Question: What are the main drivers and impediments to the development of bilateral relations between China and the Middle East?

Kalavinka Viewpoint

In the evening of the 18th of the third month, in the second year of the Zhenguan reign of the Tang dynasty, the Emperor dreamed that a turbaned man came running into the palace grounds, chasing after a demon. He woke up and was puzzled by the dream, for he knew not what it foretold. On the following day he assembled all the officials of the court to discuss the matter. The diviner of dreams reported, “The turbaned man is a Huihui from the Western Region, out beyond the Jiayu Pass. The kingdom of Arabia is ruled by a Muslim king of great knowledge and virtue. His land is rich and powerful. The demon entering the palace grounds surely means there is evil lurking, which you will only be able to dispel with the help of a Huihui.” The general reported, “The Huihui are impeccably honest in their dealings. If you meet with them peacefully, they will serve you loyally and with no care for reward. You may send an emissary to the Western Region to see the Muslim king and request the services of an enlightened one (zhenren) to keep the portended evil at bay.” The Emperor did as was advised, and sent the senior official Shi Mingtang on a mission to present a letter to the Muslim king.

The Muslim king was delighted upon receiving the letter, and sent the senior disciples Qays, Uways and Husayn to China to offer their services. Husayn and Uways could not adapt to the new water and climate and died en route. The sole survivor, Qays, crossed mountains and rivers, suffering great hardship, to eventually arrive in China. The Emperor received him with honours, and asked what were the ritual and scriptural differences between his land and China. The turbaned man replied that the revealed scripture of the Western Region was called the Quran, which could be likened to the Five Classics of China. He then expounded the difference between Eastern and Western ritual and teachings. The Emperor was delighted, and selected 3,000 Tang soldiers to move to the Western Region, in exchange for 3,000 Muslim soldiers to accompany the turbaned elder in China. These 3,000 Muslims had countless descendants and are the ancestors of the followers of Islam in China today.

Excerpt from China Heritage Newsletter #5, published in March 2006 and originally sourced from Zhang Xinglan – China Heritage Project, The Australian National University

Chai Shaojin

The main drivers to the development of bilateral relations between China and the Middle East are energy trade, economic development, and technology transformation. China’s rapid economic growth and demand for energy has led it to recognize the need for a reliable and secure energy supply from countries like Iran, the GCC states and Algeria, which provide the lion’s share of China’s oil, gas, and petrochemical imports. For the Middle Eastern oil exporting countries, they are eager to secure and expand their energy trade volumes, especially with China, and face the looming prospect of increasing share of green low-carbon energy in the world market and decreasing reliance on their oil by the USA. Both China and the Middle East countries have a common interest in maintaining market stability and maritime security in the region. Moreover, China’s growing economic engine may co-drive the Middle East’s development and diversification ambitions. China has brought investment, industrial capacity, cheap manufactured goods, competitive construction, and infrastructure projects into the region. As the world’s largest consumer market and manufacturing hub, China offers great supply and market opportunities for many Middle Eastern companies and products, while growing populations in the Middle East attracts more Chinese companies to seek profit in high potential sectors including trade/logistics, high-tech, E-Commerce, food, finance, real estate/construction, new energy, health care, etc. China and many of its tech companies have been tapping into the Middle East populations to embrace future digital transformation opportunities, while most countries in the region desperately need accessible and affordable technology and solutions for their own ambitions to upgrade and transform their economies.

One challenge may be the uneven trade relations between the Middle Kingdom and Middle East, with China enjoying huge trade surpluses. China has also been unwilling to make many concessions as seen in the slow-pace of negotiations of the China-GCC Free Trade Agreement. In fact, China’s state-centric investment and trade model as well as draconian policies on border controls/supply chain and economic adjustment may look “too strong to rely on” as an energy market and trading partner. A final issue is that continued U.S. pressure on Middle East allies to slow the proliferation of Chinese technologies may curtail commercial growth opportunities for Chinese firms operating in the region.

Dr. Chai Shaojin currently teaches international relations in the College of Arts, Humanities, and Social Sciences in The University of Sharjah, United Arab Emirates. He has also worked in the UAE government as a researcher and advisor on cultural, social and soft-power projects. He has published journal articles and book chapters on Chinese cosmopolitanism, China’s soft power in MENA and religious education among overseas Chinese.

Hani Sabra

China’s Middle East relationships are primarily commercial. These ties will strengthen, and they will move beyond oil, but will remain commercially focused for the foreseeable future. Critically, unlike regional geopolitical players like the US and Russia, China is less interested in taking sides in the region’s conflicts. Ideally, Beijing would like to boost its ties with Saudi Arabia, Iran, Israel, Egypt and other Middle Eastern nations. Furthermore, China is pleased that the region’s states do not have any interest in intervening in domestic Chinese issues or Asian issues that matter to China. The irony of course is that conservative American congresspeople that are rarely fans of anything Muslim, are, at least rhetorically, more concerned about Chinese Muslims in Xinjiang than the Arab leaders that are the self-appointed defenders of Muslims worldwide.

In terms of the trajectory of the relationship, some observers posit that the US “withdrawal” from the region represents an opportunity for China. However, this is wrong. First, the US has not withdrawn from the Middle East. The US is in fact still very engaged in the region. While certainly not on the same scale as it was in the early 2000s during the Iraq war and the theoretical ideological commitment that former President George W. Bush’s administration had to “democracy promotion,” the US is still very involved in securing its regional strategic interests. These include Israeli security, collaborating with partners on terrorism issues, and of course, ensuring the smooth export of Middle East oil to the US’s trading partners. Second, while China may be wary of the US’s political and military strength in the region, China has little interest in playing an overt strategic role in the region. Certainly, like the US, China does not want geopolitical tensions to escalate to the point that oil flows are affected. However, Beijing benefits from whatever “stability” in the region the US buttresses. Lastly, beyond energy, China is investing in certain sectors that are very attractive to regional states. For example, Chinese technological advancements are potentially attractive to Middle Eastern states. Thus, while the US remains a key strategic player in the Middle East, as regional states diversify their commercial ties, China, along with other states, will probably benefit.

Hani Sabra founded Alef Advisory, a boutique, Middle East-focused political risk practice in September 2017. Prior to founding Alef, Hani spent more than a decade at the New York-based political risk consultancy Eurasia Group, and during his last five years there, Hani headed the firm’s Middle East practice. Hani was raised in Saudi Arabia, the UAE, and Egypt, and speaks fluent Arabic.

Ben Jelloun

In the Middle East, students learn at an early age about the Silk Road from the stories of Ibn Battuta, one of history’s most prolific travelers. He was a Moroccan explorer that arrived in China more than 800 years ago before the collapse of the Mongols and before Marco Polo shaped the views of the West about the Far East. Ibn Battuta famously said, “China is the safest and most agreeable country in the world for the traveler. You can travel all alone across the land for nine months without fear, even if you are carrying much wealth”. Today, if you look at the amount of investment that has been allocated to China from Gulf countries, it is insignificant compared to investments in the US. Most family offices don’t have any allocation, and I have even met institutions with more than $30bn AUM with no allocations. In contrast to the historical perception of China, the most common explanation for such limited allocation is “lack of trust” and “limited knowledge” of the investment landscape.

In today’s increasingly bifurcated world, an increasing number of financial institutions in the GCC, Sovereign Wealth Funds and sophisticated family offices have opened offices or announced increased allocations to China. These institutions see China as a diversification play, but it also represents an opportunity to support the vision of GCC countries in localizing innovation and growing tech eco-systems. A good example is Prosperity7, the $1bn Corporate Venture arm of Aramco, with offices in China and US. However, the reality today is that the bridge of trust and knowledge between Gulf countries and China is still very narrow. In comparison with India, despite India having a smaller VC ecosystem compared to China’s, GCC investors favor India as an investment destination. There are many factors, but one is the connectivity to India through a sophisticated Indian diaspora living in the Middle East. It is rare to see Chinese investment professionals in leading roles with GCC based investment institutions or family offices. Therefore, for good bilateral geopolitical relationships to translate into economic connectivity that goes beyond energy trading and infrastructure building, there have to be modern “Ibn Battuta stories” forged from positive investment experiences in China and also “technology knowledge” from China that makes a positive impact in the GCC.

Ben Jelloun is the Managing Partner of Global Connectivity Capital Investment (GCCVest), which is a cross-border investment platform connecting Asia with MENA. He has over 18 years of global M&A experience and previously led the China PE Deal Strategy team for KPMG Global Strategy Group. Ben worked as an investment banker in Dubai and was a fund manager with a global investment house in Kuwait.

Theodore Karasik

Importantly, the key drivers in China and Middle East relations are determined by geopolitical weight. It is not measured in traditional statistics but maneuvers and actions that give advantage over their competitors. China and Middle East nations enjoy more strategic leeway because they are less “entangled” by commitments as they synergize. This factor foreshadows particular features of the future international order. Business and economic activities have been the preferred tools used to gain further sovereignty and related privileges for these triangular partners. By joining forces, they are leveraging and exploiting vulnerabilities within the existing international system to their advantage against the West, which appears to be entering a protracted period of confrontation with Russia and the East.

For Arab Gulf countries, specific relations offer further assistance with their desire to transform their respective economies especially after the 2022 Beijing Olympics. Technological transfers are central to this shift as the region has begun moving towards a position that embraces the potential of Artificial Intelligence (AI). Moreover, the potential to move away from the US dollar has partially been fueled by resistance to U.S. actions, such as the weaponization of the dollar and threat of withholding it from countries as the Russia-West confrontation proceeds. The shifting security environment in Europe impacts Arab-Chinese relations by forcing the taking of sides, where Beijing’s relationship with MENA seemingly grows. Moreover, Gulf Sovereign Wealth Fund (SWF) activity is also important to see within the scope of relations with China. Gulf sovereign funds such as the Kingdom of Saudi Arabia’s PIF or UAE’s Mubadala are key to the relationship with China and the growth of global investment by investing in advanced technologies and 4IR concepts. The movement of goods and services is key to the emerging ecosystem. The construction of ports at key locations along the Belt and Road Initiative (BRI) to access markets and resources or serve as a logistical hub is a key feature of Arab-Chinese efforts throughout the Global South, both Africa and Latin America. But all of these Arab-Chinese interactions are part of the shifting of the international investment environment eastward as the world enters the COVID-19 endemic period. The pandemic’s impact on supply chain can gum up immediate Gulf trade but not long-term China-Arab trends.

Dr. Theodore Karasik is a Senior Advisor at Gulf State Analytics in Washington D.C. and specialises in cross-cutting sector analysis within the scope of geo-economics and politics. He began his career at RAND Corporation in 1987.

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