December 29, 2017
Freed from crippling nuclear sanctions two years ago, Iran is drawing unprecedented Chinese funding for everything from railways to hospitals, Iranian government and industry leaders said Friday.
China’s state-owned investment arm, CITIC Group, recently established a $10 billion credit line for Iran and China Development Bank is considering lending $15 billion more.
“They [Western firms] had better come quickly to Iran, otherwise China will take over,” said Ferial Mostofi, head of the Iran Chamber of Commerce’s investment commission, speaking on the sidelines of an Iran-Italy investment meeting in Rome.
The Chinese funding, by far the largest statement of investment intent in Iran by any country so far, is in stark contrast with the declining interest shown by Europeans, partly because of the Trump Administration’s talk about the possibility of new sanctions.
Iranian officials say the Chinese investments are part of Beijing’s $124 billion Belt and Road Initiative, which aims to build new infrastructure – from highways and railways to ports and power plants – and link China with Europe and Africa to pave the way for an expansion of trade.
A source in China familiar with the CITIC credit line, which was agreed to in September, told Reuters it was it “an agreement of strategic intent.” The source declined to give details on projects to be financed, but Iranian media reports have said they would include water management, energy, environment and transport projects.
An Iranian Central Bank source said loans under the credit line would be primarily extended in euros and yuan.
The China Development Bank signed a memorandum of understanding for $15 billion, the Iranian state news agency reported September 15.
The bank itself declined to comment, in line with many foreign investors and banks, including from China, who are reluctant to discuss their activities in Iran. The websites of banks and companies often carry little or no information on their Iran operations.
With the risk of sanctions hanging in the air again, more and more potential foreign investors want Tehran to issue sovereign guarantees to protect them in case the projects are halted.
Economic ties between Iran and Italy, its biggest European trade partner, have been affected.
Italy’s state-owned rail company, Ferrovie dello Stato, is a consultant in the building of a 415-km (260-mile) high-speed north-south rail line to run from Tehran to Qom and on to Esfahan. The line will be built by state-owned China Railway Engineering Corporation.
The Italian firm is separately contracted to build a line from Qom west to Arak, but it needs 1.2 billion euros ($1.4 billion) in financing. Though backed by the state’s export insurance agency, it says it needs a sovereign guarantee.
Former Prime Minister Matteo Renzi’s promise in Tehran last year to oil the wheels of trade with a 4-billion-euro credit line from Italy’s state investment vehicle is effectively dead, a source in Italy familiar with the matter told Reuters.
Cassa Depositi e Prestiti (CDP) risked losing the confidence of its many US bondholders who could sell down their holdings if the credit line went ahead, the source said.
A few European banks have deepened trade ties with Iran this year – for example, Austria’s Oberbank inked a financing deal with Iran in September.
South Korea has also proved a willing investor, with Seoul’s Eximbank signing a $9.5 billion credit line for projects in Iran in August, according to the Chinese state news agency, Xinhua.
But China is the stand-out.
Valerio de Molli, head of the Italian think-tank European House Ambrosetti, reckons China now accounts for more than double the EU’s share of Iran’s total trade. “The time to act is now, otherwise opportunities nurtured so far will be lost,” de Molli said.
Iranian officials attending last week’s meeting in Rome sought to goad European firms and their bankers into action by talking up the Chinese financing and investments.
“The train is going forward,” said Fereidun Haghbin, director general of economic affairs at Iran’s Foreign Ministry. “The world is a lot bigger than the United States.” But the Iranian market is not bigger than the United States’ market, and that is what many businessmen first think about.
The Iran Chamber is encouraging Western firms to consider transferring technology as a way of earning equity in Iranian projects rather than focusing on capital.
It is also seeking approval to set up a 2.5-billion-euro offshore fund, perhaps in Luxembourg, as an indirect way for Europeans to invest in Iran, Mostofi said.
The fund would issue the financial guarantees that foreigners want in return for a fee, effectively stepping in where banks now fear to tread. Most of the fund’s capital would come from Iran, Mostofi said.
For now, however, many big Western firms feel stuck.
Italian power engineering firm Ansaldo Energia, controlled by state investor CDP and part-owned by Shanghai Electric Group, has been in Iran for 70 years.
Its chairman, Giuseppe Zampini, told Reuters at the Rome conference there were many opportunities for new contracts but his hands were tied for now, partly because Ansaldo bonds were also in the hands of US investors.
“My heart says that we are losing something,” Zampini said.
