Huge Chinese trade boost for Middle East in the pipeline? | World Defense

Huge Chinese trade boost for Middle East in the pipeline?


Nov 19, 2017
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Saudi Arabia
LONDON: China aims to ramp up its economic and soft power in the Middle East as part of a wider offensive to bolster trade and national security, experts told Arab News.
The move is contingent on the development of a massive new trading hub at Gwadar port in Pakistan which lies at the southern extremity of the much-touted $55 billion China-Pakistan Economic Corridor (CPEC).
The corridor is Beijing’s flagship infrastructure project which involves building an oil pipeline, refineries, power stations, roads and railways to boost trade from Gwadar on the Arabian Sea, northwards into western China.
CPEC is one of the most important elements of Beijing’s new global network of Silk Roads, dubbed One Belt, One Road.
Critically, construction of the corridor and development of Gwadar is a way to convey crude and liquified natural gas (LNG) from Saudi Arabia and the Gulf into the Middle Kingdom, instead of having to go the much longer way through the Malacca Straits and South China Sea, a journey that takes at least an extra week for container ships.
In 2014, China imported an average of 6.1 million barrels of oil a day. Of that, more than 52 percent — or 3.2 million barrels — came from the Middle East with Saudi Arabia in the lead, according to a paper published in 2016 by the S Rajaratnam School of International Studies, Nanyang Technological University, Singapore (NTU).
Seen from that angle, little wonder China views CPEC as a vital strategic imperative: In the event of a conflict with the West, the US could blockade the Straits and choke off vital oil supplies. This is referred to as the “Malacca Dilemma,” where 80 percent of China’s oil imports traverse this potential chokepoint, said Gareth Price, a senior fellow at London-based Chatham House.
“CPEC offers the Chinese a hedge against blockade,” added Price.
Yue Jie, head of China Foresight at the London School of Economics told Arab News: “China is the world’s biggest importer of oil and the Middle East is a region for market access, and location of vast energy reserves to fuel China’s economic growth.”
Jie said that China was already upping its game in the Middle East, with plans for big investments. Look no further than reports that Chinese state-owned oil company Sinopec is targeting the forthcoming IPO of Saudi Aramco, she said.
China will be the biggest single user of oil by 2030, according to the International Energy Agency. Additionally, Chinese oil imports have increased as a result of a steep fall in domestic production from the long-established Daqing and Shengli fields inside China, said Jie.
She added that protecting its mushrooming global strategic interests is forcing China to realign its policies and relationships in the region. China, for example, wants to expand its financial clout by increasing circulation of the remnimbi, the Chinese currency, in the Middle East, she said.
China is already playing a more active commercial role in the region. For example, in July China’s Jiangsu province signed a $300 million deal with the UAE’s Abu Dhabi Ports to develop a manufacturing hub in the free trade zone of Khalifa Port.
Five Chinese firms, which engage in a variety of sectors, including clean energy, mining, construction materials, steel, and environmental clean-up technologies, have already signed up to the project.
Also, at the end of last year China’s COSCO shipping group won the rights to develop and operate a new container terminal at Khalifa Port in a deal worth $700 million.
Christian Zhang of BMI Research, the global geopolitics and country risk consultancy, told Arab News: “There are advantages for China to further develop relations in the Middle East, which accounts for about $200 billion worth of trade, making the region China’s fourth largest trading partner after the US, Japan and South Korea.
“When CPEC is up and running, that will offer more opportunity for trade with the Middle East, and Europe, through Pakistan,” said Zhang.
It is argued that China can help Pakistan modernize (although this isn’t going to happen overnight), and Chinese companies view the country as a place where they can produce more cheaply than in China, where wage inflation has taken off, explained Zhang.
Pakistan-made goods could then be sold to the Pakistani domestic market or shipped to Europe and the Middle East, he said.
Price said the important thing to remember was that CPEC and Gwadar would — in theory — give China greater control over its imports and exports via transit through “friendly Pakistan.”
China’s ambassador to Saudi Arabia, Li Chengwen, highlighted the scale of China’s stake in the Middle East and North Africa when he noted in 2013 that 140 Chinese companies were involved in contracts worth $18 billion in Saudi Arabia’s construction, telecommunications, infrastructure and petrochemical sectors, according to NTU.
At the same time, however, China is seeking to forge cultural links with the opening in the Gulf of the first Confucius Institutes, China’s equivalent of Britain’s British Council or France’s Alliance Francaise.
Additionally, as an estimated 60 percent of Chinese exports travel through the Suez Canal, China has invested heavily in the channel’s ports. Investments include a $1 billion quay and $416 million container terminal in Al-Adabiyya.
Nevertheless, Xi’s January 2016 visit to the Middle East illustrated the increasing degree to which China is walking a tightrope in its efforts to avoid being mired in the region’s animosities. While Xi made sure that he visited both Riyadh and Tehran, he left little doubt that the lifting of international sanctions on Iran would allow China to reinforce its energy ties with that country.
Meanwhile, the CEPC initiative could be a long, tortuous affair with plenty of bumps in the road ahead. According to a report in the Financial Times, Pakistani interests have expressed concern that the terms of business deals with China and its industries might undermine Pakistan’s business community, and even its sovereignty. The argument is that procurement and bidding procedures around CPEC greatly favor Beijing, with Chinese companies winning Chinese contracts to build and finance infrastructure in Pakistan, in deals often guaranteed by Islamabad, said the report.
And there are drawbacks for Pakistan in becoming too dependent on China —its trade deficit with China has doubled in recent years. On the other hand, the Pakistani military is fully behind an alliance with China as a counterweight to its arch-enemy, India.
For China, the most obvious risk is that Pakistan ultimately proves unable to pay its debts, and that it becomes as undependable a client as it has been for the US.
In the interim, the Chinese have hit major obstacles on the ground. Gwadar and the surrounding territory are located in the volatile Pakistani province of Balochistan, an area that is wracked with terrorism and a separatist rebellion. This year, Chinese workers in Pakistan have faced kidnappings, drive-by shootings and bomb attacks.
For their part, Middle Eastern countries must take care when they deal with China/Pakistan for fear of upsetting India.
Such issues show that the challenges facing Beijing in developing the CEPC are significant — as are the potential rewards.