Huge opportunities for the Middle Kingdom in the Middle East

Friday 25/09/2015
Not just oil. A cargo ship berths at the port in Lianyungang, in eastern China’s Jiangsu province on September 8th.

London - It was about 1,200 years ago that a dhow set sail from Chi­na laden with silver, gold and ceramics, only to sink off the coast of Indonesia.
The traditional vessel had been bound for, among other places, the Arabian peninsula, and its 1998 dis­covery was evidence of the antiqui­ty of trading links between the Mid­dle Kingdom and the Middle East.
Although they can be traced back more than a millennium, economic ties between the regions are hardly stuck in the past. They have grown at a breathless pace in recent years, thanks to China’s extraordinarily rapid development and a desire of Middle Eastern countries to diversi­fy investment and trade links away from the West.
Recent stock market turmoil not­withstanding, China’s economic expansion is unprecedented. The country’s gross domestic product growth may have been at its lowest for 24 years in 2014, yet still came in at 7.4%. No wonder the Chinese economy developed a huge insatia­ble thirst for petroleum to the ex­tent that, in April, China overtook the United States as the world’s big­gest importer of oil.
More than half of China’s oil im­ports come from the Middle East, 3.1 million barrels a day in 2014. This figure is forecast to double within two decades, even as Beijing maintains or expands imports from Russia, Central Asia and Africa. With the fracking revolution cut­ting US demand for imported oil, as much as 90% of Middle Eastern supplies are expected to go to Asia by 2035.
“[China] is viewed by produc­ers in the Middle East as a growth market,” says Nader Habibi, Henry J. Leir professor of the economics of the Middle East at Brandeis Univer­sity in the United States.
Yet the burgeoning Sino-Middle Eastern economic tie is not just about oil. The Middle East has be­come an important market for Chi­nese products, ranging from cheap plastic consumer goods sold whole­sale in Dubai’s vast Dragon Mart complex of nearly 4,000 stores, to the Chinese car brands that ac­count for 5% of new vehicles sold in Egypt.
Countries as diverse as Bahrain, Egypt, Iran and Saudi Arabia im­port more from China than from any other country and the region is seen by Beijing as an important growth market, especially given the sluggish performance of West­ern developed economies. China’s exports could potentially stifle the growth of the manufacturing sector in the Middle East.
Trade between China and the Gulf is valued at more than $100 billion annually and China is among the region’s top four trading partners. However, a China-Gulf Cooperation Council (GCC) free-trade agree­ment, first discussed more than a decade ago, is yet to be signed, de­spite repeated positive noises from the Chinese side.
Tens of thousands of Chinese la­bourers work at mammoth building sites in the Gulf and the country’s construction firms have secured contracts to create infrastructure projects, including Doha’s new port, an oil pipeline off the United Arab Emirates and a multi-billion-dollar high-speed rail line between Mecca and Medina.
Chinese companies are not just building the infrastructure and in­dustry of the Middle East; they are also funding it by investing in alu­minium smelters and oil refineries, the telecommunications sector, retail malls and Israel’s high-tech “silicon wadi”.
A number of Arab nations have joined the Asian Infrastructure In­vestment Bank, putting them on the fast track for receiving Chinese investment. In the opposite direc­tion, Gulf interests have invested heavily in downstream petroleum facilities in China. As more Chinese firms set up offices in the Middle East, the number of universities in China offering Arabic classes has in­creased substantially.
But the growth in commercial ties has not been without concerns. While China is seen as an important partner in repairing infrastructure ravaged by the turmoil of the “Arab spring”, that same upheaval has pushed investors away from trou­ble hotspots in the Middle East and towards the region’s more stable countries, notably those of the GCC.
Also, although China lacks the historical baggage that encumbers Western nations in the region, the Chinese also lack the deep-rooted ties that bind parts of the Middle East to the West, even if these rela­tionships are ambivalent.
Broadly speaking, though, Chi­na’s growing presence in the Mid­dle East is win-win. China’s stated policy of “non-interference” in the internal affairs of other nations — Beijing’s foreign policy is focused on economics, not politics — make it an attractive partner and its en­gagement with the Middle East is typically less asymmetrical than it tends to be with Africa, where Chinese investments are primarily about securing control of natural resources.
“There are other investment op­portunities in manufacturing and construction and things not related to facilitating exports,” says Habibi. “I don’t think it will be like China and Africa. It will be moulded to­wards the level of economic devel­opment of the specific Middle East­ern countries.”