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Gulf to ‘see more rather than less’ despite China’s slowing economy

Beijing's sluggishness need not be bad news for the GCC, analysts tell AGBI

Workers take a break on a terrace near offices in Shanghai. China's economy grew by 5% last year, well down on its long-term average   Costfoto/NurPhoto via Reuters
Workers take a break on a terrace near offices in Shanghai. China's economy grew by 5% last year, well down on its long-term average

China is a major source of foreign direct investment in the Middle East. It is the largest source of FDI in Saudi Arabia and invested nearly $17 billion in 2023, more than six times the sum of the US in second place. 

Beijing is also the biggest buyer of Middle Eastern oil, importing 40 percent from Saudi Arabia and Iran in 2022. 

That oil helped to drive an economy that grew at an average annual rate of more than 9 percent for the 50 years before the Covid-19 pandemic. China has fuelled more than a third of global growth for the past 15 years and is now the world’s largest importer of crude, importing a record 11.3 million barrels in 2023.

What, then, to make of pessimistic prognoses for the world’s second largest economy?

The International Monetary Fund thinks China’s economic slowdown – induced by a heavy-handed Covid lockdown, a debt overhang and Western companies returning production to their countries of origin because of security concerns – is likely to continue until 2029 at least. 

The IMF expects annual growth in the Chinese economy to slide from 5 percent last year to 3 percent in five years’ time.

Analysts are sanguine, however. Many think a slowing Chinese economy heralds a deepening of the Arab-Chinese relationship rather than the opposite.

“China and the Middle East are diversifying their economic relations. We will see more rather than less activities,” says Yun Sun, director of the China programme at the Stimson Center think tank in Washington. 

Sun says an economic slowdown may not necessarily diminish oil sales significantly, although this remains to be seen.

A worker in an electrical components factory. Analysts believe China will have to significantly increase exports to the Middle EastAlamy via Reuters
A worker in an electrical components factory. Beijing is ‘injecting investment and subsidies into manufacturing’, according to John Calabrese

What is more likely is that Beijing will look to co-operate in other sectors, such as information technology, green energy and infrastructure, she says. 

To this end, China may become a more open market to Gulf investors while the Middle East itself may be able to attract a larger proportion of Chinese money.

John Calabrese, a non-resident fellow at the Middle East Institute in DC, suggests it is more helpful to look at China’s situation as a “shift” in the economy, rather than simply a slowdown.

Beijing is prioritising “injecting investment and subsidies into manufacturing”, he points out, and this means exports of finished goods are likely to increase rather than diminish. 

“There’s going to be a big drive on the part of the Chinese leadership, both at the national level and pressure on the provincial leadership, to want to push this stuff out into the market,” Calabrese says.

The direct impact could be an outpouring of cheaper goods to the Middle East. China is easily the largest exporter to the region, sending more than $171 billion of goods in 2023.

China accounted for 14 percent of total imports to Egypt in 2022 and 11 percent to Turkey – two of the most populous countries in the region, which are both suffering from prolonged bouts of inflation.

Cheaper gadgets made in China are more attractive to hard-pressed consumers, though wealthier Gulf shoppers are also opting for Chinese products.

In particular, the Chinese government has said it will invest in “the new three” growth-driving exports – electric vehicles, lithium-ion batteries and solar cells – to boost trade and push back against the slowdown. It increased exports of the three by 30 percent last year. 

Pedestrians cross an intersection near a construction site in Beijing. China is focusing on exports of EVs, batteries and solar cells  Reuters/Florence Lo
Pedestrians cross an intersection near a construction site in Beijing. China is focusing on exports of EVs, batteries and solar cells

Although this strategy puts China in competition with the Middle East’s nascent green technology sector, it highlights the increasing availability of these vital energy transition products at a time when Gulf economies are investing heavily to decrease their dependence on fossil fuels.

This could also open new opportunities for GCC investors. “They give an opportunity, especially for Saudi Arabia [and] the UAE to do more in Africa,” says Adnan Mazarei of the Peterson Institute for International Economics in Washington.

In Africa, where Beijing was the largest foreign investor a decade ago, the amount of new Chinese investment in 2022 and 2023 was $29 billion, according to FDI Markets. 

By contrast, GCC countries pledged $97 billion over the same period. As China invests less, there may be a gap to be filled by Gulf countries, which are looking to expand their economic footprint in Africa. These states can invest directly or act as middlemen for Chinese entities. 

“A key issue is that the Gulf countries, especially Saudi Arabia and the UAE, are trying to insert themselves into global value chains,” says Mazarei.

Alongside competition in Africa and the rest of the world, the Gulf is also trying to work with Beijing to become “an intermediary platform between China and the rest of the world” in fields such as artificial intelligence and other emerging technologies. 

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