China stands to lose heavily, both materially and geopolitically, from the devastating attack which the US and Israel have launched on Iran.
Located at the crossroads of global commerce, the countries in the Middle East are a logistical bridge and an emerging ground for strategic investments. China has been making investments in Iran since 2005. Since the visit of Chinese President Xi Jinping to Tehran in 2016 to sign the Belt and Road Initiative, Beijing has been working to turn Iran into the cornerstone of its Middle East strategy; establishing for itself a base in the region to counter the influence of the US and setting up corridors of trade to Africa and Europe. In 2021, Beijing signed with Tehran a comprehensive strategic partnership agreement, pledging US $400 billion in long-term infrastructure in Iran and in the purchase of Iranian oil.
With the outbreak of the war, now that grand strategy of China lies in tatters. Chinese investments in fixed assets are at great risk, the supply of oil from Iran that China was getting at concessional terms is now uncertain. With a regime change in Iran imposed by Washington on the cards, China also stands to lose the corridors of trade through Iran it had planned.
In fact, China has now become a prisoner in its own web that it had been weaving in the Middle East, with Iran at the centre. From Iran, China has extended its presence in countries in the Gulf which are rivals of Iran, like Saudi Arabia and the United Arab Emirates; and even Israel which is the junior partner of the US in the offensive launched on Iran. Now with Iran making these countries the targets of its missiles, Chinese investments there too are threatened. Ironically, in the interest of protecting its investments in Iran as well as its supply of Iranian oil, Beijing is not in a position to ask Iran to stop spreading the war to other countries in the Middle East; some of which host American military facilities.
China has been investing rather heavily in railways in Iran. Tehran has plans to extend the railway network in Iran to a total of 25,000 km, more than double the length in 2018, at a cost of US $25 billion. Chinese state-owned enterprises are financing this as well as other railway projects; like a contract of US $13 billion signed in 2011 for the supply of eight railroad lines of more than 5,000 km of total length. The ambitious railway expansion project will help China connect with neighbouring countries along its Belt and Road route and finally with other established railway networks in Europe at one end and Central Asia and China at the other.
Besides railways, Chinese state-owned and private companies are also investing in key infrastructure projects like high-capacity hospitals totalling nearly 4,000 beds, metro services, automobile facilities, mining and highways.
Beijing was also cooperating with Tehran on a series of nuclear-related projects in Iran; including the contracts for the construction of two 2,000 MW nuclear power plants, a number of 1,000 MW nuclear power plants and a heavy water reactor in the Iranian city of Arak. Under the pressure of sanctions on Iran imposed by the US since 2018, however, China had to go slow on some of these nuclear projects.
As a part of its BRI, China had also been expanding in Iran its Digital Silk Road and Green Silk Road Initiatives. A Digital Silk Road seeks to pursue innovation-driven development and intensify cooperation in frontier areas such as digital economy, artificial intelligence, nanotechnology and quantum computing and offer facilities like cloud computing. China has also been helping to set up smart cities in Iran with public Wi-Fi, smart buildings, mobile payment, e-commerce and e-governance. Under the Green Silk Road, Chinese firms have been involved in renewable energy projects in Iran like solar power, hydro-electricity and bio-fuel.
Among all the nations with which China has signed BRI agreements, the projects in Iran have the highest potential for overall return on investment for China. Their loss will be a big blow to Beijing.
China has invested billions of dollars in other countries of the Middle East too under the BRI, like in Saudi Arabia and the UAE. According to a PwC survey, in 2023, China’s investment stock in the UAE was around US $9 billion and in Saudi Arabia over US $3 billion. More than 8,000 Chinese companies were active in the UAE. The investment flow to the UAE in 2023 was nearly US $2 billion and to Saudi Arabia around half a billion dollars. In Iraq, the investment stock of China in 2023 was over US $2 billion. “In recent years China has partnered with several Middle Eastern countries on projects in photovoltaics, wind power, civil nuclear energy and hydrogen energy; while deepening ties in emerging fields like space satellites, telecommunications, big data and artificial intelligence,” the PwC report says.
In Israel, too, China has lately been engaged in the construction of two power plants and a pump storage scheme. Chinese state-owned companies have primarily invested in infrastructure in Israel. Private sector companies in China have invested in hi-tech sectors. Between 2002 and 2020, there were eight deals in the infrastructure sector in Israel, including four in transportation, two in ports and two in power; with a total investment of about US $6 billion. In 2021, a new port terminal built with Chinese assistance was opened in Haifa.
Surprisingly, China has not taken any emphatic step to intervene and bring the war to an end; except issuing a few statements expressing concern and asking the US and Israel to stop the attacks on Iran. Beijing may think if the war is prolonged it will be in China’s interest. The Chinese view of the situation is that if the war drags on the attention of Washington will be diverted from the South China Sea and the Indo – Pacific; thus, making Taiwan an easy victim of a Chinese invasion.
But Beijing’s view may be myopic. In Venezuela, and now in Iran, China has failed to come to the aid of its friends and allies when under attack from the US. In the process, Beijing stands to earn the disrepute of being an unreliable friend; keen to stay out of conflicts and not come to the aid of its ally. Besides, the impression will spread that China is not militarily strong enough to take on the US.
Beijing is already on the backfoot in Iran, curtailing in recent years actual investments there because of US sanctions. In the last 10 years, China has invested only about US $9 billion in Iran and practically nothing since 2018.
Beijing had wanted an Iran with nuclear ambitions which could be used as a counterweight to the US. But, the Midnight Hammer of last June and the ongoing Epic Fury have devastated the nuclear infrastructure of Iran and its conventional long-range missiles and drone capabilities. Iran’s uranium enrichment facilities have been crippled, military backbone broken and the stockpile of weapons shattered.
Iran no longer can destabilize the Middle East at China’s behest and keep Washington busy there. Belt and Road projects tied to Iranian ports, rail corridors and energy infrastructure now face heightened instability and security risk. A secure overland energy corridor from Iran to China insulated from U.S. naval power has been reduced to uncertainty. The strategic equations have changed overnight to the detriment of China.