US-China tensions among risks facing Middle East

Reuters/Kevin Lamarque

• Region must navigate rift
• Domestic affairs will dominate
• GCC-China talks ongoing

The divide between China and the US is one of the top five global risks facing businesses in the coming year, according to consultancy Control Risks. 

But commentators said the Middle East would continue to engage economically and politically with both superpowers, with little negative impact on trade flows. 

Control Risks’ annual “RiskMap” forecast highlights the biggest risks for businesses within the geopolitical, security, digital, operational and regulatory domains.

• A looming US fiscal crisis could hit the Gulf hard
• Growing ‘dark fleet’ carries sanctioned oil to China
• GCC chief predicts China free trade deal ‘soon’

The US-China diplomatic rift comes up top, alongside climate disruption, emerging technologies, intensifying global competition and anticipated crisis events such as elections and ongoing conflict. 

“In the year ahead, China and the US will drift further apart as they face economic and domestic challenges that will add enormous complexity to any strategic plans,” the report said.

“China’s management of its economic downshift will be the most significant global economic risk in 2024. Meanwhile, US presidential politics threaten to upend foreign policy and domestic stability, with geopolitical consequences.”

In the past two years, the US has sought to “decouple” from China by reducing dependence on Chinese products and supply chains for economic and national security reasons, it claims. 

The White House has set out a strategy to boost production at home – particularly in critical industries such as semiconductors – and banned US investments in Chinese companies with military and surveillance links. 

In 2024 the superpowers will be increasingly preoccupied with domestic affairs, given the upcoming US election and China’s focus on its post-Covid economic recovery, Control Risks said. 

The International Monetary Fund this month revised upwards its forecast for China’s 2023 GDP growth to 5.4 percent, from 5 percent. However, it predicts slower growth of 4.6 percent next year as a result of continued weakness in China’s real estate sector and subdued external demand. 

Relations between the US and China are likely to “enter a holding pattern in 2024”, the report said. However, this “should not distract [the world] from the reality that flashpoints around Taiwan, Ukraine and trade remain”. 

Middle East businesses will have to navigate the situation, but it is not expected to have a major negative impact on the region, experts said.

Strengthening ties

In the past few days, Arab nations have sought to deepen their ties with China with a delegation to Beijing to push for an end to hostilities between Israel and Gaza.

On Monday, the People’s Bank of China and the central bank of Saudi Arabia signed a local currency swap agreement worth 50 billion yen or 26 billion Saudi riyals ($6.93 billion). 

“The Middle East appears inclined to engage with China, evident in established strategic partnerships and cooperative forums,” noted Giulia Interesse, policy analyst at Asian business consultancy Dezan Shira & Associates. 

“While there is a noticeable rise in China’s influence [in the region], this predominantly takes an economic route, with less emphasis on political and military dimensions. 

“Prematurely predicting a complete shift towards China amid escalating US-China tensions oversimplifies the complex geopolitical landscape.” 

The Dubai Multi Commodities Centre staged a China Business Day in April, and is targeting 1,000 Chinese company registrations at the free zone.

“China is a big part of our growth story,” said its chief executive, Ahmed Bin Sulayem.

Negotiations around a China-GCC free trade deal are helping to further strengthen bilateral ties, yet “a sharp slowdown in the Chinese economy should not derail the strong performance of the GCC economy”, Scott Livermore, chief economist at Oxford Economics Middle East, wrote in an article for AGBI last week.

China is not yet a major provider of foreign direct investment to most of the GCC. Chinese investments account for just 2.5 percent of FDI stock in Abu Dhabi, Livermore wrote.