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China and the Gulf Nations in a Changing World: The Opportunities and Challenges of Deeper Engagement

Thursday, July 22, 2021

While ties between China and the Gulf states have a strong foundation and great potential, the road ahead is not without challenges, writes AsiaGlobal Fellow 2020/21 Ebrahim Hashem. As it gets more deeply involved in the Middle East, Beijing will have to maintain its delicately balanced relations across the region. Meanwhile, Gulf countries will have to navigate the US-China great-power rivalry and resist taking sides.

China and the Gulf Nations in a Changing World: The Opportunities and Challenges of Deeper Engagement

Longstanding partnership: Xi Jinping and Saudi Arabia’s King Salman perform a traditional folk dance during the Chinese leader’s visit to Riyadh in 2016 (Credit: SPA)

Dominated by the Western powers, the 19th and 20th centuries provide a flimsy indicator for what will happen over the next decades. During the past 200 years, Asians, including the Arabs and Chinese, played a marginal role in global affairs. Napoleon Bonaparte once said, “Let China sleep, for when she wakes, she will shake the world”. Today, China has definitely awoken – and risen; it has been making its presence felt everywhere, including in the Gulf region. The China-led rise of Asia and the “Easternization” of the world are introducing sweeping changes that have not been seen in the global system for a very long time.

Market power: Mall in Dubai to showcase Chinese products for wholesale purchase by customers in the Middle East and North Africa region (Credit: Ole Bendik Kvisberg)

Market power: Mall in Dubai to showcase Chinese products for wholesale purchase by customers in the Middle East and North Africa region (Credit: Ole Bendik Kvisberg)

Indeed, many believe that we are living in the Asian Century. Asia accounted for 32 percent of the world’s GDP by purchasing power parity (PPP) in 2000 but jumped to 42 percent by the end of 2017. Asia continues to be the fastest-growing major region in the world. It contributed more than two thirds of the world’s economic growth in 2019. China alone was responsible for 39 percent of that expansion. By 2040, Asia’s economic output is expected to account for more than 50 percent of the global economy. In its October 2020 economic outlook, the International Monetary Fund (IMF) affirmed China’s status as the world’s largest economy (again, reckoned by PPP), a position it has held since 2014.

As a result, both directly and indirectly, partnerships between China and the nations of the Gulf are flourishing across a range of sectors, from energy to healthcare. The leaders of both sides have exhibited genuine interest in further broadening and enhancing their relations. Both Gulf Arabs and the Chinese are interested in unimpeded trade, safe passage of exports and imports, and high-tech collaboration.

To understand the rapidly expanding and deepening relations of Gulf Cooperation Council countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) with China, it is important to first understand their history and context. Chinese and GCC leaders recognize that, with the changing world order, the global economic center of gravity is returning to the East and that the megatrends shaping the 21st century and China’s rise will drive this shift.

Peaceful people-to-people interaction and similarities in their economic development systems have given the Gulf states and China a solid foundation upon which they are building multifaceted partnerships. Gulf Arab and Chinese policymakers regularly emphasize the centuries-old history of their relationship. For example, in their 2016 Arab Policy Paper, Chinese officials outlined how Chinese and Arab nations have been working together closely since the Silk Road era. Ahead of his 2016 visit to Saudi Arabia, Chinese President, Xi Jinping, published an article in a Saudi newspaper describing how Zheng He, the Chinese Muslim admiral, described Jeddah, Makkah and Medina as “paradises”. During a 2019 visit to Beijing, Saudi Arabian Crown Prince Mohammed bin Salman said of the relations between his country and China: “The interactions between the two sides have been friendly and we have never experienced any problems with China”.

Gulf Arab and Chinese leaders are nurturing their relations for the long term. They believe that their countries have significant synergy and great growth potential. That is why both sides have been calling for an alignment of development plans. This was manifested when five GCC countries (the UAE, Saudi Arabia, Qatar, Oman and Kuwait) signed up to become founding members of the Asian Infrastructure Investment Bank (AIIB), the five-year-old Beijing-based multilateral development bank focused on financing infrastructure projects in emerging economies. In 2016 and 2018, respectively, China upgraded its bilateral relations with the GCC’s two largest economies, Saudi Arabia and the UAE, to the status of comprehensive strategic partnerships.

Friendships across the region: Xi Jinping with the Ruler of Dubai and the Crown Prince of Abu Dhabi during his visit to the UAE in 2018 (Credit: WAM)

Friendships across the region: Xi Jinping with the Ruler of Dubai and the Crown Prince of Abu Dhabi during his visit to the UAE in 2018 (Credit: WAM)

Many complementarities underpin Gulf-China ties, which are based on a "1+2+3" cooperative framework. Energy is the core; infrastructure, trade and investment are the two wings; and technologies in sectors such as nuclear energy, space satellite and new energy are the three breakthroughs. Although energy has historically been the fulcrum of the GCC-China relationship, many other strategic areas of mutual interest are being extensively explored and developed.

China is the GCC’s largest trading partner, while the GCC is collectively China’s biggest oil supplier. Gulf countries are rich in energy resources, strategically located, and eager to build innovation-based economies. China is a huge energy consumer with a fast-growing economy and trade, and rapidly advancing technological capabilities.

This fit makes the Gulf states and China natural partners in the Belt and Road Initiative (BRI), Beijing’s signature foreign economic policy program. The GCC states see clear alignment between the BRI and their own national development strategies and ambitions, and this is the main reason they enthusiastically embrace it. They have set up joint funds to co-invest in projects such as the UAE’s Hassyan clean coal power plant and the Saudi Yanbu oil refinery.

The BRI provides oil-dependent GCC states with the opportunity to accelerate their transition to knowledge-based economies with less reliance on fossil fuels. China considers the Arabian Peninsula an important link in the BRI’s sprawling chain of countries and projects. In addition to energy, China seeks access to the GCC market for its products and technologies. At the same time, it is interested in using the region’s central location as a hub for reaching other markets in West Asia, Europe and Africa.

Partnerships between the two sides are expected to grow further with time. The mutual hope is that once the Arab region as a whole stabilizes politically and economically, the environment will be more conducive to fostering cooperation among all the countries in West Asia and Arab world – not only the GCC states – and China.

To ensure continuous progress in their relations, there are challenges that should be overcome, however. The first is China’s ability to maintain good relations with different countries in the region such as Saudi Arabia and the Islamic Republic of Iran, which have conflicting interests and different viewpoints on regional security and future development. For example, in war-torn Yemen, Saudi Arabia and Iran do not see eye-to-eye on who should rule the country, a dispute that has prolonged the Yemeni conflict.

West Asia is politically complex with a convoluted historical background that has made, and will continue to make, it difficult for any external power such as China to maintain good relations simultaneously with all regional players. The situation will be more complicated as China’s economic involvement in the region intensifies, especially if the security situation worsens. China has been wary about getting too engrossed in the thorny geopolitical and security issues of the region. This includes the rivalry between Saudi Arabia and Iran, in which the Chinese have cautiously avoided appearing too close to any one side. Beijing has fostered strong ties with Riyadh, Tehran and indeed all the other governments in the Gulf.

Chinese Foreign Minister Wang Yi presides over a virtual session of the UN Security Council to debate the Palestine-Israel conflict, May 16, 2021 (Credit: Foreign Ministry of the People’s Republic of China)

Chinese Foreign Minister Wang Yi presides over a virtual session of the UN Security Council to debate the Palestine-Israel conflict, May 16, 2021 (Credit: Foreign Ministry of the People’s Republic of China)

Although Chinese leaders have traditionally refrained from playing an active role in the political and security situation of the region, recent signs indicate that this is starting to change. In March 2021, China’s Foreign Minister Wang Yi expressed a willingness to invite Palestinians and Israelis to Beijing for peace negotiations. As Palestinian-Israeli hostilities escalated, triggered by Israel’s evictions of Palestinian families from their homes in East Jerusalem and attacks on the Al-Aqsa Mosque, China in its capacity at that time as chair of UN Security Council convened an emergency meeting to debate and try to end the hostilities.

China’s position was clear: It demanded an immediate ceasefire between all parties involved. But China’s statement was more specific than usual, giving details as to how to resolve the issue and who would provide mediation, indicating Beijing’s desire to play a greater role in the geopolitical dynamics of the region. Could increasing involvement in regional geopolitical and security issues disrupt the delicately balanced relations that China has managed to foster with the various countries?

The second potential challenge could be the intensifying great-power competition with the US. Washington has been closely monitoring China’s rapidly growing relationships with the GCC countries and other West Asian nations. China’s fast-evolving relations with Gulf states and shifts in US policy are heightening the US-China rivalry in the region. US-China global great power competition means that China-Gulf relations have come under closer scrutiny by American strategists. In 2019, Michael Mulroy, the US Defense Department’s top official for the Middle East at the time, warned against China’s growing influence in the region. The US Senate is advancing legislation to counter and compete with China including in the Middle East.

The US has been trying to convince its regional partners that China’s investments are “predatory” and “debt traps”, and that Chinese tech companies are “security risks”. Speaking to the media in May 2020, then US assistant secretary of state for Near Eastern affairs, David Schenker, highlighted some of those concerns, saying that “these (Gulf) states have to weigh the value of their partnership with the United States…[and] do due diligence” before signing contracts with Chinese companies such as the technology group Huawei.

Pandemic outreach: Wang Yi meets the GCC secretary general in Riyadh, March 24, 2021 (Credit: Foreign Ministry of the People's Republic of China)

Pandemic outreach: Wang Yi meets the GCC secretary general in Riyadh, March 24, 2021 (Credit: Foreign Ministry of the People's Republic of China)

With China’s increasing energy and economic relations with West Asia and the mounting US-China great power competition, the region could well become a critical playing field for the two rivals, at least in the short and medium terms. In much the same way that ASEAN member states have had to straddle the middle ground in Southeast Asia, the onus is on the GCC countries to moderate the great-power rivalry in their region.

To protect their interests amid the fluid state of flux in the regional and global orders, the GCC countries should be more self-confident and independent in their strategy and approach. They should clearly highlight their strategic interests and ensure that they are not trampled upon. The region has suffered tremendously from volatile geopolitics over the last 30 years and its economies have been adversely affected as a consequence.

GCC nations should not have to take sides and must work to ensure that the economic and geopolitical rivalry between the two giants does not escalate into military conflict. Building state capacity and enhancing diplomatic capabilities for high-level coordination of development, investment and trade policy will be critical to achieving that goal.

Opinions expressed in articles published by AsiaGlobal Online reflect only those of the authors and do not necessarily represent the views of AsiaGlobal Online or the Asia Global Institute

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