Linking strategy

China lends money for ‘unprofitable’ train project in Iran

China is lending Iran about $2.3 billion for a fast train project between Qom and Isfahan at a substantial interest rate, Tehran’s Shargh daily reported.

In an article by economics writer Maryam Shokrani on Saturday [July 2], Shargh reported that China has already opened a letter of credit for the project and will complete payment of the 15 billion yuan loan through 2024.

The loan is to be repaid until 2029 and the interest charged will bring Iran’s debt to nearly 22 billion yuan, or $3.2 billion.

The reformist newspaper, which is relatively independent of the government, although subject to censorship rules in Iran, says the project has little economic justification, as passenger rail service in the country is a loser. Instead, vital economic rail projects in the north and southeast have languished for years.

As an example, the report mentions a planned rail link between the Arabian Sea port of Chabahar and the city of Zahedan Sistan-Balochistan province. Iran hopes the port will boost the transit of goods not only for its local market but also to other countries. India has invested in the development of Chabahar in hopes of bypassing Pakistan by shipping goods to Iran, Afghanistan and other northern countries.

Shargh argues that, as has been the case in many other less developed countries, China funds similar projects and if cash repayment proves difficult, it takes oil and minerals instead.

Iran’s foreign and international trade policies have shifted towards China over the past decade, following a “look east” policy adopted by the country’s leader, Supreme Leader Ali Khamenei . Tehran signed a 25-year strategic cooperation agreement with Beijing last year, which has proven controversial among some Iranians.

The problem is that Tehran has been fairly consistent in pursuing an anti-Western and anti-Israeli foreign policy in the Middle East, supporting various militant organizations, developing ballistic missiles and pursuing a nuclear program. This first led to international sanctions from 2007 to 2015, then crippling US sanctions in 2018.

The restrictive measures have significantly weakened its economy and have mostly eliminated infrastructure development projects.

A former Iranian railway official, Mahmoud Heshmati, told Shargh that the Qom-Esfahan fast train project had no economic justification. Turkey and Saudi Arabia have launched limited-speed trains, but these are countries that welcome millions of foreign visitors, while international tourism to Iran is negligible.

Iran, which before the establishment of the Islamic Republic was a popular destination for Westerners in the 1960s and 1970s, now has only small groups of international visitors. There are two main reasons. One is strict Islamic rules such as the hijab for women and a ban on alcoholic beverages and the other is years of arbitrary arrests of foreign visitors for the purpose of prisoner swaps with Europe, the United States and even Australia.

Another former official told Shargh that the Qom-Esfahan project has a 16-year history, but the successive government faltered due to a host of technical challenges. There was no need to take out a loan from China, which would be difficult to repay with its high interest rates.

The former official argued that Iranian private capital played a major role in the economic development of the UAE and other countries in the region, while it stayed away from Iran. “The reason is that domestic investors are under pressure in Iran,” he said. But for the Chinese, it’s just the opposite.