Sino-Iranian relations can be traced back thousands of years through exchanges along the overland and maritime Silk Roads. Contemporary relations, however, have their origins in the late nineteenth and early twentieth centuries, with ties established between Iran and the Republic of China (ROC) in 1922. After 1949, Iran continued to recognise the ROC in Taiwan over the People’s Republic of China (PRC), and no formal relationship existed between Tehran and Beijing for many years. Beginning in 1966, as Iran pursued a more independent foreign policy and Sino-Soviet competition intensified, the two sides began a slow process of rapprochement that ended in the establishment of official ties in 1971. While substantial relations never developed, China conducted one of the last official state visits to the Shah of Iran in 1978, which turned out to be a major diplomatic faux pas. Mao Zedong’s successor, Hua Guofeng, arrived a mere six months before the monarchy was toppled by the Islamic Revolution, at a time when throngs of angry protesters against the autocratic Shah’s regime were already lining the streets. For this reason, the Islamic Republic of Iran was initially cold towards China in 1979.
Despite anger over China’s support for the hated dictator, the need for military hardware after Saddam Hussein’s invasion in 1980 and Iran’s increasing international isolation throughout the Iran–Iraq War (1980–88) made cooperation with Beijing almost a necessity. Along with Washington and Moscow, China sold arms to both sides during the conflict, but still managed to maintain good relations with the Iranian Government by providing critical missile technology. China’s participation in the reconstruction of the country after the war enhanced this positive relationship. During the 1990s, China invested money and expertise in high-profile oil, mining, and infrastructure projects—most famously, the Tehran Metro system. Sino-Iranian trade at this time primarily focused on heavy industrial and military technology—notably, the sale of HY-2 Silkworm and C-801 anti-ship missiles, which caused significant tension with the United States. Oil also became an increasingly important commodity in this period. China was a net oil exporter until 1993 and, as demand for petroleum imports in China grew, so did China’s appetite for Iranian oil.
Trade and political ties continued to develop throughout the 2000s and early 2010s. The Chinese Communist Party had begun to prioritise ‘Going Out’ and supporting energy and mining projects globally under leaders like Hu Jintao and Wen Jiabao, in a precursor to the era of the Belt and Road Initiative (BRI). As the Iranian nuclear program came under intense pressure from Western governments, US and European companies began to withdraw from Iran. Chinese firms found opportunities in this withdrawal and participated in more significant infrastructure projects, including the development of Iranian gas and oilfields and important utilities projects. Sino-Iranian relations during this time were closely tied to Sino-American relations: in times of tension with the United States, China ramped up cooperation with Iran and, as tensions decreased, it often cancelled or reduced those deals under US pressure. Still, this was not enough to throttle the development of Iran–China relations entirely and, by 2007, China had emerged as Iran’s top trade partner and, over time, as an important destination for its oil exports despite US sanctions.
In the past decade, trade has become the key driver of Sino-Iranian relations, as Iran tried to weather the economic storm brought on by the United States’ ‘maximum pressure’ campaign and China sought partners for its newly inaugurated BRI. Bilateral trade ties exploded from 5.6 billion USD in 2003 to a high of 51.8 billion USD in 2014, and Iran has been the target of several high-profile state visits, including one by Chinese President Xi Jinping in 2016, when he announced intentions to increase bilateral trade to 600 billion USD by 2026. China also continues to buy Iranian oil in violation of US sanctions. But despite these lofty goals, trade and investment have declined in the face of mounting US economic and political pressure, among other issues, especially since the reimposition of sanctions in 2018.
When the BRI was first announced in 2013, Iran–China trade and investment ties were on the decline, largely due to controversies and sanctions related to the Iranian nuclear program. By 2014, the situation had begun to create opportunities for Chinese companies, which started to replace Western companies that had pulled out due to the political situation. Iran also joined the China-led Asian Infrastructure Investment Bank as a founding member in 2015. Once the implementation of the Iran nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA), began in 2016, which led to an easing of tensions and reduced sanctions, China took more direct steps to negotiate a comprehensive plan for the advancement of the BRI in Iran. A flurry of memorandums of understanding (MoUs) were signed in 2016 and President Xi made a high-profile visit to promote trade ties, during which he directly linked Iran to the BRI in his speeches. In 2017, China’s CITIC Group agreed to provide a credit line of 10 billion USD to support water management, energy, environment, and transport projects in Iran.
The resumption of sanctions in 2018 after the unilateral cancellation of the JCPOA by the United States slowed progress considerably, but negotiations culminated in the signing of the high-profile 25-Year Iran–China Strategic Cooperation Agreement in 2021, which many analysts predicted would lead to investment worth 400 billion USD over that period—although there is no officially confirmed source for this figure. Iran subsequently joined the China-led Shanghai Cooperation Organisation in 2021. With the entry of Syria into the BRI framework and an uptick in Chinese gas and oil investment in Iraq, Iran has the potential to become a major hub for oil, gas, and goods transfers from China to the Mediterranean and beyond. Despite these predictions and Iran’s deeper integration into the BRI system, Iran–China investment seems to have fallen rather than grown in the period since the signing of the 25-year agreement.
Current Economic Relations
China has emerged as Iran’s top trading partner, main oil customer, and primary supplier of industrial manufacturing products. Beijing is also an important source of investment and foreign exchange revenue through the sale of oil, especially as it is the only government willing to purchase a significant amount of Iranian oil in defiance of US sanctions. Sino-Iranian economic relations must, however, be considered in the context of China’s relationship with other countries in the region and, in comparison, the rate of growth, level of investment, and depth of economic cooperation are either typical or, in many cases, lagging. China plays an outsized role in the Iranian economy mostly due to Iran’s international isolation and lack of alternative partners, which can create opportunities but also deter investment.
Trade: As Iran’s top trading partner, China is an important source of cheap consumer items and household goods. Despite substantial progress over the long term, there has been a recent trend of decline and stagnation. After peaking at about 51 billion USD in 2014, by 2019, Sino-Iranian bilateral trade was valued at about 19 billion USD, and fell further to 14.8 billion USD in 2021. The value of the oil trade is trickier to calculate, as it is officially reported as zero, but even the most aggressive estimates only claim about 38 billion USD in clandestine purchases since the beginning of 2021. This puts Iran on par with other oil-exporting states in the region, and substantially behind China’s main oil suppliers like Saudi Arabia, Russia, Iraq, and Oman. Oil purchases have also varied considerably from year to year and even month to month, as China responds to various political and economic pressures. In the past five years, exports have fallen by 11% per annum overall, reflecting a trend in which Iranian companies returned to European suppliers after the JCPOA due to the preference of Iranian consumers for Western goods. Today, Chinese exports are increasingly focused on technologically advanced equipment, vehicles, and electronics. Vehicle and heavy industrial equipment exports especially have grown substantially, with China now surpassing the European Union as the main source of both, but the growth of Chinese exports in these areas has also slowed substantially in recent years.
Investment: China is an important source of foreign direct investment (FDI) in Iranian transportation, telecommunications, heavy industrial, and natural resource development projects. Chinese FDI in Iran has increased significantly in absolute terms, from 468 million USD in 2004 to 3.23 billion USD in 2018, and continues to flow at a time when other sources of FDI, especially in the European Union and the United States, are deterred or restricted by sanctions. Most investment projects have focused on energy, from power plants to gas and oilfield developments. Major projects include the development of the Azadegan oilfields, which has been led by the Chinese National Petroleum Company (CNPC) since 2012, and the Yadavaran oilfields, where Sinopec has made significant investment. CNPC was also involved in the development of the South Pars natural gas field, but the project has repeatedly run into issues negotiating with the National Iranian Oil Company.
Investment has fallen considerably since the reimposition of sanctions in 2018. While some projects continue, overall, Iran has experienced a slowing and stagnation of Chinese FDI since 2018, with only 3 billion USD in investment in 2021—much lower than other Gulf countries in the same period and substantially lower than the predicted amounts. While the 25-Year Strategic Cooperation Agreement has called for increased investment in these key areas, it included no binding agreements, and such investment has not yet materialised.
Aid and Other Finance: Official Chinese foreign aid is difficult to come by, and the line between aid and loans is often blurry. For example, China has provided loans and technical knowhow for projects in Iran that improve the quality of life of Iranian citizens, which the country otherwise lacked the capacity or capital to complete, including the Taleghan water conservation project and the creation and expansion of the Tehran Metro. Beijing also has a long history of providing charitable aid to the Red Lion and Sun Society via the Chinese Red Cross in the wake of natural disasters, especially earthquakes, as it did after major earthquakes in 2002 and 2017, for example.
Chinese technology and willingness to provide advanced systems have been key to the development of numerous Iranian industries. This is especially true in defence, where weapons acquired from China have become valuable sources of military technology, which Iran has often reverse-engineered and used to produce its own native variants, especially missiles. China is also a key supporter of the expansion of Iran’s internet censorship and social surveillance capacity, reportedly providing much of the technology for sophisticated internet monitoring and the development of the National Information Network, a heavily controlled intranet system designed as an alternative to the internet for domestic use. Chinese companies also may have provided cameras with facial-recognition technology to the Islamic Revolutionary Guard Corps that are being deployed during the unrest following the death of 22-year old Mahsa Amini in September 2022 to identify protestors, though these reports are unconfirmed.
Despite Tehran’s enthusiasm for Chinese capital, technology, and diplomatic support, Sino-Iranian relations remain a contentious topic with the Iranian public. For many, economic relations with China mean more competition from Chinese products and businesses. Chinese goods are widely considered to be of inferior quality, and the subject can stir strong emotions about standards of living. Controversies also have arisen over China’s support for Iran’s internet censorship efforts, with some newspapers like the reformist Etemad dubbing further restrictions on access ‘Chinese-style internet filtering’. Cooperation with China can also arouse populist fears fuelled by the lack of transparency surrounding negotiations and commitments. Fears of becoming overly dependent on China are sometimes expressed in exaggeration and rumour, including inaccurate reports that China would purchase the Iranian island of Kish, station 5,000 troops in Iran, and dump radioactive waste in its desert, which spread on social media when a draft of the 25-year agreement was leaked in the summer of 2020. Former President Mahmoud Ahmadinejad (in office from 2005 to 2013) has been vocal in his criticism of the secret nature of these talks, even though his own government engaged in similar ventures.
Behind the veneer of official enthusiasm, Iran–China relations have not always proceeded smoothly. On several occasions, China has cancelled its commitments to Iran in the face of US pressure and out of a desire to be seen as a ‘responsible stakeholder’ on nuclear proliferation, as it did in 1997 when it abandoned efforts to build Iran’s nuclear power industry and cancelled the sale of two 300-megawatt power plants. This has led to a perception that China is a fair-weather friend among both Western analysts and Iranians critical of closer relations. It is true that China balances its alliance with Iran against the need for smooth relations with the West and Iran’s neighbours, many of whom are hostile, and against the image it wishes to project internationally. For their part, Chinese academics, policymakers, and businesspeople are also often hesitant to fully commit to Iran. Chinese businesses have historically had trouble dealing with the Iranian Government and have repeatedly faced their own abrogated contracts and abrupt cancellations. One such example was when the National Iranian Oil Company suspended a CNPC contract to develop the North Pars natural gas field in 2011, in part due to perceptions that the Chinese company was insufficiently committed to the development of the South Pars field that was already under way. CNPC pulled out entirely in 2019 under US pressure. Other issues include fears of being caught up in legal difficulties due to the sanctions, especially after the arrest of Huawei chief financial executive Meng Wanzhou in December 2018 on charges related to evading those sanctions. The subject of closer Iran–China relations is also controversial with the Western media, which often portrays the two as part of a ‘new axis of evil’ that seeks to oppose or overthrow the US-led global security order. The recent 25-year agreement elicited an especially strong response in both the US press and the US Government, with news outlets uncritically repeating unconfirmed reports of a 400-billion-USD investment. Despite the depiction of Sino-Iranian relations in the press, evidencepoints to a substantially more limitedrelationship in practice, and does not support the idea that massive investment is forthcoming.
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Cover Photo: Tehran. Credit (CC): Loizeau, Flickr.com.