but China still sold a substantial amount of weapons to Iran. (When arms sales data supplied by the Stockholm International Peace Research Project are divided by bilateral trade figures provided by the United Nations, Iran's arms imports from China, Iranian arms imports from China averaged 50 percent of regular trade between 1990 and 1999.) If estimated smuggling of Chinese goods into Iran and munitions sales are included, China’s share in Iran's 2003 imports rises to about 12.5 percent --- about the same as Iran's top-ranking import supplier, Germany. In other words, China is already one of Iran’s major trading partners, right up there changing elbow blows with Germany and France.
China apparently has certain cultural advantages vis-à-vis Germany and France. Iranian economic managers sometimes say that Chinese are easier to work with than Westerners. Whereas the Europeans come in with a certain sense of superiority and insist on their way of doing things --- saying that this is the efficient way, the modern way, the international way --- Chinese are more willing to accommodate to Iranian requirements for the sake of closing the deal. The Chinese are also not concerned with human rights questions that pre-occupy the Europeans. Nor do the Chinese impose a lot of "end use" requirements.
In terms of what China gets out of the capital goods supply relationship, with Iran the most obvious benefit is oil to meet China's skyrocketing energy demand. But there is also a secondary benefit associated with reform of China's heavy industrial machine tool manufacturing sector. This was the sector favored with lavish investment and resources during thirty years of Maoist economic planning. Since 1978, reforming that massively inefficient sector has been a major head-ache for China's reformers. As China opened to the world and marketized, it was light industry that succeeded in attracting foreign investment --- to produce goods first for international and then China's domestic market. Light industry prospered under reform. China's heavy industrial and capital goods factories, however, continued to soak up capital but proved very difficult to adapt to market economics. One way of fostering such adaptation, was to find foreign markets for Chinese capital goods where these enterprises could learn the ropes of international markets, profitably sell goods, and earn foreign exchange to acquire more modern technology. Developing countries like Pakistan, Bangladesh, Myanmar and Iran offer promising markets for Chinese capital goods, but have little money or exports to pay China for large-scale capital goods imports. Iran, however, has oil. China's bilateral trade with Bangladesh, Pakistan, and Myanmar is grossly imbalanced in China's favor; those countries do not produce much that is in demand in China. Sino-Iranian trade, in contrast, is substantially and chronically (at least since 1999) in Iran's favor.
Iran and China's Energy Security in the Shadow of U.S. Hegemony
During the 1990s, as China's energy demand skyrocketed while domestic production of oil stagnated and oil imports began to grow, China became increasingly concerned with energy security. One component of this growing concern was the decline in Sino-US relations under the impact of repeated confrontations: over the June 1989 repression, over linkage between MFN and China's human rights situation, and over Taiwan.
From the standpoint of PRC energy security, Iran is a very good partner. China and Iran are agreed that sanctions and resort to sanctions should not be a mainstay of world politics. Both are highly critical of the U.S. penchant to resort to economic sanctions over human rights, arms transfer issues, or nuclear proliferation issues. Beijing and Tehran agree that the U.S. resorts to sanctions far too frequently and in contravention of the sovereign rights of other states, especially third world states who do not bow down to U.S. arrogant demands. Further, China withstood for some 6 years during the Iran-Iraq war American efforts to cut the arms flow to Iran, efforts that began in 1983 as the dynamic changed and the United States concluded that the major cause for the continuation of the war now lay in Tehran. American policy at that time began pressing all countries of the world to suspend arms supplies to Iran. China resisted. China gave the United States some of what it wanted (e.g., regarding Silkworm anti-ship cruise missiles), but resisted a broader weapons embargo --- demonstrating to Tehran China's willingness to say no to the United States. China's refusal to capitulate to U.S. pressure to halt arms sales during the Iran-Iraq war earned Beijing considerable creditability in Tehran.
There is also a fundamental meeting of the minds between Iran and China over the unbalanced situation of the post Cold War world. China and Iran agree that the United States is basically a hegemonistic country run amok. They broadly agree that U.S. policy during all three of the Gulf wars (1980-88, 1991, and 2003) sought to expand American dominance of the Gulf region in order to control that regions' oil riches. For example and from this perspective, Washington used the Iran-Iraq war as a pretext to expand its military presence in the region and draw the Gulf states into closer military-political association with the United States. China’s basic advice to Iran during the 1980-88 war was this: you should end this war quickly because the Americans are using it to expand their position in the Middle East. For the sake of the Third World, and for Iran’s own sake in minimizing the expansion of American hegemonism in the Gulf, it should quickly end the war with Iraq. At the time, Iran rejected China’s advice and insisted on continuing the war against Iraq in the hopes of the establishment of an Islamic Republic in Iraq. In retrospect, however, China's advice may seem like the wise advice of a genuine friend.
Tehran and Beijing area also agreed that the collapse of the Soviet Union led to an "unbalanced" international system. After the end of the Cold War, the American position the Gulf became even stronger. The United States was no longer restrained by fear of collusion with Soviet might. As the Soviet Union slid toward extinction in 1991, for example, the United States moved against Iraq, something it would never have dared to do while Soviet power stood behind Iraq. The views of Tehran and Beijing toward both the 1991 and 2003 wars against Iraq broadly converged.
In spite of this underlying convergence of Chinese and Iranian views of U.S. hegemony in the Gulf, Beijing has clearly (and perhaps repeatedly) decided that it will not confront the United States over the Middle East. The Middle East is simply too far away from China’s immediate interests, which are after all in the western Pacific. Also China understands very well that its amazingly successful post -1978 development drive is predicated on American goodwill – American markets, technology, higher education, etc. Beijing's unwillingness to confront the United States in the Middle East has been a source of considerable Iranian unhappiness with China. During the 1990s Tehran repeatedly solicited Chinese participation in various anti-U.S. (and/or anti-Israeli) struggles and blocks. Beijing declined all such invitations and insisted on maintaining its independent foreign policy.
One element of the contemporary Sino-Iranian security relation is, it seems to me, this: the two capitals are determined and mutually-pledged to continue cooperation in spite of U.S. unhappiness, demands, and pressure. They are mutually pledged (informally) to continue mutually beneficial, multi-dimensional cooperation in accordance with the independent decisions of the two sovereign governments, even if one or the other country comes into collision with the United States and its allies --- over such matters as the nuclear issue or Taiwan. If Iran gets in trouble with the United States or with an American-led coalition, Iranian leaders can have a fair degree of confidence that China will resist that to some extend. Ditto for China regarding Taiwan. In the 1920s and 1930s such an arrangement would have been called a non-aggression agreement. Under the 1939 agreement, for example, Germany and the USSR continued their mutually beneficial cooperation in spite of the fact that Germany was at war with Britain and France.
There is great ambiguity in this Sino-Iranian "non-aggression" relation, however. Beijing has kept the Sino-Iranian military-security relation far looser and less robust than, for example, the Sino-Pakistan link. This implies a weaker commitment to Iran's security than to Pakistan. Beijing has also, and as already noted, insisted on maintaining its independence. Moreover, on several occasions (in 1987 over Silkworm missiles, circa 1994 over Category I ballistic missiles, and in 1997 over nuclear cooperation and cruise missiles) China has abandoned various elements of cooperation with Iran under intense U.S. pressure. As a result of such experiences, there is a strong element of realism in China’s calculations and derivative support for Iran against U.S. pressure. Iranian leaders understand this very well. China's response in the event of a U.S.-Iranian clash will probably depends on the cards on the table: what’s at stake for China, the strength of the international coalition, whether the Europeans were with the Americans, whether the Russians and the Japanese were with the Americans or not. Yet, if you compare China’s position to Iran’s other friends in the world, Iran probably has more confidence in China’s resisting American pressure than most other countries.
Ancient Friends Beyond Mere Oil
To understand the Sino-Iranian relationship it is important not to generalize or extrapolate from the contemporary dynamic of Sino-Iranian cooperation. Currently, the central dynamic of that relationship is, I believe, a swap of Iranian oil for Chinese capital goods and technology under the shadow of U.S. unipolar preeminence. But this was not the crux of Sino-Iranian partnerships during earlier periods. An important partnership developed (under the Shah) in the 1970s focused on countering perceived Soviet-Iraqi-Indian expansionism. A fairly close partnership was re-built during the 1980s focused on the supply of weapons and munitions-producing capital goods for the prosecution of the war with Iraq, and on the international diplomacy of the Iran-Iraq war.
Looking back further in history, one finds that at the beginning of the Common Era Parthian Persia and Han China cooperated to counter the Xiongnu. Six centuries later Sassanian Persia and Tang China cooperated to counter the Arab Umayid advance. In the 1920s nationalist regimes in the two countries supported each other in the struggle against Western domination. There were also several millennia of extremely rich cultural exchanges along the trade routes across central Eurasia. And as official spokesmen and academic scribes of both countries like to say, there has never been a clash between China and Iran. Seen from this perspective, to see the Sino-Iranian relation in terms of mere oil is an egregious ahistorical fallacy.
At the normative and symbolic level, the Sino-Persian relation involves two ancient nations, extremely proud of their civilizational accomplishment, and sharing a sense of victimization at the existing international configuration established and dominated by the West. Each recognizes in the other a like-minded (non-Western) civilizational and national power, and believe that cooperation between them will be an important part of putting the world to right. The long and rich tradition of cooperation between the two countries was destroyed by the Western imperialists, or so the nationalist narratives of both countries asserts, and renewal of that cooperation will be an important part of building a just, non-hegemonist international order. Within this framework, there are many ways for China and Iran to cooperate. The forms of cooperation will vary with the interests of the two countries at different points in time. But the impulse toward cooperation will remain constant.
Dr. Garver has a book forthcoming with University of Washington Press early in 2006 and entitled: Sino-Iran Relations; Ancient Partners building a Post-Imperial World. The book can be ordered online at: http://www.washington.edu/uwpress/
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