Abu Dhabi, UAESunday 21 July 2019

China’s Middle East surge tempered by US red lines

While it once eyed Iran and Syria as potential trade partners, Bejing appears to be backing off

The headquarters of China's ZTE Corporation in Shenzhen, China. The company was hit hard for breaching UN sanctions on Iran.
The headquarters of China's ZTE Corporation in Shenzhen, China. The company was hit hard for breaching UN sanctions on Iran.

The arrest of a senior executive in Chinese tech giant Huawei in Canada last year has led to a quiet policy shift in Beijing’s position towards Syria.

Meng Wanzhou, Huawei’s chief financial officer and daughter of the firm’s founder, was charged with breaching US sanctions on Iran. While the company fights the charges, it has quietly closed a shell company operating in Syria.

Despite Beijing’s political support for the Damascus regime, the small Syrian market appears not to have been worth further confrontation with US regulators.

Iran, a main backer of the Syrian regime, is a partner on a different economic scale for China. Trade between Beijing and Tehran dwarfs that with Damascus. Iran is also a main exporter of oil to China, a beneficiary of political support from Beijing as well as a recipient of its infrastructure investments.

But toughened US sanctions on Iran, brought in since President Donald Trump pulled out of the 2015 nuclear deal last year and a campaign of maximum pressure appears to have made China reassess its position.

China’s has reduced oil imports from the Islamic republic despite Beijing being locked in a trade war with Washington.

Large Chinese firms have been openly hit by US action – including Huawei that is expecting revenue to drop $30 billion in 2019-2020. ZTE, a Chinese telecom manufacturer, said it had paid a “disastrous price” for breaching US sanctions after it paid a $1.2 billion fine last year for selling millions of dollars of tech products.

Esfandyar Batmanghelidj, the founder of a business relations company specialising on Iran, wrote in a commentary for Bloomberg in March that “while China is continuing to benefit from Iran’s energy resources, Iran is struggling to use its earnings to purchase Chinese exports.”

On Tuesday, China warned that the United States should halt its policy of “extreme pressure” on Iran or risk a messy war. However, it also said Iran should be “cautious with its decision-making” and urged it not to abandon the 2015 nuclear deal despite Trump's pullout.

While China supports Iran politically, Beijing has also continued to improve ties with Saudi Arabia, the UAE and other Arab states. These countries back the recent bolstering of US military presence to keep open the Strait of Hormuz, a major route for Chinese energy supplies and for the world as a whole.

The Middle East has been a late but growing element in China’s geopolitical rise. China is among Israel’s largest trading partners, as well as to Iran and Saudi Arabia while its influence extends to Sudan, Syria and even US ally Egypt. Beijing has faced little comment in the Arab world over its policies toward its minority Muslim population.

The Middle East will be an important part of China’s flagship Belt and Road investment framework to boost international trade.

Beijing hosted the foreign minister of the Syrian regime this week, having declared its readiness to help reconstruct Syria’s ports, roads and other infrastructure. It has sent several Chinese business delegations to Damascus in the last two years.

But it appears that privately, Chinese businessmen have learned from the mistakes of Huawei executives and ZTE on Iran. Reports from the economic and business newsletter Syria Report said that the delegations passed on the message that they cannot risk breaching US sanctions. With the US adding fresh restrictions on Syrian businessmen in recent weeks, even the potentially lucrative prospect of rebuilding the war-shattered country might not be sufficient incentive.

The Syria Report publisher Jihad Yazigi said China has been one of Syria’s largest supplier of goods, sometimes risking breaching sanctions, but that there were no major Chinese investments in the country. Draft US legislation is looking to strengthen sanctions on Syrian business sectors in the regime of Bashar Al Assad.

“The sanctions appears to be curbing any serious Chinese investment,” Mr Yazigi told The National from Beirut. “Let us not forget, also, that investment environment in Syria is not very attractive, the security situation is not great and that there are several foreign armies in the country.”

If enacted into law, the new measures would require the US President to assess the feasibility of a no-fly zone as well as impose sanctions on anyone who is involved in Syria’s oil and gas sector. But with the regime now in control of most of the country’s centre and south, many are already looking to the issue of reconstruction.

The West has ruled itself out of funding any such effort unless there are significant concessions from Damascus and Russia isn’t in a financial position to cover even the lion’s share of the UN estimated $250 billion (four times the Syrian GDP) cost alone.

Iran’s economy has been hard hit by the US sanctions and they will not be able spend large funds on Syria either.

Given developments and Chinese firm’s recent experience with US sanctions, it seems less likely they too will make a serious financial input without international agreement.

Without it, Mr Al Assad may be left out in the cold.

Updated: June 19, 2019 11:11 AM

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