42 / 84
ECONOMICS
Bloomberg Businessweek
May 14, 2018
40
VLADIMIR GRIGOREV/ALAMY
○ The return of U.S. sanctions will solidify China’s hold over the Middle East’s second-largest economy
Iran’s New
BFF
Tehran traic is gridlocked half the time, and the
city spends most of the year engulfed in smog,
so it’s no surprise that locals travel underground
when they can—on a metro system that carries as
many as 2 million riders a day. During the decade
when international sanctions were in place, efec-
tively turning Iran into a no-go zone for Western
companies, the capital’s authorities managed to
steadily expand the network, roughly doubling its
size. It wasn’t easy. Often “the parts we needed,
we had to build ourselves,” says Ali Abdollahpour,
deputy managing director of the Tehran Urban &
Suburban Railway Operation Co.
A constant of those years was Chinese help with
everything from building rails to making subway
cars. The 2015 multicountry agreement to moth-
ball Iran’s nuclear program, and lifting of the most
punishing sanctions a year later, were supposed to
broaden Abdollahpour’s options. He had his eyes on
Europe—“their tech is better”—for essential braking
and signaling systems. Yet when the metro launched
a tender for more than 600 wagons, the contract
went to a unit of China’s CRRC Corp., which beat
out two European rivals for a deal valued at more
than $900 million, according to local press reports.
The tender is part of a pattern where European
companies have been edged out of a coveted
emerging market by Chinese competitors. Iran’s
trade with China climbed from $12.5 billion in
2006 to $27.9 billion last year. Italy, France, and
Germany all saw their commerce with the Middle
East’s second-biggest economy, after Saudi Arabia,
shrink in the same period. Data on foreign direct
investment in Iran are harder to come by, but
The Fed’s preferred measure of inlation,
the price index for personal consumption expen-
ditures, is going to look high for a few months
because a brief dip in prices for clothing, hotel
rooms, airline fares, and other items has ended,
says Ian Shepherdson, chief economist of Pantheon
Macroeconomics. That might inluence the Fed, he
says. There’s a risk that Fed rate setters could react
too quickly to signs of overheating. “As inlation
climbs, so too will the risk of recession, because
at some point policymakers will feel impelled to
respond,” Ellen Zentner, chief U.S. economist of
Morgan Stanley, wrote in a note to clients on May 2.
—Peter Coy, with Katia Dmitrieva, Tatiana Darie,
Craig Giammona, and Jamie Butters
experts say they’d likely show a similar trend.
The bonds between Iran and China will only
strengthen following President Trump’s May 8
announcement that the U.S. will withdraw from
the seven-nation nuclear agreement and reintro-
duce sanctions. Chinese investors “have the con-
tacts, the guys on the ground, the links to the local
banks,” says Dina Esfandiary, a fellow at the Centre
for Science and Security Studies at King’s College
London and co-author of the forthcoming book
Triple Axis: Iran’s Relations With Russia and China
.
During a 2016 trip to Europe that included
stops in Paris and Rome, Iran’s president, Hassan
Rouhani, and a delegation of Iranian business
executives signed memorandums of understand-
ing worth almost
€
50 billion ($59 billion). But
most of the promised investment never material-
ized, in part because the U.S. continued to enforce
THE BOTTOM LINE While the job market is tight and the costs
of some widely used commodities such as oil and steel are rising,
companies are largely holding the line on prices.
China has been a
key supplier for the
Tehran Metro