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China Prepares for an Expanded Reach

Dec 29 , 2015
  • Sajjad Ashraf

    Adjunct Professor, National University of Singapore

Chinese leadership’s recent engagements points to their persistent pursuit of its vision of connectivity named One Belt One Road (OBOR). New areas are now being added to the list.

Planned as a collection of multiple economic corridors linking more than 60 countries the OBOR revives the historic Silk Road, the Maritime Silk Road and more. The original plan connects the Asian landmass from the Chinese neighborhood with Europe as far as Spain and with East Africa. As the Chinese move to put their plan in action it is becoming evident that “it is an economic partnership with multiple interconnected rings,” according to He Yafei, Vice Minister in the Chinese government.

The idea of OBOR juxtaposes bilateral and multilateral cooperation leading to economic, cultural and political cooperation. It is a “chorus,” and not a “soloist singing” according to President Xi Jinping. China leads the chorus.

Earlier this month President Xi, on a four-nation trip to Africa co-chaired the summit meeting of Forum on China-Africa Cooperation (FOCAC) along with President Jacob Zuma of South Africa. The FOCAC summit is held every three years. In an attempt to engage Africa in ten different areas ranging from industrialization to peace and security President Xi committed $60 billion of funding support to Africa. Hoping for a lasting impact a lot of money goes into human resource development.

Leapfrogging the Western powers China – Africa trade that was $250 million only in 1965 went up to $10 billion in 2000, the year FOCAC was inaugurated. In 2014 it shot up beyond $220 billion. China is deep into African infrastructure development. Its $13.4 billion infrastructure expense in Africa in 2013 was more than the amount by European, North American countries, and multilateral and regional development banks combined.

But, it is the deepening Chinese relationship with the United Arab Emirates (UAE), a key oil rich Middle East state that is poised to become a dynamic partner in the OBOR.

Built on nearly 2,000 years of merchandise exchanges between China and the Arabian Peninsula the UAE is already China’s biggest trading partner in the Middle East. Trade volumes have steadily increased from $63 million in 1985 – a year after setting up diplomatic relations, to $54.8 billion last year (2014). The UAE is also the trading hub of Chinese products reaching as far as Caucasus, parts of Central Asia, North and Sub-Saharan Africa. More than 4,000 Chinese companies are now based in UAE operating in areas such as energy, telecommunications, transport, real estate, trade, finance, securities and services. Dragon Mart now expanded and renamed Dragon City in Dubai is the biggest market of Chinese products overseas. The economic activity between the two has steadily grown at 14 percent annually. The UAE was amongst the first countries to sign up as a founding partner of the China driven Asia Infrastructure Investment Bank (AIIB).

China knows and so does the UAE that free trade is a pre-requisite for shared development and prosperity. The OBOR, a concept based on these two- goals gels Asia, Europe and Africa together. While, there is no denying that China benefits as the principle driver the countries embracing OBOR get a platform to engage in shared interests by opening up to one another.

China needs about 7 million barrels a day of secure energy to fuel its $ 11 trillion economy and its $ 4 trillion foreign trade. Much of its energy supply can be easily chocked at– the Straits of Hormuz and Malacca – Hormuz, being partly controlled by the UAE is more critical of the two. Fear of being choked on energy compels China to seek securer routes and partnerships across the region.

The range of agreements signed during Sheikh Mohammad bin Zayed’s visit to China demonstrates that both countries are looking beyond hydrocarbons as a means to strengthening their collaboration. China is deeply conscious of developing renewable energy option. The fact that the UAE is hosting the International Center for Renewable Energy in Masdar naturally draws a lot of Chinese interest. The renewable energy cooperation, the renewal of 35 billion reminbi (yuan) swap agreement and decision to launch a $10 billion joint sovereign wealth fund points to deepening engagement in the future. Chinese President Xi Jinping declared that, “this fund will also play a critical role in supporting the One Belt, One Road initiative…” which confirms that China has identified the UAE as a partner in the OBOR.

China’s ability to invest and UAE’s fast growing appetite for renewable energy also allows an opportunity for the Chinese private sector in the field to tap into fast growing sector. Embracing the OBOR private Chinese companies are also likely to invest in the UAE manufacturing and real estate sector, cementing ties further.

The China-Pakistan Economic Corridor (CPEC) part of the OBOR, connects Pakistan deep-water port Gwadar, just 400 km from the Straits of Hormuz, by rail, road, oil and gas pipelines with the western Chinese city of Kashgar. It shortens China’s maritime distance with the energy rich Gulf by over 10,000 kilometers. The CPEC related economic activity is sure to have a wider economic effect.

Once the CPEC is commissioned China and UAE are at strategic advantage for trade in energy and other goods through this cost effective route. This reinforces UAE’s position as China’s leading economic partner in the Middle East. Interests of UAE, China and Pakistan converge in this tri-lateral arrangement.

Under a ‘guiding opinion’ released by the State Council in May, China aims to have a set of agreements with key developing countries by 2020– with “emphasis on Asian and African countries” that link up China’s OBOR strategy and the China-Africa three networks (rail, road and aviation) initiative.

Africa and the Middle East with their vast energy resource and huge capacity to absorb Chinese made goods fit into the plan and so does Pakistan especially in relation to the CPEC.

An arrangement with shared benefits will be for the larger good of the region.

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