Part I : China neutralises the US campaign on Muslim Uighur issue

When China and Iran, two of the United States’ main adversaries in the contemporary world situation, enter into a 25-year strategic pact, it is pointless to split hairs and speculate whether the development affects American strategies. Of course, it does. The West Asian region is all about geopolitics — starting from oil and jihad to petrodollar.

The region served as the crossroads of empires for centuries between Europe and Asia. And in modern history, foreign intruders conflated new poignant realities — failed states, humiliated peoples, crippled economies, extreme inequality and poverty, devastated environments, plundered resources, conflicted geographies, and violent radicalism.

The historic China-Iran agreement signed on March 27 in Tehran during the visit of China’s State Councilor and Foreign Minister Wang Yi has been under negotiation since the 2016 visit by Chinese President Xi Jinping to Tehran. Numerous visits by Iranian Foreign Minister Javed Zarif to China in the recent years testified to the high importance Tehran attached to the negotiations culminating in the formal signing ceremony in Tehran Saturday, which also marked the 50th anniversary of the establishment of diplomatic relations between these two “civilisation states” of the 21st century that enjoyed vast historical continuity and cultural unity across a large geographic region through millennia.

The text of the agreed document has not yet been put on public domain but broadly, we can glean from the joint statement issued on March 27 that the agreement reached during Xi’s visit to increase bilateral trade to $600 billion in the next decade has been acted upon. In fact, the joint statement begins by invoking Xi’s visit. Two supplementary documents signed by the two countries pertain to the “MOU on Jointly Promoting the Silk Road Economic Belt and the 21st Century Maritime Silk Road” and the “MOU on Reinforcement of Industrial and Mineral Capacities and Investment”, whereby both sides “shall expand cooperation and mutual investments in various areas including transportation, railway, ports, energy, industry, commerce and services.”

The joint statement says that given their relative economic advantages, both sides shall enhance their cooperation in the field of energy. Iran will supply oil and gas to China while the Chinese side “shall consider financing and investing in the up-and-downstream projects of the energy industries” in Iran. Again, wide-ranging economic cooperation is envisaged covering investment and trade exchanges, banking, financing, mining, transportation, communications, space, manufacturing industries, development of ports, upgrade and expansion of Iran’s railway networks, introduction of express railway systems in Iran, agriculture, water resources, protection of environment, food security, fighting desertification, water desalination, use of nuclear energy, etc. A bilateral “MOU on Strengthening of Investment Cooperation” is devoted to this aspect and the exchange of knowhow and technology.

Yet, the scope of the pact by far transcends trade and investment. A commentator in the Chinese state media noted, “As it stands, this deal will totally upend the prevailing geopolitical landscape in the West Asian region that has for so long been subject to US hegemony.” The joint statement states that the Comprehensive Strategic Partnership signifies “a major agreement in all areas of bilateral relations and regional and international issues.” It adds, “Currently the regional and international situation is experiencing deep and complex developments. Under such circumstances, the two sides emphasise the importance of cooperation between the developing countries on international affairs and are committed to joint efforts towards realisation of peace, stability and development in the region and the world at large.”

Interestingly, the joint statement highlights that “China attaches importance to Iran’s effective role as the regional power and evaluates positively Iran’s role in activities under the framework of the Shanghai Cooperation Organization and supports Iran’s application for full membership of the Organization.” Of course, it is a way of telling the world that China does not accept the isolation of Iran from the world community. Conceivably, China and Russia are on the same page here.

The US has contributed significantly in providing a raison d’être for such a pact. Neither China nor Iran is expecting any goodwill from the US. They perceive that the adversarial mindset in America is only hardening under President Joe Biden’s watch. As for Tehran, it no longer pins hope that Biden will revive the JCPOA or lift sanctions anytime soon. Thus, without doubt, pushing back against the US unilateralism and sanctions is a leitmotif of the China-Iran strategic partnership.

China’s interest lies in “broad-basing” this leitmotif to embrace its relationships with the regional states as a whole. Wang’s regional tour covered Saudi Arabia, Turkey, Iran, UAE and Oman. The fact that he travelled to Iran via Saudi Arabia is both symbolic and of substantive importance. At his meeting in Riyadh on March 24 with the Saudi Crown Prince Mohammed bin Salman, Wang said China supports Saudi Arabia in safeguarding its sovereignty, national dignity, security and stability, and opposes interference in Saudi Arabia’s internal affairs under any pretext. Prince Mohammed affirmed in response that the rise of China is conducive to global peace, stability and prosperity, as well as a more balanced global development.

The Crown Prince expressed the hope that the two countries will boost anti-terrorism and security cooperation to uplift the bilateral ties to a higher level. Importantly, the Crown Prince said Saudi Arabia ‘firmly supports China’s legitimate position on the issues related to Xinjiang and Hong Kong, opposes interfering in China’s internal affairs under any pretext, and rejects the attempt by certain parties to sow dissension between China and the Islamic world.’

Plainly put, Saudi Arabia has undercut the current US campaign against China regarding Xinjiang. It is a snub to the Biden administration. In fact, Wang’s regional tour testifies to the ground reality that there are no takers for the US’ diatribes against China. The regional states sense that the US is being driven by seething rivalry over a rising China poised to overtake it in a near future as the world’s number one superpower. They refuse to take sides in the rivalry.

The salience lies here: China has introduced, after careful assessment of the power dynamic in West Asia, certain common principles that are equally applicable across the region to provide the basis for its relationships with the regional countries. The unspoken objective is to encourage the regional states to shift to independent foreign policies, shaking off the western yoke, especially US hegemony. But China’s method of doing this is radically different from the coercive and often violent tactics that western powers traditionally adopted in the region.

China has absolutely no interest in using coercion as an instrument of “persuasion” even with Turkey which has a vocal Uighur diaspora (who held a demonstration during Wang’s visit). At the meeting with Wang, President Recep Erdogan underscored Turkey’s deep interest in “boosting mutual trust, promoting the synergy between China’s Belt and Road Initiative and Turkey’s “Middle Corridor” plan, enhancing cooperation in the fields including interconnection and intercommunication, infrastructure construction and investment, seeking more balanced development of bilateral trade, and encouraging local currency settlement.”

Erdogan also voiced Turkey’s appreciation for China’s five-point initiative for achieving security and stability in the Middle East and its willingness to deepen communication and coordination with China on regional affairs. Fundamentally, China’s projection of a constructive agenda to develop “win-win” engagement with the regional states is gaining traction.

Part II: China positions itself on the right side of history

In an exclusive interview with Al-Arabiya last week, China’s State Councilor and Foreign Minister Wang Yi outlined Beijing’s approach to the West Asian region with particular reference to the tensions in the Persian Gulf.

Wang lamented that “due to protracted conflicts and turmoil in the more recent history, the region descended into a security lowland… For the region to emerge from chaos and enjoy stability, it must break free from the shadows of big-power geopolitical rivalry and independently explore development paths suited to its regional realities. It must stay impervious to external pressure and interference, and follow an inclusive and reconciliatory approach to build a security architecture that accommodates the legitimate concerns of all sides.”

Wang has reiterated a Third Way. China has been espousing lately a “five-point initiative” devolving upon adherence to mutual respect (non-interference in internal affairs), equity and justice (read Palestine issue), non-proliferation (Middle East nuclear weapon free zone), collective security (proposal to hold in China a multilateral dialogue conference for regional security in the Gulf), and development cooperation (Belt and Road Initiative, Free Trade Agreements). It is not going to be easy for the US to match this Chinese package of “genuine multilateralism”. China is encouraging the regional states to adopt the politics of equity and justice, and “resistance” to US bullying (which we normally associate with Iran) to create strategic autonomy.

China hopes to anchor its bilateral relationships on this new thinking which provides seamless possibilities to add solid content of great mutual benefit. Thus, an announcement came during Wang’s halt in Abu Dhabi (his destination after Tehran) that the UAE will start producing China’s Sinopharm vaccine next month as the first Gulf state to set up a coronavirus vaccine production facility with initial capacity to make 200 million doses annually, boosting its efforts to become a supply hub to West Asia and Africa.

On the other hand, just before Wang Yi’s arrival in Riyadh, the CEO of Aramco Amin Nasser announced, “Ensuring the continuing security of China’s energy needs remains our highest priority – not just for the next five years but for the next 50 and beyond.” The Saudi Crown Prince Mohammed bin Salman told Wang at the same time that Riyadh is keen “to continuously deepen” the bilateral cooperation” in crude oil, petrochemical, nuclear energy and other energy fields, “while also expanding it into new fields” such as 5G, telecommunication and digital technologies.

By the way, the 155th session of the League of Arab States Council at the level of foreign ministers adopted a China-related resolution on March 3, which reiterated the importance to strengthen China-Arab ties, and announced that Saudi Arabia will be hosting the first Arab-China summit this year. Wang called it an impressive marker and hopes to make the summit “a memorable event in the history of China-Arab relations.”

The US has never before faced from the Soviet Union or its western competitors this sort of challenge that China is posing today by offering to the regional states an altogether new path of development and governance that gives primacy to their national identity as sovereign states, keen to diversify their economies and not merely continue as gas stations for Big Oil. China’s offer is seductive: it does not take sides in the intra-regional rifts and schisms and instead wants regional players to follow an inclusive and reconciliatory approach to build a security architecture of their own that accommodates the legitimate concerns of all sides.

And, yet, China calculates that the outcome will be that the region would eventually step out of the shadows of western dominance to independently pursue its policies and resist US pressure and interference. In short, a level playing field is what China is seeking in the near term.

Thus, while seeking that Iran should resume fulfilling its commitments on the nuclear issue, Wang suggested that the international community should also support the efforts of the regional countries to establish the Middle East as a nuclear weapon-free zone, and that for a consensual approach, all parties should discuss and formulate a route and timetable for implementing the JCPOA. Conceivably, this puts China in a pivotal role as mediator between Iran and its Arab neighbours.

Indeed, the ‘X’ factor is about security and military cooperation under the China-Iran pact. No matter the strategic ambivalence on both sides on the issue, if US-Iran tensions deepen, Tehran will begin to see mutual advantage in allowing China (and Russia) to access its bases occasionally to counterbalance the US presence in the Persian Gulf. Without doubt, Iran will be seeking the transfer of advanced military technology from China (and Russia), once the UN embargo on such transactions end shortly under the framework of JCPOA.

The big volumes of oil and gas exports to China will boost Iran’s purchasing power. (China is reportedly ramping up its imports of Iranian oil already; imports are expected to reach levels of 856,0000 bpd in March, an 129% jump on February.) Simply put, China will be generating income for Iran to realise its full potential as a regional power that cannot be cowed down. Meanwhile, Saudi Arabia too is viewing China (and Russia) as its partner to develop an indigenous defence industry that reduces its dependence on costly purchases of weaponry from the western countries.

Iran senses that the hardening US attitudes toward China, as evident during the recent talks at Anchorage, have prompted Beijing to shed its earlier reticence and to switch to an overt outreach toward regional politics. Wang Yi stressed in his remarks in Tehran that China is willing to oppose hegemony and bullying, safeguard international justice and fairness as well as uphold international norms together with people of Iran and other countries. “Our relations with Iran will not be affected by the current situation, but will be permanent and strategic,” Wang said. His punchline, of course, was: “Iran decides independently on its relations with other countries and is not like some countries that change their position with one phone call.”

Elsewhere, Wang stressed that China is consistent in opposing the unreasonable unilateral sanctions imposed on Iran by other countries, because they violate the international law, especially those based on lies and false information, which are immoral and unpopular and constitute an affront to human conscience. He said China stands ready to work with Iran and other countries to jointly oppose the acts of bullying by powers, uphold international equity and justice, and defend the basic norms of international relations.

To be sure, Iran welcomes this marked shift in China’s diplomatic stance and sees distinct advantages in it. The Secretary of Iran’s Supreme National Security Council Ali Shamkhani, a highly influential figure in the country’s top echelons, has described the pact with China as “part of the active resistance policy.”

Wang pointed out that it is time to seriously reflect on the bad consequences inflicted on the region by external interferences, and work together to explore effective ways to maintain long-term regional security and stability. Of course, China is well aware that the regional divides (that are largely the creation of the western powers) will not disappear overnight. Nonetheless, Wang’s consistent message throughout the regional tour was that the regional countries should uphold their sense of ownership, carry forward the spirit of independence, get rid of the interference of geopolitical competition, seek development paths suitable for the national conditions, and establish a security framework in line with their interests.

China is playing the long game. Wang’s regional tour of West Asia marks China’s belief and confidence that it is on the right side of history.

Part III: There is no timetable for an official launch

The China-Iran joint statement of last Saturday has made waves in the international media and among regional analysts from Israel to India. Israel is anxious that there is going to be security cooperation between China and Iran. Indians are brooding over the fate of their Chabahar port project in eastern Iran, integral to its “regional connectivity”.

The devil lies in the details. And the point is, the final document negotiated by Beijing and Tehran still remains under wraps. Both sides are noticeably coy. Surely, all attention in Tehran is still on reading President Joe Biden’s lips — how he frames the JCPOA in the few remaining crucial weeks remaining before the IAEA inspectors are booted out of Iran next month.

The media statement by Wang Yi, State Councilor and Foreign Minister, on Tuesday surveying the outcome of his regional tour does not even mention the pact with Iran. Wang said “the expected goals have been achieved” and underscored that the most important gain, from Beijing’s perspective, is the projection of China’s five-point initiative on achieving peace and security in West Asia by building up the capacity by the regional states “to stay impervious to external pressure and interference, to independently develop paths suited to regional realities” and most important, “break free from the shadows of big-power rivalry and resolve regional conflicts and differences as masters of the region.”

Wang urged the countries he visited — Saudi Arabia, Turkey, Iran, UAE and Bahrain (plus a “working visit to Oman) — to accommodate each other’s core interests. Looking ahead, Wang listed out the following areas of “practical cooperation”:

• alignment of the Belt and Road Initiative with the national development plans of the regional states;
• export and distribution of China’s Covid-19 vaccines regionally and creation of an international mechanism for “mutual health code recognition”;
• achieving a two-state solution to the Palestine question;
• political settlement of regional disputes;
• creating “a road map and timetable” for resuming the JCPOA and resolution of the Iranian nuclear issue;
• promotion of the China-Arab Reform and Development Forum as well as the Middle East Security Forum;
• high- and new-technology cooperation, such as 5G, big data and artificial intelligence; and,
• development of a China-Arab states “community with shared future in the new era” opposing the politicisation of human rights issues.

To be sure, Beijing is positioning itself as a troubleshooter to break the stalemate over JCPOA. On the eve of Wang’s arrival in Tehran, the US special envoy Robert Malley had a call with the Chinese Deputy Foreign Minister Ma Zhaoxu during which the latter affirmed that Beijing “will continue to play a constructive role” in bringing the JCPOA back on track.

Suffice to say, the China-Iran pact deeply is embedded within a new matrix Beijing hopes to create with the Arab states of the Persian Gulf and Iran. The pact forms part of a new narrative on regional security and stability.

Nothing is known about the nature of the payment mechanism for such massive economic transactions running into hundreds of billions of dollars that the China-Iran pact envisages. China cannot be comfortable with the risk in the use of American dollar as the currency for such transactions.

Indeed, Chinese experts have noted in recent times that Beijing realises the huge risk of over-reliance on the US dollar and Western-controlled payment system since the financial crisis in 2008, and that the latest massive quantitative easing done by the US for boosting its own economy also increases such concern.

Besides, a top Chinese expert, Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, told the Global Times newspaper recently, “Washington has been abusing SWIFT to arbitrarily sanction any country at will, which has sparked global dissatisfaction. If China and Russia could work together to challenge the dollar hegemony, a laundry list of countries would echo the call and join the new system.”

As the payment system is linked to the trading system, Dong suggested that the new payment system use the yuan as the clearing currency. “At first, the system could push forward a trial run in Central Asian countries and countries and regions along the routes of the Belt and Road Initiative. As its influence grows, the system is poised to draw in other countries in Europe and the ASEAN,” Dong said.

Other reports in the recent months have also spoken of a non-dollar payment mechanism between China and Iran under discussion. It remains to be seen how far the US can stomach such an affront. China does not seek confrontation with the US — at least, not yet. For Iran too, export of oil and gas, a strategic asset, with payment in local currencies requires a leap of faith. In the most recent years, China has been urging Saudi Arabia too to move out of the dollar’s orbit for the oil trade.

Having said that, China is testing the waters in West Asia. Last January, according to reports, the Digital Currency Institute of the People’s Bank of China and the Central Bank of the United Arab Emirates joined the so-called Multiple CBDC (m-CBDC) Bridge, a cross-border payments project to facilitate fund transfers, international trade settlement and capital market transactions in their own jurisdictions.

No doubt, the digital yuan, domestically branded in China as the Digital Currency/Electronic Payment (DCEP) project could also challenge the supremacy of the US dollar. As of now, China’s cross-border payment system CIPS both partners and competes with SWIFT amid growing Sino-U.S. tensions. Greater use of the CIPS instead of the Belgium-based SWIFT system would reduce exposure of China’s global payments data to the United States. Some US analysts have criticised this as a step “advancing China’s digital authoritarianism domestically and globally.”

With China’s meteoric rise on the global stage, Beijing has long been hoping that its physical currency, the renminbi (yuan), would ride on the back of its economic success and force a shift away from the dollar-dominated financial system. China is steadily moving into a challenging yet opportunistic position.

China’s Belt and Road initiative becomes a ripe entry point for the digital yuan’s internationalisation. China could ask BRI participating countries to start accepting the digital yuan, make loan payments and pay to install infrastructures such as point-of-sale terminals and lower transaction fees. According to China’s State Administration of Foreign Exchange, a decision has been taken to “actively cooperate with the national belt and road development strategy.”

Apart from being a cheaper and faster payment system, it also creates a firewall against US sanctions. In a hypothetical scenario, Iran can build a compatible digital currency system so that trade and investment and cross-border transfers, international trade settlement and foreign exchange transactions between the two countries are no longer trackable by the US anymore.

Effectively, this can neutralise the US sanctions bypassing the all-mighty greenback. A report in the New York Times says that “If put into effect as detailed, the (China-Iran) partnership would create new and potentially dangerous flash points in the deteriorating relationship between China and the United States… Renewed American sanctions, including the threat to cut off access to the international banking system for any company that does business in Iran, have succeeded in suffocating the Iranian economy by scaring away badly needed foreign trade and investment.”

How could Washington possibly accept such strategic defiance at a time when “America is back”, according to the Joe Biden administration? The US state department has vowed “to impose costs on Chinese companies that aid Iran.” Under the circumstances, it is entirely conceivable that there is no timetable for an official launch of the China-Iran pact. Being “civilisation states”, China and Iran would have their own concepts of time and space.

(Ambassador M.K. Bhadrakumar served the Indian Foreign Service for more than 29 years.)