Wednesday,19 September, 2018
Current issue | Issue 1282, (11- 17 February 2016)
Wednesday,19 September, 2018
Issue 1282, (11- 17 February 2016)

Ahram Weekly

Reconfiguring the Silk Road

China has become more commercially and diplomatically engaged in the Middle East and North Africa region, encouraging some regional countries to look east in search of an alternative partner, writes Florence Eid-Oakden

Al-Ahram Weekly

Aided by consistent double-digit economic growth, China has gained prominence in the global arena over the past few decades. The country’s exports increased from $970 billion in 2006 to $1.9 trillion in November 2015. In the Middle East and North Africa region (MENA), the Gulf Cooperation Council (GCC) countries in particular have become major trading partners for China.

As Beijing has implemented its external strategy for economic growth, China has become more commercially and diplomatically engaged in MENA. Recent developments such as rising Chinese investment in Iran’s energy sector and broader efforts to sell more Chinese goods and services to the MENA region have underscored China’s increasing presence in the vast area, stretching from Morocco through the GCC to Iraq.

In turn, with China’s stature in the region growing, some MENA countries are responding by looking east for an alternative partner. In Chinese diplomacy there are several different qualifiers used to describe relations with other countries, such as “friendly,” “strategic” and “comprehensively strategic.” These terms express China’s strategic economic and political positioning towards its foreign partners.

“Friendly” reflects good political relations, while “cooperation” points to mutual coordination and support. As for “strategic,” it means the partnership goes beyond economic cooperation and entails mutual interests in major international affairs. “Comprehensive” refers to the highest level of collaboration in various fields, including security, politics and the environment.

In April 2014, China and Algeria established a Comprehensive Strategic Cooperation Partnership. Algeria was one of the first countries to recognise the People’s Republic of China in the late 1950s. This upgrade is a strong indication of future Sino-Algerian relations.

In November 2014, Qatar and China agreed to build a Strategic Cooperation Partnership. Moving into the financial area, China decided to establish a renminbi clearing centre in Doha to support expanding trade between the two countries. In addition to its relative stability, Qatar is now the largest exporter of natural gas to China, meeting around 20 per cent of Chinese energy demand.

Sino-Egyptian relations were upgraded from a Strategic Cooperation Partnership to a Comprehensive Strategic Cooperation Partnership during President Abdel-Fattah Al-Sisi’s first visit to China in December 2014. Twenty-one agreements were signed during President Xi’s visit to Egypt on 20 January, which could lead to a major increase in Chinese investment in the country.

Sixty years ago, Egypt became the first Arab and African state to establish diplomatic relations with China and is now China’s largest trading partner in North Africa. Bilateral trade between Egypt and China (mainly non-oil) increased from $1.6 billion in 2004 to $11.5 billion in 2014, at an average annual increase of 23.3 per cent. There is, however, a trade surplus in favour of China, highlighting potential opportunities for scaling up.

Egypt is a particularly interesting case, as the country has also enjoyed a close partnership with the US going back to the early 1970s. More recently, US-Egyptian relations have faltered in the wake of the political turmoil in Egypt. Both former president Mohamed Morsi and current President Al-Sisi made a point of reaching out to China to reduce Egypt’s dependency on the US.

Egypt and China have agreed to work together on “One Belt, One Road” initiatives. The New Suez Canal project is a natural fit for China’s Maritime Silk Road vision. Egypt and China signed a number of agreements during the Egypt Economic Development Conference (EEDC) in March 2015. A notable trend in Sino-Egyptian relations is the push by Cairo for technology transfer.

China and Saudi Arabia agreed to upgrade bilateral ties to a Comprehensive Strategic Partnership during President Xi’s visit to the kingdom on 19 January. Xi’s visit represented the first state visit by a Chinese head of state to Saudi Arabia in seven years. The two sides signed 14 agreements, including massive oil deals and pacts to speed up the China-GCC free-trade talks and build a nuclear reactor.

China views Saudi Arabia as being of great importance, mainly because the kingdom is the largest exporter of oil to China, accounting for about 16 per cent of the country’s oil imports in 2014. At the same time, Saudi Arabia is adopting a “look east” policy and views China as one of the most important strategic markets for its oil exports.

A Strategic Cooperation Partnership was set up with the UAE in January 2012. The UAE is China’s most important non-oil trade partner in the GCC, serving as a hub for Chinese products. Nearly 60 per cent of Chinese exports to the UAE are re-exported to other GCC countries, Iran, Africa and even Europe.

Sino-UAE financial cooperation reached new heights after the UAE crown-prince’s visit to China in December 2015. Following in Qatar’s footsteps, the UAE concluded a $5.4 billion bilateral swap agreement with China during his visit. It had already inked a tentative agreement in 2012.

China’s non-oil economic strategy towards MENA is multifaceted and reflects continuities from the Hu Jintao administration (2002-2012) to the current Xi Jinping government.

First, the strategy is aimed at facilitating greater inter-regional trade and investment to sustain continued economic growth in China. A key component of this strategy is the creation of institutional and commercial platforms for engagement between China and regional blocs.

Second, the strategy seeks to support the internationalisation of Chinese companies under the umbrella of the so-called “going out” policy launched in 2000. Third, the strategy seeks to attract greater MENA investment in China, and, more specifically, in China’s Muslim regions in the northwest of the country, which remain relatively undeveloped. This also supports Beijing’s policy of promoting greater infrastructure and logistics linkages across Asia.

China also seeks to utilise cultural and religious links with the MENA region to attract foreign direct investment, for instance by permitting Islamic banking and establishing halal industrial zones. The Islamic banking industry has a strong presence in the GCC, the MENA region, and Asia, but not yet in China. Ningxia, a region where a third of the 6.5 million population is Muslim, is spearheading the development of a halal market in China, which could play an important role in boosting the country’s ties with the Muslim world.

For much of the past, China has remained aloof from the crises in MENA. But since the Arab Spring, China has sought to become more politically active in the region. Despite this trend, it is highly unlikely that China’s newfound greater political involvement in the Middle East and its growing economic stakes in the region will translate into military activism. China is expected to continue to deepen its economic and political ties with the region, establish new trade routes and diversify its commerce, and avoid hot spots while happily yielding the Middle East security file to the Western powers, for now.

While many believe improved ties between Iran and the West, particularly the US, could undermine currently strong Sino-Iranian economic relations, there is a low probability of this scenario. President Xi’s trip to Iran reinforces the country’s importance in China’s One Belt, One Road strategy. Iran and China also announced an upgraded Comprehensive Strategic Partnership during the visit.

Seventeen agreements were signed in sectors covering energy, trade and industry, among others. Meanwhile, President Xi promised to support bilateral trade between China and Iran to reach $600 billion in ten years, a major increase from the current $50 billion. Xi’s visit could not have come at a better time for Beijing, given the sanctions relief and China’s priority of developing a new land and maritime Silk Road.

The writer is CEO and chief economist of Arabia Monitor, a London-based research group.

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