An ephemeral boom

▶ Chi­nese en­ter­prises try­ing to sur­vive in Iran de­spite pol­icy shifts, US bluffs

Global Times - - FRONT PAGE - By Hu Yuwei and Qu Xiangyu

The sit­u­a­tion in Iran has caught a lot of Chi­nese and in­ter­na­tional en­ter­prises by sur­prise with fast-mov­ing shifts in the po­lit­i­cal sit­u­a­tion re­lated to its nu­clear pro­gram

De­spite chal­lenges, some Chi­nese busi­ness­men are re­main­ing as in­ter­na­tional in­vestors flee

Re­main­ing busi­nesses must ma­neu­ver around a bar­rage of sanc­tions, find­ing their way to sur­vive a tur­bu­lent in­ter­na­tional po­lit­i­cal sit­u­a­tion

On the very last day of 2018, Wu Yi boarded a flight home and said good­bye to Tehran, the city she spent the past five years in. The Chi­nese woman came to Iran to start a travel agency in 2014 with her am­bi­tion to “dig for gold from this un­tapped mar­ket.”

Three su­per-big suit­cases were around her, filled with items that she thought would sup­port her for at least 10 years in Iran. But the sud­den with­drawal of the United States from the Iran nu­clear agree­ment in 2018 crushed her plans and dreams in an in­stant.

She called her five years in Iran “a moon re­flec­tion in the wa­ter,” which is in­deed a beau­ti­ful mi­rage.

She had high hopes when she en­tered the Tehran mar­ket in 2015. Her busi­ness flour­ished in 2016, as many Chi­nese clients vis­ited for busi­ness trips. How­ever, her op­ti­mism faded over the past year as many or­ders have been can­celed, and fi­nan­cial trans­ac­tions faced dif­fi­culty.

She is not alone. A large num­ber of Chi­nese mer­chants took a ride on this roller coaster. Some de­parted and oth­ers re­mained, amid the ups and downs of the mer­cu­rial in­ter­na­tional sit­u­a­tion.

A lot of for­eign busi­nesses com­ing to Iran for op­por­tu­ni­ties have left the coun­try since the US with­drawal from Ira­nian nu­clear deal, due to the re­sult­ing fluc­tu­at­ing in­ter­est rates, soar­ing rents, or sim­ply de­terred by hard­line US rhetoric against Iran.

US sanc­tions re­port­edly hurt the Ira­nian econ­omy and de­val­ued the Ira­nian rial, but also ex­erted some im­pact on Chi­nese firms op­er­at­ing in Iran.

Chi­nese For­eign Min­istry spokesper­son Geng Shuang said in May 2018 that China and Iran main­tain nor­mal eco­nomic ties and trade.

The lead­ers of Bri­tain, Ger­many and France have de­clared their back­ing for the Iran nu­clear deal re­nounced by the US.

Signed in 2015 be­tween Iran and a group of world pow­ers – China, the US, Rus­sia, France, the UK, Ger­many and the EU – the deal ended decades of eco­nomic sanc­tions and led to heavy investment flow­ing into Iran.

The cas­trated hope

The year 2016 was a prime pe­riod for the Ira­nian mar­ket, with an in­flux of var­i­ous types of Chi­nese en­ter­prises to ex­plore post-sanc­tions Iran.

Ac­cord­ing to data Wu Yi ob­tained from the air­lines and the em­bassy, be­fore 2015, the num­ber of Chi­nese tourists to Iran was less than 50,000 ev­ery year. But with the lift­ing of the sanc­tions on Iran in 2016, the num­ber of Chi­nese tourists to Iran reached about 70,000 in 2017, of which 60 to 70 per­cent were busi­ness tourists.

“Af­ter the Iran nu­clear agree­ment, Chi­nese ho­tels and restau­rants sprung up in Tehran, where ho­tel beds were in a high de­mand. Many Chi­nese were in­vited to Iran for trade. Peo­ple were full of en­thu­si­asm and hope for this mys­te­ri­ous land,” Wu told the Global Times.

The un­ex­pected boom in Iran’s mar­ket when sanc­tions were lifted left many deals al­ready made hang­ing in doubt, push­ing many Chi­nese com­pa­nies who have been there on the back foot. Their Ira­nian part­ners were start­ing to pick out bet­ter part­ners among a large num­ber of com­peti­tors.

A Chi­nese trader who came to Iran in early 2012 told the Global Times that many of the Chi­nese com­pa­nies’ Ira­nian part­ners tore up the signed con­tracts.

Such a sit­u­a­tion has im­pacted Chi­naIran co­op­er­a­tion in en­ergy, in­fra­struc­ture and other fields.

“Only one year later, the fever sub­sided. Not many en­trepreneurs around the world were re­ally de­ter­mined to put their money in this ‘risky’ land. Ira­ni­ans are turn­ing back to Chi­nese busi­ness­men again for tak­ing over deals,” the en­tre­pre­neur who re­quested anonymity told the Global Times. “For one rea­son, in­ter­na­tional fi­nan­cial sanc­tions against Iran had not re­ally been lifted dur­ing that time. In short, Iran can­not make nor­mal fi­nan­cial trans­fers to the out­side world,” the en­tre­pre­neur said.

“The Fi­nan­cial Ac­tion Task Force on Money Laun­der­ing (FATF) even named Iran as a high-risk coun­try for money laun­der­ing. The flow of funds for trade and investment with Iran is ex­tremely dif­fi­cult,” he said.

“On the other hand, the Bank of Kun­lun, the key Chi­nese con­duit for trans­ac­tions with Iran, has a rel­a­tively high stan­dard of el­i­gi­bil­ity for ac­count open­ing and asks for a ser­vice fee, which is not suit­able for many small- and

“Cus­toms pol­icy varies a lot, even within a week. If you are not in­formed, your goods may be de­tained in cus­toms for a long time. It’s hard for many Chi­nese to bear the cost.”

A Chi­nese busi­ness­man in Iran sur­named Wang

medium-sized Chi­nese en­ter­prises,” he added.

“That in the end put a lot of peo­ple off,” he noted.

The bank stopped han­dling yuan­de­nom­i­nated Ira­nian pay­ments to China last Novem­ber, ac­cord­ing to a re­port by Reuters con­firmed by Chi­nese en­trepreneurs.

“It has been said that this chan­nel will be opened again soon, but no for­mal no­ti­fi­ca­tion has been re­ceived. This dis­turbed the nor­mal pro­duc­tion and trade of Chi­nese en­ter­prises,” a Chi­nese busi­ness­man, sur­named Wang, told the Global Times.

“The cul­prit is Amer­i­can capri­cious uni­lat­er­al­ism,” Wang said.

A roller coaster

Wang rushed into Iran in 2016 at the prospect of lo­cal in­fra­struc­ture boom, among a group of Chi­nese swooped into Tehran due to the ir­re­sistible lure of its mar­ket. But they fast turned to wor­ries as the US quit the agree­ment in 2018, and Chi­nese en­ter­prises now dread that sanc­tions reim­posed on Iran could af­fect them.

It made many Chi­nese com­pa­nies, large or small, reeval­u­ate the mar­ket.

Chi­nese busi­ness­woman Liang has a busi­ness sell­ing In­ner Mon­go­lian melon seeds. It has long been a fa­vorite snack among Mid­dle East­ern res­i­dents, and Iran has also been a ma­jor ex­porter of her prod­ucts.

How­ever, since the mid­dle of 2018, due to the fear of US sanc­tions af­fect­ing the sales of her prod­ucts in other parts of the Mid­dle East, Liang fi­nally chose to tem­po­rar­ily aban­don the Ira­nian mar­ket and wait for a brighter mo­ment.

But she be­lieves that the cri­sis may bring op­por­tu­ni­ties for those who al­ways stay in Iran’s mar­kets. One of her coun­ter­parts who never wa­vers away from the Iran mar­ket has made so much money there that she can af­ford to buy seven apart­ments in prime lo­ca­tions in Shang­hai, she said.

Guo Yong, head of the Ira­nian of­fice of Rong­shang Lo­gis­tics, the largest Chi­nese co­op­er­a­tive agent of Is­lamic Repub­lic of Iran Ship­ping Lines, told the Global Times, “In the cur­rent sit­u­a­tion, China’s large multi­na­tional ship­ping com­pa­nies are un­likely to lose West­ern mar­kets in or­der to stay in Iran be­cause of their need to bal­ance the global mar­ket. Pri­vate lo­gis­tics com­pa­nies like us are look­ing to fill the void left by de­part­ing com­pa­nies.”

In ad­di­tion to the dilemma of leav­ing or re­main­ing, the un­sta­ble do­mes­tic fi­nan­cial sta­tus is an­other ma­jor fac­tor shak­ing peo­ple’s con­fi­dence.

“Ex­change rates fluc­tu­ate as much as 20 per­cent in a day. The level of the de­val­u­a­tion goes be­yond ex­pec­ta­tions. Deal­ers would rather keep goods in a ware­house than sell­ing and have the prof­its im­me­di­ately de­val­ued. This was ab­so­lutely be­yond our imag­i­na­tion when we came here in 2016,” Wang said.

Wu Yi can feel the slump of busi­ness fairs and tours since Trump tore up the Iran nu­clear deal and reim­posed sanc­tions. She said once pop­u­lar Chi­nese ho­tels are now mostly on sale.

In­ter­nal mar­ket de­pressed

In ad­di­tion to ex­ter­nal pres­sure, the Ira­nian mar­ket’s own prob­lems also worry a lot of Chi­nese in­vestors, such as a te­dious sub­mis­sion and ap­proval process at the bor­der.

“We have to spend three or four days a week in han­dling for­mal­i­ties. The process is too triv­ial, so we spe­cially hired a lo­cal to be fully in charge of ap­provals,” said Wang.

“More­over, cus­toms pol­icy varies a lot, even within a week. If you are not in­formed, your goods may be de­tained in cus­toms for a long time. It’s hard for many Chi­nese to bear the cost,” he con­tin­ued. He said the cus­toms de­ten­tions can also be the re­sult of trade pro­tec­tion­ism in Iran.

On June 20, 2018, the Ira­nian in­dus­try min­is­ter for­bade im­ports of 1,339 kinds of goods, since the goods have sim­i­lar do­mes­tic ri­vals. Some banned prod­ucts in­clude home ap­pli­ances, tex­tile prod­ucts, footwear and leather prod­ucts, fur­ni­ture, health­care prod­ucts and ma­chin­ery, re­ported the Tehran Times.

Around the days the ban was an­nounced, Iran’s main port, Ban­dar Ab­bas, was hold­ing about 140,000 tons of cargo await­ing clear­ance. Most of these goods were af­fected by the ban, harm­ing thou­sands of small- and medium-sized en­ter­prises in China, Guo Yong said in a pre­vi­ous in­ter­view with the Global Times.

Af­ter the US with­drew from the Iran nu­clear agree­ment, the sit­u­a­tion in­side and out­side Iran has be­come grim. Many Chi­nese com­pa­nies have strug­gled to find a way to sur­vive the Ira­nian mar­ket.

“Many of my friends who left said they would rekin­dle their busi­ness some­day when the po­lit­i­cal sit­u­a­tion turns bright. They dream of a re­nais­sance in trade with Iran for this promis­ing mar­ket with a pop­u­la­tion of 80 mil­lion,” Wang said. “More­over, Per­sian busi­ness­men are en­thu­si­as­tic, far away from de­mo­nized rep­re­sen­ta­tion by the West­ern me­dia.”

While reaf­firm­ing op­po­si­tion to uni­lat­eral sanc­tions, China is ex­pe­ri­enced in pro­tect­ing the le­git­i­mate in­ter­ests of its com­pa­nies that have busi­ness in Iran when the coun­try was un­der sanc­tions.

Wang him­self plans to ex­pand mar­kets in neigh­bor­ing coun­tries while stick­ing to the Iran mar­ket. “It’s not easy to run a busi­ness in a far land,” he says. “I won’t give up eas­ily.”

Photo:VCG Photo: cour­tesy of Wang Hong

Vakil Bazaar in Shi­raz, IranTop: a Chi­nese restau­rant in Tehran, Iran

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