Persian Files ISSN 2975-0598 Volume 16 Issue 3
Author: Silvia Boltuc
The collaborative efforts in the tourism sector and Chinese investments in Iranian free economic zones and infrastructure are fortifying the economic ties between Beijing and Tehran. This alliance offers Iran an opportunity to enhance its export capabilities and offset the adverse effects of Western sanctions on its economy. However, it is crucial for Tehran to exercise prudent regulation and oversight to prevent undue acquisition of strategic assets by Chinese investors, thereby ensuring the integrity of its market.
In 2021, Iran and China signed a 25-year strategic partnership following the path of other key players in the Persian Gulf. Tehran and Beijing are part of two important international alliances, the BRICS and the Shanghai Cooperation Organisation (SCO) and have worked together to stabilise the Middle East by reviving relations between Iran and Saudi Arabia.
While the Iranian oil industry is heavily attractive for Beijing, given its domestic energy dependency on foreign supplies, thanks to its historical cities and its free economic zones, Iran might benefit from this cooperation to achieve two fundamental goals: pushing tourism and attract foreign investments.
Iran is increasing its presence in Chinese regional projects, such as the ones connected to the Belt and Road Initiative (BRI) or investments forums.
Chinese Interests in Iran Tourism and Free Economic Zones:
Background Information
In September 2023, the Chinese city of Jingdezhen launched the opening ceremony of the International Tourism Alliance of Silk Road Cities. 58 cities from 26 countries have already become part of the alliance. Partners plan to improve collaboration in tourism, technology, education, and sports, as announced during the forum.
According to Lu Yingchuan, vice minister of culture and tourism, the formation of this alliance shows China’s dedication to the BRI. The inclusion of the Iranian city of Semnan as a founding member within the alliance represents a strategic achievement for Iran’s goal to enlarge its tourism. It signifies a remarkable opportunity for both economic transformation and the enhancement of global trade relations, all of which are poised to significantly benefit the city of Semnan and the around 40 Iranian cities located on the Silk Road.
In the economic field, China is benefitting from Iran’s Free Economic Zones. On September 8th, 2023, the China International Fair for Investment & Trade (CIFIT) 2023 event, an annual event approved by the State Council of the People’s Republic of China, kicked off in Xiamen.
This year’s focus was “Introducing FDI” and “Going Global”. CIFIT focuses on nationality and internationality, investment negotiation and investment policy promotion, coordinated development of national and regional economy, as well as economic and trade exchanges.
At the exhibition, Tehran showcased investment opportunities for investors, business owners, and visitors. Iran’s pavilion focuses on investment packages and platforms of 7 free zones: Anzali, Aras, Mako, Arvand, Chabahar, Qeshm and Kish.
Iran’s choice to focus on free economic zones is a multifaceted strategy aimed at diversifying its economy, attracting foreign investment, creating jobs, expanding trade, and positioning itself as a more attractive destination for global business.
It should be mentioned that the Iranian presence in China’s international exhibition was discussed during a business meeting where Chinese investors briefed about Qeshm free zone business opportunities.
At the end of August 2023, Hojjatollah Abdolmaleki, Secretary of the Iranian Supreme Council of Free Trade-Industrial and Special Economic Zones, announced that 850 packages worth about 15 billion euros for investment in the country’s free zones were ready to be presented to the investors in target countries, such as Armenia, Iraq and China. Significantly, the growth of investment-making has doubled in the state’s free trade and special economic zones under the current government.
Conclusion
In March 2021, Iran and China signed a 25-year strategic partnership to deepen economic and security ties. Although the agreement text was not unveiled, it is possible to see increasing fields of cooperation between Beijing and Tehran.
As SpecialEurasia previously reported, the opening of China’s first consulate in Bandar Abbas shows the Chinese interest in investing in Iran’s connectivity. Indeed, Beijing aims to establish several Chinese companies in the Makran region and connect Iranian ports to its BRI.
Attracting foreign investment is crucial for Iran from a strategic point of view for several reasons:
- Economic Growth and Diversification: Foreign investment can inject capital into Iran’s economy, promoting economic growth and diversification. This is especially important for Iran, which has historically relied heavily on its oil sector now under sanctions. Diversifying the economy through foreign investment can reduce the sanctions’ impact on the national economy and, in the future, its vulnerability to fluctuations in global oil prices.
- Technology Transfer: Foreign investors often bring advanced technologies, management practices, and expertise into the host country. This can enhance Iran’s industrial capabilities, productivity, and competitiveness in global markets.
- Job Creation: External financial funds can lead to the creation of jobs for the local population. This is vital for Iran, as it has a large, youthful workforce that needs employment opportunities. Job creation can also help address social and political stability issues.
- Infrastructure Development: Foreign financing can contribute to the development of infrastructure, including roads, ports, and energy facilities. This not only benefits the foreign investors but also improves the overall business environment in Iran.
- Access to Global Markets: Iranian businesses can access to global markets through export opportunities and connections with international supply chains. This can stimulate domestic industries and boost exports, reducing Iran’s economic dependence on a limited range of products.
- Foreign Exchange Reserves: Foreign direct investment (FDI) can bolster Iran’s foreign exchange reserves, which are essential for stabilising the currency, managing external debt, and ensuring economic stability.
- Improved Relations: Engaging with international investors fosters diplomatic ties, trade relationships, and collaboration in various fields, potentially reducing geopolitical tensions and sanctions.
- Reducing Dependency on Government Resources: Iran has a history of relying heavily on government resources to fund development projects. Attracting economic interests from abroad can reduce this dependency, freeing up government funds for other critical initiatives like healthcare and education.
- Long-Term Stability: A diverse and robust economy, supported by foreign investment, is more likely to withstand economic shocks and crises. This can contribute to long-term stability and prosperity in Iran.
While pursuing foreign investment, Iran must do so with careful consideration and strategic foresight. It is imperative that the influx of foreign capital aligns with Iran’s long-term strategic objectives and safeguards its national interests.
This necessitates a meticulous approach in negotiating terms and conditions with potential investors, ensuring that investments are directed towards sectors that align with Iran’s economic diversification and technological advancement goals.
Additionally, robust regulatory frameworks must be established to monitor and govern foreign investment activities, preventing any undue influence or control that may compromise national sovereignty. Balancing reaping the benefits of foreign investment and safeguarding vital sectors of the economy from overreliance or foreign domination is paramount.
In addition, it is imperative to maintain public trust and ensure equitable distribution of benefits across society by upholding transparency and accountability in the investment process.
By exercising farsightedness and vigilance in managing foreign investment, Iran can harness its potential to drive economic growth while safeguarding its strategic interests and national autonomy.
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