“Supply chains may be more unstable and risk management for Arab investments may be more important than ever, but I can't see how the uprisings would seriously threaten China's economic interest in the MidEast... yet,” explains Professor Sara Jordan from Hong Kong University.
Unlike many Western nations, China has a proven track of record in doing business in risky environments. Beijing does not dodge African countries deemed pariah by the international community.
“Big risks, big rewards; Small risks, small rewards,” says Edwin E. Hitti, President of the Arab Chamber of Commerce and Industry in Hong Kong, quoting a Chinese official.
“Notwithstanding the Arab region instability, many Chinese companies are still endeavoring to establish satellite factories in the Middle East in order to safeguard their market share,” he says.
Washington is eager to wind down military involvement in the region
The ravages of unrest in MENA have enabled China to tap into major infrastructure projects because supply routes have been disrupted and electrical installations have been dilapidated.
Regional uprisings, which upset economic activity and lowered foreign direct investments, have also offered Beijing the opportunity to gain a foothold in the manufacturing sectors of electrical home appliances, car making, light industry and textiles.
In contrast, more than 150 multinational companies expressed reluctance to invest in Arab countries, unless there is at least one year of stability under a democratic government, according to a 2011 foreign investor survey undertaken by the World Bank’s MIGA and the Economist Intelligence Unit.
Arabs are also eager to turn east. “As we stand, China offers the most competitive replacement products in contrast with their European and North American counterparts,” Hitti argues.
Despite questionable quality standards and after sales support, “Middle Eastern countries favor China in many different ways, mostly due to its competitiveness in terms of products and expertise,” he adds.
Trade volume between China and Arab countries has surged from less than $36 billion in 2004 to nearly $200 billion in 2011. Last year, Beijing’s imports to the Arab world exceeded $80 billion. Its exports amounted to more than $64 billion. The Chinese now seek to boost Sino-Arab trade to $300 billion by 2014.
“The growing synergy between China and the Arab world will continue as the Arab world is in an evolutionary state of developing, modernizing and improving every aspects of its existence in terms of structural and operational infrastructures, all the way to its fundamental cores of awareness and knowledge,” says Hitti.
In addition, MENA’s rapidly growing and increasingly demanding populations carry serious implications for access to services. “The Middle East proportionally does not produce enough, while China is today’s largest ‘supermarket’ to the world,” he says.
Stepping into US’ backyard
In this context, the Arab Spring has ushered in an era of realignment and enhanced China’s position in the region. In order to quench its thirst for natural fuels, Beijing is multiplying trade agreements with US’ most strategic allies.
“The Arab Spring has largely left China’s most important commercial partners (Saudi Arabia, Iran and Egypt) in the Arab world untouched,” says Troy Stangarone, Senior Director for Congressional Affairs and Trade at Korea Economic Institute in Washington DC.
When Chinese Premier Wen Jiabao wrapped up a six-day visit to the Middle East in January 2012, he signed economic and trade agreements worth $16 billion with the United Arab Emirates (UAE) and Saudi Arabia, China's top oil supplier and US’ most influential Arab ally. The Saudi kingdom, which has managed to keep protests at bay, also expressed its willingness to increase amounts of oil to Beijing to fill the Iranian vacuum.
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As part of a pragmatic foreign policy, China is expanding influence beyond its traditional partners.
“In my opinion, Arab countries are increasingly all equally growing dependent on China for their exports and imports of essential resources and consumable goods,” asserts Hitti.
As the US exits Iraq, China National Petroleum Corp, Beijing’s top oil producer, has begun operating in Halfaya oil field in June 2012, one of the country’s seven major oil fields. Amid lingering anti-Americanism, the Chinese state-owned corporation has also begun operations in the Al-Ahdab oil field in 2011.
Despite on-going protests in Bahrain and political instability in Kuwait, the Gulf Cooperation Council (GCC) countries remain an attractive investment market for Beijing. As they are set to export nearly 25 percent of the world’s oil by 2020, China is expected to become the GCC's most important trading partner by then, according to an Economist Intelligence Unit report.
In the meantime, China and the UAE are planning an oil drilling campaign in Abu Dhabi for 2013. This is a significant step for Beijing because Western powers have dominated this sector in the emirate since 1939.
"The relationship will need to be more commercial oriented than development oriented"
“Certainly Dubai will remain of keen interest for investments and securities firms in Shanghai and Hong Kong. And the boom in shipping in some of China's eastern and southern ports means that coastal shipping centers will be important,” explains Professor Jordan.
In addition, Kuwait, a strategic non-NATO ally that hosts American troops, has recently allowed the Industrial and Commercial Bank of China to open a branch in the emirate, the first Chinese bank to operate in the oil-rich state.
China and Arab countries are also building partnerships in the educational field. “Qatar's investment in education gives Chinese youth an opportunity for study closer to home than in North America, but in a place that will be of strategic interest to China later,” adds Jordan.
China’s rise, a destabilizing factor for the US?
Beijing’s growing commercial ties with Arab countries are challenging the US for regional influence, at a time Washington is eager to wind down military involvement in the region.
Whilst oil shipments from the Middle East to North America “could almost be nonexistent” by 2035, according to the Organization of Petroleum Exporting Countries, and thus affect US’ domination in the region, Beijing is settling in for a long-term presence in the Arab world due to its growing demand for oil.
“China has the potential to have an increasing role in the Middle East. But the model of influence that China has used in many African nations will likely not work in the Middle East due to the region’s greater wealth, so the relationship will need to be more commercial oriented than development oriented,” says Stangarone.
Though some Arab central banks, sovereign wealth funds and financial institutions are increasingly looking to China to diversify their assets, “financial bases for the Arab world capitals will always be in the US, which is the main world financial engine,” contends Hitti.
Qatar, for example, has been extensively investing, subsidizing and allocating capitals generated from its oil and gas revenues toward the EU and the US economies.
Despite Europe’s debt crisis, “when it comes to banking and finance, (Arab countries) have and will undeniably always turn to the European currently somehow fragmented economies of today and the US somehow faltered capital market giants,” he says.
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