Baghdad : China may write off all of Iraq's $8.5 billion (Dh31.2 billion) of debt accrued under the rule of Saddam Hussain, Iraqi finance minister Baqer Al Zubaidi said yesterday.

"The Chinese government expressed readiness to write off $8.5 billion of debts owed by Iraq," Al Zubaidi said in a statement posted on the ministry's website yesterday.

Iraq is keen to see China play even a bigger role in the reconstruction of the war-torn country, the country's top envoy to Beijing told the China Daily in an interview last week.

"After 2003, China has supported us very much and reduced Iraqi debts by 80 per cent, which is greatly appreciated," Iraqi Ambassador to China, Mohammad Sabir Esmail, told the paper, referring to a $6.8-billion debt cut announced by China last month.

Esmail also invited Chinese companies to invest and operate in the country.

"I call on all Chinese companies to come and take up projects in rebuilding Iraq," he told China Daily.

"China has many giant companies qualified to participate in rebuilding Iraq and... our country will remain a big workshop in the next 20 years," he said.

Some Chinese firms, mainly in the energy and retail sectors, are already operating in Iraq.

These companies include oil giants such as PetroChina, Sinochem, CNOOC and Sinopec subsidiary Addax Petroleum.

Deficit plug

Iraq's economy is dominated by the petroleum sector, which has traditionally provided about 95 per cent of foreign exchange earnings, according to US data. Between June 2009 and February 2010 the Iraqi Oil Ministry tendered for the award of service contracts to develop Iraq's existing oil fields. Contracts for all major fields excluding the Kurdish controlled areas were awarded to major global oil companies such as Shell, Petronas, BP, Total, ENI, Exxon, Gazprom, Lukoil and others. Contracts for the Kurdish areas are currently being disputed by the Baghdad government. Most of the contracts are awaiting final ratification of the awards by the Iraqi government. Company shares are subject to change as a result of commercial negotiations between parties.

Hydrocarbon industries account for well over 70 per cent of the Iraqi economy and 95 per cent of the government's revenues. Diversification of the economy into non-hydrocarbon industries remains a long-term issue.