Syrian peace dividends for China in 2019

The competition for business opportunities in Syria will insert China into competitive cooperation with Russian, Iranian and Lebanese firms.
Sunday 06/01/2019
Economic diplomacy. Chinese and Syrian businessmen shake hands behind their national flags during a meeting to discuss Syria’s reconstruction in Beijing, last May.  (Reuters)
Economic diplomacy. Chinese and Syrian businessmen shake hands behind their national flags during a meeting to discuss Syria’s reconstruction in Beijing, last May. (Reuters)

While the military situation in Syria is riddled with uncertainties, China is swiftly placing its Belt and Road Initiative at the helm of the Syrian economic reconstruction process.

During the last decades, the situation in the Middle East and North Africa has been characterised by a dangerous mix of volatility and often violent political transitions. In this respect, China is trying to avoid interfering with the domestic affairs of other countries. Will Beijing dodge involvement in regional confrontations in 2019?

Abiding by its decade-long principle of non-interference, Beijing diplomatically supported Syrian President Bashar Assad without creating major friction points with other powers involved in the conflict. Although having refrained from involvement in the Syrian struggle directly and avoiding the deployment of its armed forces or proxy militias the way other powers have, China has been increasingly active at the UN level. This relatively low-key but important support of Syria has given Beijing the opportunity to be part of the national reconstruction process, a game that Beijing plays very well and with its own rules.

Syria is one of Russia’s closest Middle Eastern allies but China’s diplomacy is marked by realpolitik. Chinese economic diplomacy is bent on forging strategic economic partnerships rather than alliances. Especially in the MENA area, China perceives alliances as dangerous, potentially forcing Beijing to become an unwilling regional security provider. Using China’s interest in Afghan economic development as an example, Beijing diplomats are among the few able to talk with all the main players in the area, including the Taliban.

However, Chinese promises of foreign direct investment (FDI) to Kabul are just a tiny fraction of potential Chinese financial involvement with Syrian economic reconstruction. Economists are forecasting that Syria will be among the fastest growing countries by GDP in the coming year.

The reconstruction bill is expected to surpass $400 billion and a 2017 World Bank report estimated that, from 2011-16, cumulative losses in GDP totalled $226 billion. China will not sustain all the financial efforts but multilateral development banks, such as the Beijing-led Asian Infrastructure Investment Bank, will be major players in the reconstruction process.

The predicted peace dividends that China will collect in 2019 are not risk-free. Chinese financial gains will be greatly affected by non-financial security threats, ranging from the safety of Chinese workers, infrastructure protection and a wide range of local rivalries that Chinese FDI could exacerbate. Nevertheless, several Chinese state-owned enterprises are already extending their feelers into Damascus.

The growth of the Chinese economy in 2019 is predicted to be slower than in 2018 and the opportunity to export industrial overcapacity to Syria will have a significant effect not only for the Assad regime.

The new Chinese lunar year will see the real effects of the US-China trade friction, even as the United States imposes new tariffs affecting more than $360 billion of traded merchandise. China’s economic growth is still based on exports, internal infrastructure development and the sale of land-use rights to the overheated local real estate market.

Recently, Chinese provincial infrastructural projects have been severely reduced by Beijing’s new financial policy against dubious public-private partnerships; the real estate market is presenting signs of another bubble explosion and exports are in the crosshairs of US President Donald Trump’s tariff targeting.

Because China’s domestic consumer base is not sufficiently mature to consume the products, Chinese FDI in infrastructure projects overseas, such as in Syria, will play a critical role in economic growth. While in Afghanistan, Chinese investments were protected by the International Security Assistance Force but in Syria the story is quite different. The increased presence of Chinese workers and the need for secure investments will encourage Beijing to upgrade its state-owned enterprises’ security playbook as well as the export and infrastructure credit insurance system.

The competition for business opportunities in Syria will insert China into competitive cooperation with Russian, Iranian and Lebanese firms. Beijing’s undoubted advantage is the preferential line of credit that the Chinese state investment banks can place on the bargaining table from day one.

A deeper involvement in Syrian affairs could be a catalyst in changing the Chinese from its decade-old reactive stance in favour of a more proactive and coherent policy in the MENA region. China’s interests in Syria are not only economic but also political, as the Syrian conflict risks inflaming domestic tensions in China’s Xinjiang Uighur Autonomous Region. China is facing the return of battle-hardened Uighur combatants who have been fighting under the banner of the Turkistan Islamic Party, other al-Qaeda affiliated organisations and even the Islamic State.

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