China’s energy and trade links to the Middle East are increasing rapidly. The Sixth China-Arab Cooperation Forum (CACF) that convened in Beijing on June 5, marked ten years since the Forum was created by Hu Jintao and the Arab League. The CACF meeting concluded in a ceremonious blueprint for bolstering ties over the coming decade, setting out plans to more than double bilateral trade volumes and see a six-fold increase in Chinese investments in the region, with energy as the cornerstone. But as China expands its economic footprint in the region, will its strategic presence also deepen?
Over the course of a decade, China has become a significant economic actor in the Middle East. Trade volumes have increased almost tenfold, from $25.5 billion in 2004 to $239 billion in 2013 and it is now the regions’ largest oil consumer. In 2013, China imported over 3 million barrels per day (bpd), according to the Chinese customs, compared with US imports of 2 million bpd. Over the coming decade, as oil demand in China continues to grow, the country is set to surpass the US as the world’s largest oil consumer and importer. Despite its attempts to diversify its import sources, China will remain heavily reliant on the Gulf given that the Chinese refining industry is adapted to Middle Eastern grades.
Contrary to China’s deepening energy and trade links to the region, the US’s reliance on Middle Eastern energy is waning. Thanks to the US’s shale oil revolution, domestic production is increasing rapidly, to the extent that the International Energy Agency (IEA) predicts that in 2017 US output will reach 9.5 million bpd, higher than Saudi Arabia and Russia. Combined with the Obama administration’s “rebalancing” to Asia, new trade and political linkages will bind the Middle East more closely to Asia, and especially to China.
Aware of this shift, Middle Eastern leaders are seeking to strengthen ties with China. Over the past year, heads of state, especially from the Persian Gulf, have flocked to China: In September 2013, Bahrain’s King Hamad took his first official trip to China since the two countries established diplomatic ties 25 years ago, followed by an official visit to Beijing by the Saudi Crown Prince in March 2014. In May, Iranian President Rouhani was in China and the Kuwaiti Prime Minister made his first official trip to China in ten years for the CACF.
China for its part, is looking to supplement its energy trade with more robust commercial links in a bid to even out its trade deficit and generate new investment opportunities for Chinese firms in the Middle East. A major element of the CACF blueprint is a goal to increase Chinese non-financial investment in Arab states from last year’s $10 billion to $60 billion in the coming decade, namely by expanding cooperation in new sectors including nuclear energy, aerospace technology and new energy. These pledges are part of China’s New Silk Road and Maritime Silk Road projects—announced in 2013 by President Xi. Both these modern day versions of the Silk Road are planned to have key stops in the Middle East: the overland route is set to pass through Iraq and Syria, while the Maritime Silk Road will travel via the Gulf of Aden and the Red Sea. China’s vision for these economic belts involves increased trade, achieved in part through major Chinese investments in building up infrastructure such as ports, roads, and high-speed railway networks.
China’s commercial interests in the Middle East are therefore likely to extend to a large number of countries, thereby drawing Beijing more closely into the complexities of regional geopolitics. Energy ties with Saudi Arabia, Iraq and Iran, combined with competition from other oil producers for shares of the Chinese market will lead to deeper engagement across the region. But even though Beijing is beefing up its political dialogues with the Arab League and the Gulf Cooperation Council, there are clear limits to China’s engagement in “the graveyard of empires”.
Chinese leaders’ first priority is managing their ambitious economic rebalancing agenda and steering the economy through a challenging adjustment. On the diplomatic front, their focus is on their “near abroad”: Dealing with maritime disputes on the Eastern front and with potential instability arising from the transition in Afghanistan. While oil supply security is China’s main concern when dealing with the Middle East, Beijing has hedged significantly against a potential oil shock through stockpiling and diversifying its import sources. And although Washington’s oil dependence on the Middle East is dropping, other interests will keep it engaged in the region. For China, the cost of a deeper strategic involvement in the region is still too high: Not only could it undermine China’s foreign policy mantra of non-intervention, but also, it could draw ire to Beijing’s policies toward its Muslim minorities. Taking a position on the complex regional questions–such as the Israeli-Palestinian peace talks or the Iranian nuclear issue–risk hampering Beijing’s ties with its top trade partners, given their highly divergent interests in these matters.
Washington’s presence in the Middle East therefore serves Beijing’s interest well: The US manages security and stability, can be vilified if (and when) the region is in turmoil, and on-going unrest pulls Washington inevitably away from Asia. For the foreseeable future, even if the US scales back its presence in the Middle East, China will try to maintain its economic ties without the political participation. The cost of engagement far outweighs the benefits.
Dr. Michal Meidan is director at China Matters, an independent consultancy firm that advises investors and government officials on their China strategies, with particular emphasis on the politics of the Chinese energy sector. She was also a senior analyst at the global political risk consultancy firm Eurasia Group in New York and London. Prior to that, she headed the Energy and Environment Program at the Asia Centre of Sciences Po in Paris. Dr. Meidan holds a Ph.D in Political Science and East Asian studies from Sciences Po.