China's Silent Army
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Kazakhstan is now to some extent in the hands of its Chinese neighbor, which it relies on for its supplies. “We have no alternative. If we were to eliminate Chinese products we would end up facing a severe deficit of products in the market,” explains Konstantin Syroezhkin, a leading expert in Sino-Kazakh relations at the Kazakhstan Institute of Strategic Studies in Almaty. There is not even a dilemma, he tells us. “If we restrict trade with China, we will end up doing ourselves serious harm. There are 2.5 million small businesses in this country, and over 50 percent of them have business dealings with China,” he points out, making it clear that the survival of a significant sector of the Kazakh economy depends on trade with China remaining wide open.19 “It is better for us to be good friends with China. What else can we do if we have no productive industry in our country?” he concludes. With several years to go before Horgos—the next Shenzhen—becomes a new bridgehead to Eastern Europe, it seems that China’s checkmate has already been played.
A stroll through Almaty’s main bazaar is enough to tell the story. With its complete lack of indigenous produce, Kazakhstan now appears to be in a state of total dependency on China, which supplies the country with every imaginable type of product. The official name of the premises is baraholka (Russian for “market”) but it might be truer to reality to use the Chinese term, shichang. While the majority of traders are Kazakh, Russian, Uighur or Turkish, the vast majority of merchandise was made in factories belonging to China. “Eighty percent of products here come from China,” says Igor, the manager of one of over twenty companies who rent trading space in the gigantic market. The bazaar houses aisle after aisle of shipping containers—thousands of them—which have been given a quick coat of paint and converted into market stalls. To give us an idea of the magnitude of the market, which acts as a link in a distribution chain which spreads throughout Kazakhstan and the rest of the region as well as providing a space for retail sales, Igor tells us that “around thirty lorries with forty-ton containers arrive every day”; and that is in his area of the market alone. In other words, at a rough estimate we could be talking about thousands of tons of goods arriving throughout the market, almost all of them from China.
This is why some sectors of Kazakh civil society and the media openly doubt the ability of the autocratic government run by Kazakhstan’s first (and only) president, Nursultan Nazarbayev, to deal with China’s growing influence in the country. They hold the government responsible for selling Kazakhstan’s mineral wealth without laying the foundations for a sustainable economic policy for future generations. “The whole economy of Kazakhstan is based on producing crude oil, selling it for US dollars and using these dollars to buy cheap Chinese products. There is no industry in this country apart from the extractive industry. Nobody understands that in twenty years there will be no more oil in this country and then there will be nothing left. Oil is our curse. We would be happier people without it,” says Serikzhan Mambetalin, the then vice-president of Kazakhstan’s Chamber of Commerce and Industry and secretary-general of the country’s Green Party. The relentless arrival of imported goods, China’s growing influence in the Kazakh energy sector and the millions of dollars’ worth of credit that Beijing has granted to the country are all striking real fear into some areas of Kazakh society, who believe that China’s next move will be territorial.20
Driven on by its own commercial power and huge demand for raw materials, China has burst decisively into Central Asia, a strategic region that has historically been under Russian influence.21 Beijing first started moving into the region after the collapse of the Soviet Union, when it quickly recognized the potential of the former Soviet republics. China was able to take advantage of the gap left by Russia, which was busy weathering the storm of its own delicate domestic situation. This allowed China to move stealthily into the Kazakh energy sector, which contains a modest but valuable 1 percent of the world’s gas reserves and 2 percent of its oil reserves.22 Fifteen years later, academics agree that Beijing has played a decisive role in terms of stability in the region, mostly because China considers Central Asia as being key to its own national security. The 3,300 kilometers of border that China shares with countries in this region, as well as the proximity of the hornets’ nests of Afghanistan and Pakistan, provide powerful enough reasons for this belief.
“Without the co-operation of Central Asian countries, the situation in Xinjiang would be much more difficult to control,” admits Xin Guangcheng of the Chinese Academy of Social Sciences, under the watchful eye of the official scribe who oversaw our interview. Xin is referring to the creation in 2001 of the Shanghai Co-operation Organization (SCO), a body set up by Beijing to boost military co-operation and the exchange of information between regional secret services.23 With its growing influence in the region, China has used the SCO to impose control both within and outside its own territory. The aim is to strengthen a porous border that could potentially offer great maneuverability to Xinjiang’s Muslim separatists. As such, China has managed to stifle any support which the Uighur secessionist movement may have otherwise gathered abroad from Uighur communities in Kazakhstan and other countries.24 Using the pretext of the fight against terrorism, Beijing has forged a new geopolitical landscape that not only endangers the rights and freedom of the Uighur community abroad,25 but also poses a real threat to its survival.
BUSINESS BETWEEN MANDARINS AND AYATOLLAHS
We cross from Turkmenistan into Iran in the blink of an eye, thanks to the immigration officials’ complete lack of interest, a short, rowdy queue of lorry drivers and a quick chat about the Spanish football team. As we cross the border, our national side looks down at us from a full-color poster which shares a wall with portraits of Ayatollahs Khomeini and Khamenei. Getting to Tehran from the border town of Bajgiran involves traveling along a thousand kilometers of isolated roads through a mountainous desert, passing remote towns and villages where women walk by wrapped in their chadors in the scorching heat of the sun. One of these places is the remote city of Sabzevar, which was rumored to have served as a hiding place for Osama bin Laden for a few years. We are traveling from Central Asia, and as we plunge further and further into a recognizably Middle Eastern landscape, we are curious as to whether Iran—which has the world’s fourth biggest oil reserves—has also fallen for China’s commercial charms.
The Islamic Republic is a priori an attractive market, thanks to its 75 million inhabitants and average annual income of $6,360 in 2011.26 However, the market is also fraught with difficulties, due to the international sanctions imposed on Iran since the Islamic Revolution in 1979.27 While trade between China and Iran was practically non-existent at the end of the twentieth century, the amount of trade between the two countries now approaches $50 billion, according to Iranian officials. This has been achieved despite the difficulties involved in even opening a letter of credit in the country28 and the risks inherent in a market with a less than favorable operating environment for businesses.29 As we will see in Chapter 4 in the case of the oil sector, China’s role in Iran is to fill the gap left by Western businesses. Bound by law and prompted either by fear of compromising their interests in the United States or by simple risk avoidance, Western corporations have suspended all forbidden trade with the Islamic country.
China is playing a dangerous game, trying to safeguard a responsible image in the diplomatic arena while also taking advantage of the business opportunities offered by trading with the Iranian regime. As such, it is selling every imaginable product to Iran, from consumer goods, electronic devices, textiles and food to various types of machinery, cement, plastics, vehicles and electrical components. This trade is stimulated almost entirely by agreements made between the two governments, since participation from the private sector has fallen to a mere 20 percent of the total.30 One striking example of this growing commercial relationship, which is based more on politics than on business terms, is the Tehran metro system, an exact replica of the one in Shanghai. The platforms, trains and signa
ls are all identical; the only real difference is the “female-only” carriages filled with women dressed in black from head to toe. Another less visible but perhaps more substantial example is seen in the close ties between the state-run Chinese companies and the Guardians of the Islamic Revolution, who dominate much of the Iranian economy.
Our arrival in Tehran in the middle of June 2010 coincides with the first anniversary of the violent street protests against President Mahmoud Ahmadinejad’s regime in 2009. We also arrive in the midst of an atmosphere of heated relations between Tehran and Beijing: certain media sectors and figures close to the Iranian authorities are reacting with outrage and disappointment to a recent act of “betrayal” on the part of their Chinese friends. Just two weeks earlier, Beijing had given its support to UN Resolution 1929, despite its veto power as a Security Council member.31 The new resolution enforces a fourth round of sanctions against the Iranian regime, cranking Iran’s economic strangulation up a notch in an attempt to force Tehran to abandon its nuclear program.
Mehdi Fakheri, vice-president of the Iran Chamber of Commerce, Industry and Mines, alludes to these events as he offers us tea and pistachio nuts in his office in central Tehran. After China’s recent actions, which he describes as going “behind our backs,” he explains that “there is now a certain amount of concern about whether it is convenient to have all of our eggs in one basket. What would happen if China were to side with the United States and Europe on the subject of sanctions on Iran?” he argues in perfect Spanish. “Many people in the government as well as in the private sector are now asking themselves if it wouldn’t be wise to review our relationship with China. China enjoys optimum business conditions in Iran for political reasons. However, now we feel betrayed. Therefore, if economic and trade relations can be expanded for political reasons, they can also be hindered and limited.” Even so, the truth is that Tehran has very little room to maneuver, and even less so after the latest round of sanctions taken by the United States and the EU in 2012 to limit Iranian oil exports, which ultimately might lead to the financial collapse of the Islamic regime. On the one hand, it relies on China for supplies, and this dependence is growing all the time. On the other hand, no other country in the world has shown such staunch opposition to the unilateral sanctions—different from those of the UN—imposed on Iran by the United States and Europe, which China considers inadmissible for reasons of extraterritoriality. With some reservations, China’s support undoubtedly provides Iran with a vital lifeline, particularly in terms of its all-important energy sector.
This growing dependency on China has not gone unnoticed by Asadollah Asgaroladi, president of the Sino-Iranian Chamber of Commerce, who is giving his support to a plan to increase trade between the two countries by strengthening political relations. “When I went to the World Expo 2010 in Shanghai I met with Prime Minister Wen Jiabao. I told him that bilateral trade will increase by 50 percent over the next five years. We can achieve that objective as long as political relations are good,” he warns, sitting in his office in Tehran, the walls of which are dominated by portraits of the leaders of both autocracies.32 To demonstrate the weaknesses in the new embargo, Asgaroladi assures us that “40 percent of the 15 billion dollars generated in bilateral trade between Iran and the United Arab Emirates is actually trade with China. That means 6 billion extra dollars.” As well as trade, he points out, China is investing in various different sectors. At this point the conversation takes an interesting turn, as Asgaroladi seems tempted to broach the impenetrable world of Chinese investments in Iran. However, when we push him on the subject he concludes by saying “I’ll only say that there is a lot of Chinese investment in the mining sector, but I won’t give you any details or tell you where, because I don’t want to end up seeing it in the newspapers and putting Chinese businesses in the firing line of the United States.”
Asgaroladi, a businessman sympathetic to the regime who made his fortune exporting pistachios, cumin, prawns and caviar and importing sugar and electrical appliances, among other things,33 shifts uncomfortably in his seat as the interview develops, particularly when we delve further into the thorny subject of the embargo. From his obvious nerves and some of the things he says it is clear that he is dying to deliver a very tough message to these two Western journalists, but is working hard to control his emotions. Inevitably, the interview finally strays into the extremes of anti-Western discourse. It is when we ask him about the effects of the embargo that he finally snaps.
“America is foolish! We want relations with the West, but the West is now completely foolish!” he shouts, angrily, in English. Through the open door of his office, the serious tone of his outburst can apparently be heard throughout the Chamber of Commerce.
“How much harm are the sanctions doing?” we push him, adding fuel to the fire.
“The sanctions are not effective. They only make business more expensive. I can say that Iran annually imports goods worth 60 billion dollars and that [figure] increases year on year. But I am not going to say how! America is foolish!”
“And what is China’s role in all this …?”
“I’m not going to give you any details. I’ll only tell you that the relationship with China is very good …”
Asgaroladi goes on and on with his attack against the Western world. His shouted tirade of abuse echoes all around the room. Suddenly the telephone rings. Asgaroladi picks it up, listens and responds with monosyllables. A minute later he hangs up. It seems he has been given instructions. He looks us straight in the eyes and stands up.
“That’s enough for today!” he exclaims, making it clear that the interview is over.
“Mr. Asgaroladi, we’re here to find out what China is doing in Iran and to reflect the Iranian point of view about—”
“The relationship with China is very good. The West is foolish! That German woman in Berlin [referring to Angela Merkel] and Sarkozy are two fools!”
“Mr. Asgaroladi, we’re not here representing any government—”
“This conversation is over!”
We leave the Sino-Iranian Chamber of Commerce with complimentary boxes of pistachios under our arms, a good telling off and a kick up the backside. But one little gem emerged from our thirty-minute conversation with the disgruntled president: the magic number—$6 billion—for China’s trade with Iran via the United Arab Emirates. Almost unconsciously, Asgaroladi had let slip a vital piece of information when he was talking about the sanctions, as he more or less officially confirmed that China chooses to carry out part of its trade with the ayatollahs’ regime via a third country rather than directly with Iran. This of course raises the question, why?
CHINA AND THE IRANIAN NUCLEAR PROGRAM
It is not difficult to see the effects of the embargo at Tehran’s Mehrabad airport, where rickety Boeing 727s and ancient Airbuses trundle along the runway. Most common of all are the terrifying Russian Tupolevs, a type of plane which is easily purchased by the Iranian regime but which has a terrible record of accidents inside the country. Landing in Bandar Abbas, Iran’s second city and main gateway into the country, places us right at the heart of the illegal trade route that enters Iran via the Strait of Hormuz. Stepping out onto the tarmac feels like standing under a giant hairdryer before walking right into a sauna. The pounding heat of the desert and the humidity coming off the ocean wrap the city in a thick, nebulous haze, giving it a somewhat ghostly appearance. The empty streets covered with patches of sand reveal low, ocher-colored houses, shops that will not open until five in the evening, and branches of banks which swell the ranks of the financial “blacklist” issued by Washington and Brussels. The thermometer has risen to 45 degrees. The heat is unbearable and there is no sign of life in Bandar Abbas.
Standing on the jetty outside the Homa hotel, supposedly one of the best in the city despite its outmoded design, we can make out the slow, distant traffic of oil tankers which line up one by one to tackle the Strait of Hormuz on their way in or out of the world’s ric
hest oil zone. In the middle distance, smaller boats with deep drafts and outboard motors fly over the waves in the direction of the coast. These boats carry many types of merchandise, all of it brought in illegally from Dubai. The moment they reach the beaches, a crowd of people suddenly materialize and quickly unload the cargo, which disappears in a matter of minutes: from the boat into vehicles and from there on to the streets and shops across Iran. Almost a quarter of Dubai’s population have links with Iran and it is home to 5,000 registered Iranian companies, which have acted for many years as a conduit through which all kinds of merchandise enter the land of the ayatollahs.
According to the president of the Sino-Iranian Chamber of Commerce, not much has changed. However, things are not in fact as straightforward as they were in previous years, when Dubai was the nerve-center for trade—including the illegal kind—for the whole of the Middle East. Since 2007, and particularly since the least orthodox of the Persian Gulf emirates found itself in need of a financial bailout from Abu Dhabi after the explosion of its housing bubble, the emirate—which lacks any significant oil resources—has increased co-operation with the United States and tightened control of its ports. This has led Tehran to set its sights on the East in order to guarantee supplies. Here Iran can find business partners with no qualms about getting involved in the forbidden trade which the embargo and the sanctions have done their best to bury: the trafficking of arms and nuclear technology. North Korea is one of them, according to a report issued by the UN in May 2011.34 The other is China. The underground side of the Silk Road secretly branches out into the very heart of Iran’s atomic program.