06.08.2020

Boost to Beijing’s ambitions

Iran and China aim to circumvent a declining US hegemon, reports Yassamine Mather

The proposed deal, known as the ‘Iran-China 25-year comprehensive partnership document’, has made the headlines in the Persian-speaking media inside and outside Iran in the last few weeks. It has yet to be finalised and signed, but this has not stopped the US state department - and its Iranian allies amongst the reactionary royalist supporters of Trump’s policy of regime change - from making exaggerated, and often totally false claims.

Iranian Trump supporters first claimed this was a ‘land grab’ by China. According to this version of fake news, the leaders of Iran’s Islamic Republic had ‘given away’ the island of Kish in the Persian Gulf to China. Although parts of the document have been leaked, no-one knows the full details, but anyone with any understanding of 21st century exploitation of the third world will know that, these days, superpowers are not after a ‘land grab’. Exploitation of underdeveloped countries is all to do with ensuring low prices for natural resources, including oil; access to ports with logistic importance; industrial investment and exploitation of human resources; the safeguarding of reliable markets, etc.

China is the world’s largest importer of oil - in 2019 it imported more than 10 million barrels per day, bought from a number of countries. Nearly 40% comes from the Middle East and it is clear that safeguarding China’s access to Iranian oil at a low price is an important part of the agreement.

In fact the Iran-China deal is part of China’s ambitious ‘belt and road initiative’. Chinese propaganda describes the BRI as “a bid to enhance regional connectivity and embrace a brighter future” on a global scale. The critics call it a plan for Chinese ‘debt diplomacy’, since China delivers trillions of dollars in infrastructure financing to Asia, Europe and Africa, thus giving rise to the possibility of ‘debt distress’ in some borrower countries - it takes collaterals in terms of access to natural resources as security for loans. Details of how this aspect of the deal with Iran are mapped out remain secret and probably have not been finalised.

What is known is based on a number of fairly reliable leaks. According to the Financial Times,

China would invest in airports and ports, telecoms and transport, oil and gas fields, infrastructure and banking, acquiring assets as it addresses Iran’s unmet investment needs. In exchange, it would take massive, discounted deliveries of Iranian oil over those 25 years, to feed an import need that last year reached 10m barrels a day. This is roughly what Saudi Arabia, Iran’s arch-rival, produces.¹

Payment for the exported oil will be made in terms of the exchange of goods, technology and services, but also in China’s new electronic currency, the e-RMB - the world’s first digital currency operated by a major economy. This will allow Iran and China to bypass penalties imposed by the United States on those entering into any financial or trade deal with Iran, bypassing US controls imposed on oil sales in dollars.

According to those who have studied leaked versions of the deal, over 5,000 Chinese experts will oversee more than 100 joint projects to build airports and high-speed railways, plus the infrastructure for a 5G telecommunications network.

There are references to China’s plans to develop free-trade zones in Maku, in Iran’s Azerbaijan province, which is close to both the Russian and Turkish borders; in Abadan, close to the Persian Gulf; and on the island of Qeshm in the Persian Gulf. Strategically, China will secure access to a number of Iranian ports, including one at Jask, on the Gulf of Oman, very close to the highly strategic Strait of Hormuz, through which large volumes of oil flow. In 2018, its daily average was 21 million barrels - the equivalent of about 21% of global consumption.

According to The New York Times,

The draft agreement with Iran shows that, unlike most countries, China feels it is in a position to defy the United States, powerful enough to withstand American penalties, as it has in the trade war waged by president Trump.²

US decline

One of the predictable consequences of the Covid-19 pandemic and the subsequent global economic crisis has been renewed interest in the subject of the decline of the United States. Of course there is nothing new about this and, as Noah Smith, assistant professor of finance at Stony Brook University, writes:

The US’s decline started with little things that people got used to. Americans drove past empty construction sites and didn’t even think about why the workers weren’t working, then wondered why roads and buildings took so long to finish. They got used to avoiding hospitals because of the unpredictable and enormous bills they’d receive.³

However, even those who had written in this way could never have imagined the extent of the hegemon’s disastrous response to the pandemic. The complete failure of the state and its agencies to control the rate of infection means the US was in a far worse position than most countries in the world, even before Trump’s push to reopen the economy without adequate protective measures.

On top of all that, police brutality and the murder of George Floyd dramatically exposed class and racial divides. According to George Will, writing in The Washington Post,

Under the most frivolous person ever to hold any great nation’s highest office, this nation is in a downward spiral. This spiral has not reached its nadir, but at least it has reached a point where worse is helpful, and worse can be confidently expected. [There have been] 4,184,011 confirmed cases of the infection in the United States, with 150,000 deaths caused by the disease.⁴

What is more, “The nation’s floundering government is now administered by a gangster regime.”

It is no wonder that in such circumstances we have witnessed the complete failure of the US to lead a global response to the pandemic. Unlike previous crises, from the aftermath of World War II to the economic crisis of 2008-09, US presidents have always presented themselves as saviours, rallying allies to their side and taking steps to save global capitalism. They did this not just to maintain the country’s position as the hegemon power, but in the knowledge that the US’s own prosperity relies on strong European and Asian allies.

Not this time though. The current crisis will be remembered as a time when the US administration’s only concern was its own economy. It has resorted to piracy to steal protective equipment destined for other countries, and attempted to bribe pharmaceutical firms to secure the sole right of access to vaccines.

By contrast the main global rival of the USA, China, appears, at least for the time being, to have managed better the spread of the disease, through a combination of state intervention and repressive measures. Of course, it is very likely that the pandemic - one of the many factors in the current acceleration of US decline - did indeed start in China, and by all accounts the world’s second economic power suppressed information about it and was slow to admit the existence and dangers of the disease. Yet as a party-state dictatorship it has managed to contain the spread of the disease. In January Chinese authorities introduced unprecedented measures stopping movement in and out of Wuhan, the centre of the epidemic, and 15 other cities in the Hubei province. By February 2020, under extreme lockdown measures, some 760 million people were confined to their homes. According to The New York Times,

China has flooded cities and villages with battalions of neighbourhood busybodies, uniformed volunteers and Communist Party representatives to carry out one of the biggest social control campaigns in history.

The goal: to keep hundreds of millions of people away from everyone but their closest kin. The nation is battling the coronavirus outbreak with a grassroots mobilisation reminiscent of Mao-style mass crusades not seen in China in decades, essentially entrusting front-line epidemic prevention to a supercharged version of a neighbourhood watch.⁵

No doubt it is still far too early to predict how the pandemic will affect lives in the next few months. There is a second wave of the disease in China and the triumphalism of the country’s authorities might be premature. However, there is no doubt that the pandemic has boosted the confidence of Chinese leaders and accentuated the rivalry between the two main global economic powers.

US-China rivalry

In a recent book, Capital wars, Michael Howell discusses the nature of the “unbalanced” relationship between the US and China as the two main global powers. Of course, the United States accounts for 22%-23% of the world economy and the dollar remains the dominant global currency. And, while China has enjoyed high productivity and growth, its financial markets remain underdeveloped. Its trade surplus has led to a huge accumulation of foreign exchange reserves, most of it invested in other countries, explains Howard, including the United States. This is a “bizarre situation” that leaves “the two major economies competing aggressively with each other, yet remaining interdependent”.⁶

For many years Xi Jinping’s regime has made it clear that China intends to achieve self-sufficiency in strategic technologies, such as advanced information technology, robotics and aerospace, green vehicles and biotechnology. Throughout this period, for all China’s efforts in copying US chip designs, bypassing copyright and patent laws, and using dodgy versions of scientific software, the country has lagged behind the US.

But there are signs that this is changing in 2020. For a start, the development of Intel chips has more or less reached its limit. Until 2018 the size of microscopic transistors inside silicon chips was being reduced by half each year, and costs also halved as a result of this. That era came to an end around 2018 and the timescale became more like 18 months. This was a result of technically predictable limits regarding such progress.

The limits of the Intel chip has led to the speedier development of other processors, including Nvidia-type graphical processor units (GPUs) and, of course, quantum computing - China’s progress in both areas is undeniable. The Shanghai-based Zhaoxin company has been selling x86 processors aimed at the Chinese market for several years, but in the spring of 2020 the company revealed its new stand-alone graphics processor, which could play a significant role in China’s efforts to catch up with the United States. The same is true of quantum technologies, where China is currently ahead in aspects of this technology, although it is still lagging behind the US when it comes to quantum computing itself. Nevertheless, given the level of investment by the Chinese government in this sector, we can expect it to catch up with the US in the next 10 to 15 years.

None of this can detract from US superiority when it comes to airpower and nuclear weaponry. These will keep it the world hegemon power for at least another decade or two and, although it is difficult to predict the outcome of the current rivalry between China and the United States or how long it will be before the end of the current competitive phase, deals such as the current one between Iran and China can only be assessed within the framework of this rivalry.

I have no doubt that Iran’s Islamic Republic would have preferred continuing economic deals with western governments and global institutions, as it has done since the end of the Iran-Iraq war in 1989. But it has been on the receiving end of renewed, all-encompassing sanctions imposed by the US administration during the Trump presidency, as well as the total failure of European countries to bypass these sanctions and to maintain a level of industrial and financial interaction with Iran. All this has been central in pushing an isolated, impoverished Islamic Republic to seek a deal with China.

What the Iran-China deal tells us is that, ironically, Trump’s isolationist policies, under the slogan, ‘Making America great again’, might have played a significant role in boosting China’s economic and political ambitions.

1. ft.com/content/defa9de2-d4cd-4f7e-b987-4a8b6038bd37.↩︎

2. nytimes.com/2020/07/11/world/asia/china-iran-trade-military-deal.html.↩︎

3. bloomberg.com/opinion/articles/2020-06-29/coronavirus-brings-american-decline-out-in-the-open.↩︎

4. washingtonpost.com/opinions/this-is-what-national-decline-looks-like/2020/07/14/ef499fd4-c5f0-11ea-b037-f9711f89ee46_story.html.↩︎

5. nytimes.com/2020/02/15/business/china-coronavirus-lockdown.html.↩︎

6. . M Howell Global wars: the rise of global liquidity London 2020.↩︎