Diplomacy and trade to fore as China woos GCC leaders

Reuters/Thomas Peter

• Four Arab heads go to Beijing
• Free trade agreement a possibility
• Gulf wary of too many ties

It’s quite a coup. Hu Jintao (still with us) must be feeling vindicated. The heads of four Arab states are in Beijing to attend the China-Arab States Cooperation Forum, which Hu founded in 2004 to bring together China and the Arab League. 

Xi Jinping, Hu’s successor as leader of the Chinese Communist Party (CCP), will welcome Abdel Fattah el-Sisi, the Egyptian president, King Hamad of Bahrain, Kais Saied, the president of Tunisia, and Sheikh Mohamed bin Zayed Al Nahyan of the UAE. The seniority of the representation is significant. 

Diplomacy is likely to feature prominently, as the Gaza crisis and trade disruptions in the Red Sea dominate headlines – and emotions. 

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Last year, Beijing was given credit for brokering a peace agreement between Iran and Saudi Arabia after seven years of confrontation. China is the major off-taker of Iranian oil.  

More prosaically, it is possible that China and the Gulf states will sign a free trade agreement. An official said last year that China and the GCC will sign such an accord “soon”, nearly 20 years after negotiations began. 

Khalid al-Falih, the Saudi investment minister, told a conference that the “time has come” for China to become the “principal investment partner in the Arab world’s development drive”.   

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But some observers say that talks over a comprehensive trade deal are held up over Chinese access to the Saudi market because of Riyadh’s ambitions to develop its industrial capacity. The kingdom, for example, has investments in electric vehicle makers Lucid and Ceer. Will those not be swamped by Chinese offerings? 

Regardless, China is a strong and growing force in the GCC. In Dubai, the Gulf’s commercial capital, Dragon Mart – a cluster of mainly Chinese retailers and suppliers – has been a fixture for 20 years, while Chinese state companies helped build the city’s first metro line. 

Reuters/Yuri Kochetkov

The chairman of the Middle East affiliate of China State Construction Engineering Corporation, one of the world’s largest construction companies, said in December he was looking at expanding business in the UAE as the market is still “booming” and “very profitable”. 

Chinese entities are also massive players in Saudi Arabia’s construction Eldorado. Between January and September last year, Chinese businesses announced a record 21 greenfield projects in the kingdom worth an estimated $16 billion, according to fDi Markets. 

In Oman, Chinese companies are developing a huge China-Oman Industrial Park in Duqm on the Indian Ocean. 

On the roads, Chinese automakers offering the likes of Changan, Geely and MG had a 12 percent share of new vehicle sales in the GCC last year, according to MEAC, industry analysts. This is up from less than 1 percent in 2017.   

Chinese mobile telephones like Xiaomi, Transsion, Oppo/OnePlus and Vivo are also growing in popularity among status-conscious Gulf consumers.  

But the Gulf states and others have been careful to develop a range of commercial and diplomatic ties – fearful perhaps of the kind of dominance that Beijing has exerted over states such as Sri Lanka, Angola and Belarus. 

Last week Iraq awarded a clutch of contracts in its latest bid round to Chinese oil companies, but our columnist Robin Mills wrote that reliance on Beijing can be a double-edged sword. 

“Iraq is arguably over-dependent on China, and risks getting bad deals and seeing Beijing exercising more influence over its economy and politics,” Mills wrote. 

In the UAE, DP World, a leading international port operator, is still smarting over a decision in 2018 by the government of Djibouti to “nationalise” the Doraleh container terminal – and then handed it to China Merchants Port Company, a Chinese operator. 

China maintains one of its few overseas military bases in Djibouti, as do France, Saudi Arabia and the US. Court cases brought by DP World are ongoing. 

Comac, the Chinese planemaker, was in Saudi Arabia last week but does not appear to have sold any of its airliners despite problems at Boeing and supply bottlenecks at Airbus. 

Comac airliners have not been certified by US and European regulators. China has had problems developing turbo-fan engines. Those on its flagship narrow body C919 are made by a US-French joint venture, for example. 

Beijing’s technical limitations were also on display during the Covid pandemic when the CCP insisted on sticking with its own vaccines to treat the disease. The resulting iron-tight lockdowns have contributed strongly to anaemic growth in the Chinese economy.  

China, the workshop of the world, has been suffering from re-onshoring and de-coupling, particularly from the US economy as Washington moves to create jobs at home and punish those who support Russia in the Ukraine conflict.  

The UAE and Saudi Arabia have thus been particularly at pains to reassure the US over technology leakage, although Du, one of three state-owned mobile brands in the UAE, is in partnership with Huawei to develop its 5G network. 

G42, which is leading the UAE’s charge into artificial intelligence and associated technologies, has sought to distance itself from China. But Peng Xiao, G42’s CEO, said earlier this year that severing ties was “difficult”.