China deepens footprint in Iran after lifting of sanctions

RISING from the yellowish, treeless plains so typical for central Iran stands a square labyrinth of pipes and conveyor belts, topped by a silver chimney that glitters in the summer sun. Sanctions against Iran failed to halt the construction of the complex, a steel mill that went into operation in September and now churns out ingots and billets. The sanctions also did not stop Sheng Kuan Li, a Chinese businessman, from pouring $200 million into the project. Mr. Li is one of many Chinese investors who in recent years worked around the sanctions imposed on Iran by the United States and other world powers over Tehran's nuclear program.

His steel mill and other similar endeavors are the result of a strategic pact that gives China a much-needed western gateway to Middle Eastern markets and beyond, and that has saved Iran from international isolation and economic ruin. On Saturday, both countries agreed to increase trade to $600 billion in the coming decade. That agreement was made during a meeting between Iran's leaders andChina's president, Xi Jinping, who late last week became the first foreign leader to visit Iran after most international sanctions were lifted. China has relied on Iranian oil and views the country as a vital link in Mr. Xi's socalledSilk Road strategy, an ambitious agenda that seeks to extend China's economic influence westward.

"Where we had to stand on the sidelines, the Chinese have been filling the void," said a European diplomat who spoke on the condition of anonymity to discuss strategic considerations. "They are way ahead of all of us."

The deep Chinese footprint in Iran does not manifest itself only in the tens of thousands of inexpensive cars that have flooded the streets of Tehran in the past few years. Investors like Mr. Li, who has built two other factories here, as well as Chinese state companies, are active all over the country, building highways, digging mines and melting steel.

In Tehran, the Chinese have been involved in the construction of a huge elevated expressway and the building of the Niayesh Tunnel, which at more than three and a half miles will be one of the longest urban tunnels in the world. The city's metro system was built from scratch, starting in 1995, with Chinese capital and Chinese engineers. The train cars that run on it are Chinese, too. "Westerners visiting the capital often wonder how we managed to pull off such ambitious projects during the heaviest sanction regime in history," said Mohammad Reza Sabzalipour, Iran's World Trade Center representative. "Well, we did it with the help of our Chinese friends." Thirst for cheap crude oil and enthusiasm for the Silk Road project, which incorporates the goal of unlocking China's isolated western provinces, brought the Chinese to Iran, the only country in the Middle East where the United States had no presence.

Iran had long welcomed the relationship, but after sanctions started to squeeze the economy at the end of the last decade, the country gained a special status, and China's slow but steady advance here began. "We are Iran's biggest trading partner for six years in a row," Mr. Xi wrote in an open letter to the Iranian people, Xinhua, China's state news agency, reported on Thursday, a day before his arrival on a Middle East tour that will also take him to Saudi Arabia and Egypt.

During the Iran-Iraq war, China sold weapons, including Silkworm missiles, to Iran. China looked the other way when the Iranians sought to advance their missile technology, and assisted in developing the country's nuclear energy program. "After the revolution we exchanged the Western frowns with the smiles from the East," said Asadollah Asgaroladi, one of Iran's wealthiest businessmen and the head of the Iran-China chamber of commerce. "They continue to smile at us."

So the two countries, which were connected by the old Silk Road, have embarked on building a new one. "China has considerable strength in capital, technologies, equipment and other areas," Mr. Xi wrote in his letter. "Iran has rich resources, ample labor force and huge market potential, and it is in the crucial stage of industrialization and modernization." In the last decade, trade started gravitating toward China and away from Germany, Iran's traditional partner, with a business volume of more than $30 billion annually. Iran exported $19 billion in crude oil and petrochemical products and imported $17 billion in goods and services in 2013. Iran's other big petroleum customers, South Korea and Japan, were persuaded by the United States to halve their purchases of Iranian light crude.