China's trade push to link East and West puts Iran at 'centre of everything'

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China's trade push to link East and West puts Iran at 'centre of everything'

By Thomas Erdbrink
Updated

Neyshabur, Iran: When Zuao Ru Lin, a Beijing entrepreneur, first heard about business opportunities in eastern Iran, he was sceptical. But then he bought a map and began to envision the region without any borders, as one enormous market.

"Many countries are close by, even Europe," Lin, 49, said while driving his white BMW over the highway connecting Tehran to the eastern Iranian city of Mashhad recently. "Iran is at the centre of everything."

For millennia, Iran has prospered as a trading hub linking East and West. Now, that role is set to expand in coming years as China unspools its "One Belt, One Road" project, which promises more than $US1 trillion in infrastructure investment - bridges, rails, ports and energy - in over 60 countries across Europe, Asia and Africa. Iran, historically a crossroads, is at the centre of those plans.

Like pieces of a sprawling geopolitical puzzle, components of China's infrastructure network are being put in place. In eastern Iran, Chinese workers are busily modernising one of the country's major rail routes, standardising gauge sizes, improving the track bed and rebuilding bridges, with the ultimate goal of connecting Tehran to Turkmenistan and Afghanistan.

Visitors sit in a viewing area and look at financial information displayed on digital screens at the Tehran Stock Exchange in Tehran, Iran.

Visitors sit in a viewing area and look at financial information displayed on digital screens at the Tehran Stock Exchange in Tehran, Iran.Credit: Bloomberg

Much the same is happening in western Iran, where railroad crews are working to link the capital to Turkey and, eventually, Europe. Other rail projects will connect Tehran and Mashhad with deepwater ports in the country's south.

Once dependent on Beijing during the years of international isolation imposed by the West for its nuclear program, Iran is now critical to China's ability to realise its grandiose ambitions. Other routes to Western markets are longer and lead through Russia, potentially a competitor of China.

"It is not as if their project is cancelled if we don't participate," said Asghar Fakhrieh-Kashan, Iranian deputy minister of roads and urban development. "But if they want to save time and money, they will choose the shortest route."

He added with a smile: "There are also political advantages to Iran, compared to Russia. They are highly interested in working with us."

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Zuao Ru Lin, a Chinese entrepreneur from Beijing, at one of his eight factories, in Neyshabur, Iran.

Zuao Ru Lin, a Chinese entrepreneur from Beijing, at one of his eight factories, in Neyshabur, Iran.Credit: New York Times

Others worry that with the large-scale Chinese investment and China's growing presence in the Iranian economy, Tehran will become more dependent than ever on Beijing, already its biggest trading partner.

China is also an important market for Iranian oil, and because of remaining unilateral US sanctions that intimidate global banks, it is the only source of the large amounts of capital Iran needs to finance critical infrastructure projects. But that, apparently, is a risk the leadership is prepared to take.

Growing relationship: Visitors to the Tehran Museum of Contemporary Art view Andy Warhol’s Chairman Mao artworks in 1999.

Growing relationship: Visitors to the Tehran Museum of Contemporary Art view Andy Warhol’s Chairman Mao artworks in 1999.Credit: Getty Images

"China is dominating Iran," said Mehdi Taghavi, an economics professor at Allameh Tabatabai University in Tehran, adding that the "Iranian authorities do not see any drawbacks to being dependent on China. Together, we are moving ahead."

It is not just roads and rail lines that Iran is getting from China. Iran is also becoming an increasingly popular destination for Chinese entrepreneurs like Lin. With a few words of Persian, as well as low-interest loans and tax breaks from the Chinese and Iranian governments, he has built a small empire since moving to Iran in 2002. His eight factories make a wide variety of goods that find markets in Iran and in neighbouring countries.

A shopper leaves the Hyper Star market, near a sculpture of a shopper, at the new Isfahan City Center shopping mall on June 2, 2014 in Isfahan, Iran.

A shopper leaves the Hyper Star market, near a sculpture of a shopper, at the new Isfahan City Center shopping mall on June 2, 2014 in Isfahan, Iran. Credit: Getty

"You can say that I was even more visionary than some of our politicians," Lin said with a laugh.

Since 2013, when the "One Belt, One Road" plan was started, he has had dozens of visitors from China and multiple meetings with the Chinese ambassador in Tehran. "I was a pioneer, and they want to hear my experiences," he said.

'Of course, Iran's economy will also grow': An Iranian employee relocates paper waste at the Pardis Kaghaz Pazh recycled paper factory in Neyshabur.

'Of course, Iran's economy will also grow': An Iranian employee relocates paper waste at the Pardis Kaghaz Pazh recycled paper factory in Neyshabur.Credit: New York Times

Lin established his factories along what will be a key part of the trade route - a 925-kilometre electrified rail line linking Tehran and Mashhad, financed with a $US1.6 billion loan from China. When completed and attached to the wider network, the new line will enable Lin to export his goods as far as northern Europe, Poland and Russia, at much less cost than today.

"I am expecting a 50 per cent increase in revenue," Lin said. He lit another cigarette. "Of course, Iran's economy will also grow. China will expand. Its power will grow."

Iranian President Hassan Rouhani. Iran's leadership have relied on Chinese capital for infrastructure projects, despite concerns over domination from Beijing.

Iranian President Hassan Rouhani. Iran's leadership have relied on Chinese capital for infrastructure projects, despite concerns over domination from Beijing.Credit: AP

He played Chinese pop music in his car and tapped his fingers on the wheel. "Life is good in Iran," he said. "The future is good."

Iranians who spotted Lin driving between his factories waved and smiled. Having mastered a few basic phrases in Persian over the years, he said "hi" and "goodbye" to some of his 2000 employees. Iranians are hard workers, he said, but he does not like their food. "We grow our own vegetables and eat Chinese food," he said. "Just like home."

Zuao Ru Lin, centre, and his plant chief executive Nan Xiang inspect the final product.

Zuao Ru Lin, centre, and his plant chief executive Nan Xiang inspect the final product.Credit: New York Times

Even when the boss was out of earshot, workers in his factories said that they were very happy with the Chinese. "They pay every month on time and only hire people instead of fire," Amir Dalilian, a guard, said. "If more will come, our economy will flourish."

When finished, the proposed rail link will stretch nearly 3200 kilometres, from Urumqi, the capital of China's western region of Xinjiang, to Tehran. If all goes according to plan, it will connect Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan, according to the state-owned China Daily. Track sizes need to be adjusted and new connections made, as well as upgrades to the newest trains.

Iranian and Chinese employees work side by side at Pardis Kaghaz Pazh.

Iranian and Chinese employees work side by side at Pardis Kaghaz Pazh.Credit: New York Times

In a 2016 test, China and Iran drove a train from the port of Shanghai in eastern China to Tehran in just 12 days, a journey that takes 30 days by sea. In Iran, they used the existing track between Tehran and Mashhad, powered by a slower diesel-powered train. When the new line is opened in 2021, it is expected to accommodate electric trains at speeds up to 200 km/h.

Fakhrieh-Kashan, an English speaker who oversees negotiation of most of the larger international state business deals, said the Chinese initiative would do much more than just provide a channel for transporting goods. "Think infrastructure, city planning, cultural exchanges, commercial agreements, investments and tourism," he said. "You can pick any project, they are all under this umbrella."

Business ties between Iran and China have been growing since the United States and its European allies started pressuring Iran over its nuclear program around 2007. China remains the largest buyer of Iranian crude oil, even after Western sanctions were lifted in 2016, allowing Iran to again sell in European markets.

Chinese state companies are active all over the country, building highways, digging mines and making steel. Tehran's shops are flooded with Chinese products and its streets clogged with Chinese cars.

Iran's leaders hope that the country's participation in the plan will enable them to piggyback on China's large economic ambitions.

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"The Chinese plan is designed in such a way that it will establish Chinese hegemony across half of the world," Fakhrieh-Kashan said. "While Iran will put its own interests first, we are creating corridors at the requests of the Chinese. It will give us huge access to new markets."

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