A Blog by the Editor of The Middle East Journal

Putting Middle Eastern Events in Cultural and Historical Context

Thursday, July 30, 2009

China and the Middle East

Occasionally, commentary and events seem to coalesce to make a theme particularly timely. Sometimes, they seem to be almost insistent because a whole lot of postings/links/comments seem to center on a single theme. Current case in point: China and the Middle East.

In June MEI published my colleague and MEJ Book Review Editor John Calabrese's Policy Brief, "The Consolidation of Gulf-Asia Relations: US Tuned in or Out of Touch?", which I plugged previously. This is, if not John's primary scholarly focus, certainly one of them. He knows it as well as anybody, I think.

This week, China launched its first Arabic-language television news service, which, since already on Monday Marc Lynch posted a good summary on the subject, I didn't note specifically, figuring if you're reading me, you've been reading Marc Lynch a lot longer. And Lynch alluded to a lot of other issues relating to this, including the whole Uighur/Central Asian issue, in passing.

Then, synchronicity and coincidence being what they are, an old acquaintance from a long time back — who, since he hasn't authorized me to quote him, I will simply call "Larry," since that's his name — and who spent a career in international banking mostly in Bahrain and Hong Kong, and thus might be considered informed on the subject, sent me a message saying:
I hope the appearance of John's article on the website is a harbinger of the Institute focusing on this issue - perhaps with a speech (maybe at the annual conference) and maybe with a focus in the Journal.
Okay, I'm starting to feel like there's an emerging theme. Over at the Blog Jihadica there's a post on a new issue of the "Islamic Turkistan Journal" on events in Chinese Turkistan. (Excuse me, Xinjiang.)

Then I got a submission for the Middle East Journal on the subject of Kuwait's relations with the Far East. Confidentiality means I can't identify the author.

Then, yesterday, my wife sends me a link to this article, "The Rise of a New Silk Road," dealing with China and the Middle East.

Okay, Okay, I get it. China and the Middle East is a major issue. As it happens, China and the Middle East are intertwined in my own life as well: my daughter is Chinese; and as you've already figured out I've spent a little time around the Middle East.

So I've done the post. Whatever higher power is loading me down with input on East Asia and the Middle East, here it is.

UPDATE: Don't miss comment #1 below, which is extended, anecdotal, and far more informed on the subject than I am.


LJ Marczak said...

Mike, thanks.

This is a pet issue of mine. One I think doesn't get the attention it deserves given its long term strategic importance.

Some anecdotes from personal experience in Bahrain along with some random and not highly organized data points.

In 2004, shortly after the Central Bank of Bahrain granted the Bank of China a license for a rep office, BOC's new chief representative came to see me as part of a round of visits on local banks to specifically ask how the PRC could do more business in the GCC.

Trade, investment, construction projects and banking. Very focused approach. Looking for specifics not generalities. Said if the conditions were right, one of the major banks would open in the UAE. BOC was not to be that bank according to state direction. As an aside, ICBC opened a subsidiary in Dubai in 2008.

Not too long after that 2004 meeting, the first Chinese family moved into our residential compound - embassy staff.

Shortly thereafter two more villas were taken. But instead of families, the residents were rotating groups of largely unrelated businessmen and technicians – living college dormitory style.

Through our celebration of the (Chinese) New Year, we got to know some of them. Their mission – promote business, provide service. Work work work. Up early late to bed. A pattern I've seen before in the area - first the Japanese and then the Koreans.

One side of the coin is manufactured goods trade. Chinamexmart - 150,000 square feet of exhibition space in Dubai opened in late 2004. The annual China Sourcing Fair in Dubai - 3 years now - 40% p.a. growth in number of firms participating.

The other is oil.

No big surprise, China is heavily dependent on the ME for oil. Also Sudan where they have made substantial investments US$8 or so billion if I remember correctly.

Chinese strategy focuses on economic penetration - building a web of economic relationships - not bases. Also they don't carry the foreign policy "baggage" or engage in the "missions" that some other countries do. And offer Gulf countries a counterweight of sorts to the USA - something perhaps appreciated more during the last eight years.

Major oil deals in the IRI (the site of their first sustained and substantial trade success in the Gulf). Earlier Yadavaran. Since 2008, the PRC has signed some US$10 bn worth of deals - of which roughly $8 bn relate to South Pars.

In the GCC, Sinopec's 2001 gas exploration contract in Saudi hasn't yet led to further deals in the Kingdom - though the Sabic/Sinopec US$2.5 bn refinery/petrochemical plant in Tianjin should provide strong incentive to keep the oil flowing.
In March (?) Sinopec signed a KD 120mm contract to build 5 oil/gas rigs for Kuwait Oil Company. A BP/Sinopec partnership won a contract in Iraq for Rumalia. Imagine the cost advantages Sinopec has over Western firms.

Hu has been to the region as recently as Feb- when he visited Riyadh to push for more oil co-operation and to accelerate the GCC/PRC FTA (launched in 2004).

All this is part of a larger pattern of expanding GCC (and other ME countries) economic ties with Asia.

Michael Collins Dunn said...

Thanks, Larry. I left you semi-anonymous in the post, but I think you've just outed yourself. Anyway, very useful comments on an important subject.

LJ Marczak said...

Thanks for the compliment.

I've been in touch with a Fullbright Scholar (from your alma mater) who I know and who did some research on this topic while in Bahrain.

With his permission, I've emailed his contact details to you.

Since as you know this is a particular "hobby horse" of mine, I'm hoping that contact will lead to further discussion/exploration of this issue via the excellent forum of MEI.

Michael Collins Dunn said...

Thanks, Larry. And I'll get John Calabrese into the conversation. He's a lot more familiar than this stuff than I am.

LJ Marczak said...

As with all “hobby horses”, sometimes the dismount is psychologically the hardest part. So here I am again still in the saddle.

I’d encourage that any exploration of this topic look beyond the GCC/MENA. A wider context will sharpen the understanding of the nature of the strategic issues involved.

As well, like the law, past “cases” can shed light on possible outcomes to those cases at hand.

Those like me who think they know something about economic history see some striking parallels with the decline of the British Empire. Pre-eminent in world trade, Sterling the world reserve currency, a powerful industrial base, the world’s financial center, a major military power, it eventually retreated not as a result of military defeat but rather of economic decline.

While the physical destruction caused by two wars played a role, many see the burden of foreign debt arising from these wars and ongoing foreign military commitments playing a major role.

While no empire lasts forever, some economists believe one major creditor nation’s actions accelerated the process. Keynes in his “The Economic Consequences of the Peace” about the Versailles Treaty and his post WW2 attempts to create a non national world reserve currency, the bancor, both warned and tried to prevent this development. Michael Hudson’s writings are also provocative. Of course, these are two men’s interpretations not scientific proofs. As with religion, reasonable men may reasonably hold different views on economics. And similarly just as one’s spiritual perspective can be usefully broadened by reading anoher’s holy book, so can one’s economic analysis.

Currently, the PRC holds the bulk of its foreign assets in US dollars. As a result, it is in a sense hostage to the fate of the dollar. A position unlike that of the USA with respect to Sterling after WW1 or WW2.

As good capitalist investment theory would suggest, a bit of prudent diversification is in order – both currency and asset type.

Because the RMB is not really a world currency, the PRC invoices most of its trade in the dollar. At the end of June Brazil and the Peoples’ Bank of China (PBOC) signed an agreement to conduct bi-lateral trade in the RMB and Real bypassing the dollar. This is both in terms of invoices and the later flow of funds. The latter suggesting a possible effect on demand for the dollar.

Earlier this year, the PBOC signed currency swap agreements with Argentina, Malaysia, and Hong Kong under which the PBOC will make RMB available to these countries’ central banks so that they may provide RMB funding to local importers to buy Chinese goods. Moving the RMB to a more prominent role in world trade and lessening trade conducted in the dollar. Like the USA in 1945, wanting to enhance the world role of one’s national currency is not necessarily sinister. But whatever the intention, consequences are key.

Similarly, one would look for diversification by asset type. Real assets or control over them would provide protection against sovereign debtors’ time honored strategy of inflating away burdens. As well, such investments can enhance economic security by securing economic inputs or markets for exports.
CNOC's deal with Sabic for the Tianjin refinery a case in point of the former.

When one considers the state directed nature of much of the PRC’s economy, the apparent focus by Chinese companies on investments in “Western nation” natural resource companies is quite understandable as a national initiative. So far though largely unsuccessful, e.g. Chinalco/ Rio Tinto.

Money like water will find an outlet. And this is a theme that will repeat if not in the West then in other less inhospitable venues. A double edged sword because while there may be an argument for maintaining national control, enterprises need cash for the investment that fuels growth.

krulayar said...


The sign of His arrival: A face in the sky video

For details:
Please stop in http://manaalmahdi.wordpress.com
Please refer to someone incharge fitted whatever doctrine you are.
This is an exceptionally distinguished essence fitted all mankind.