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Black gold and realpolitik define GCC-China relations 

China is playing a growing role in energy transition and economic diversification across all Gulf states

GCC China Reuters/Ahmed Yosri
The Saudi minister of energy, Prince Abdulaziz bin Salman Al-Saud, speaks at the Arab-China Business Conference last summer: Saudi Arabia provides 20 percent of China’s oil imports

Deng Xiaoping’s Open Door economic reforms transformed China from an impoverished post-Mao socialist autarky in 1978 into an $18 trillion GDP colossus, the world’s largest trading nation and energy importer. 

Today, more than half of the Dragon Empire’s oil imports depend on the oil fields and tanker shipping lanes of the Arabian Gulf. Energy security is thus unquestionably the most important pillar of the China-GCC economic relationship.

However, co-operation in technology, telecommunications and even Dubai’s role as a re-export hub for trade to Africa have now evolved as engines of growth.

The swelling of the Chinese industrial economy since the early 1990s is directly correlated to the increase in its oil, gas and LNG imports from the six GCC states. Saudi Arabia alone provides 20 percent of China’s oil imports, and the PRC is the kingdom’s largest trading partner. 

Chinese banks, state-owned companies and private sector businesses have begun to play a pivotal role in the development blueprint, the trade and investment flows, the energy transition and the economic diversification in all six GCC states, primarily Saudi Arabia and the UAE.

As Gulf states seek to decarbonise their power grids and play a leading role in clean energy, strategic partnerships between the GCC’s largest state-owned companies and China Inc have become mission critical. 

The biggest wind, solar and renewable energy projects in the GCC now primarily import Chinese technologies, technical expertise and even capital. Chinese companies dominate the supply chain and critical components for energy storage midstream projects in the Gulf. 

State-owned energy and power companies in the GCC have even entered into joint ventures and co-investment deals with their Chinese peers to develop clean energy mega projects in Africa, Mena and Central Asia.

There is an obvious convergence between state capitalism in the GCC and President Xi’s desire to rationalise his Belt and Road initiative (BRI) towards countries that can share the financing burden of the clean energy transition across the global South.

Adnoc has partnered with Chinese firms to develop $12bn in downstream projects

The UAE’s Masdar and Saudi Arabia’s Ace Power are two examples of GCC state-owned institutions that have harnessed Chinese partners and even sovereign wealth funds as co-investors to develop complex, large scale renewable energy projects at home and abroad.

Chinese companies will play a strategic role in ​​the GCC’s EV manufacturing, hydrogen economy and carbon capture industries in the decade ahead.

The deepening economic ties between Saudi Arabia and China were demonstrated by the establishment of Saudi Aramco’s Yanbu Sinopec Refining  project as far back as 2014. This was the largest refinery on the kingdom’s Red Sea coast, a $10 billion mega-project with a refining capacity of 300,000 barrels a day.

A decade later, Saudi Aramco and the petrochemical giant Sabic own a number of refining projects in Chinese coastal ports.

The UAE also attracted Chinese energy contractors and bank financing to construct the Habshan-Fujairah oil pipeline, a national security priority for Abu Dhabi, since it bypasses the Strait of Hormuz tanker traffic chokepoint.

Chinese oil companies are participants in the UAE’s oil concessions, and Adnoc has formed a partnership with Chinese petrochemical businesses to develop $12 billion in myriad downstream projects.

Logistics and port infrastructure in the GCC are also industries where the role of Chinese capital and technology will be prominent. The state capitalism model shared by the Gulf states and the Middle Kingdom enables infrastructure mega projects where risk tolerance, timeline and financing are beyond the capacity of the Gulf’s merchant family elite.

The energy umbilical cord between the GCC and China has even impacted the Gulf’s international relations. China brokered a diplomatic rapprochement between Saudi Arabia and Iran. Yet China has no ability or even desire to replace the United States as the security guarantor of the Gulf states, since its defence focus is on Taiwan and South China Sea. 

Beijing will not compete with the Pentagon’s $75 billion annual defence budget dedicated to its military footprint in the Gulf. This is why the PRC has encouraged Iran to re-negotiate its nuclear deal with the US and restrain its proxy militias in the Levant. The Gaza war has enabled China to use its UN Security Council seat to act as a champion for the Palestinians in calling for an immediate ceasefire, a policy priority for the GCC. 

Even though Chinese shipping and freight rates have been affected by the Red Sea crisis, it has not joined the US-led naval coalition against the Houthis, unlike the anti-Somali piracy campaign, where it took a role.

Chinese soft power in the Arab world definitely rises when Uncle Sam stumbles.

Matein Khalid is the chief investment officer in the private office of Abdulla Saeed Al Naboodah and the CEO designate of a venture capital firm. He is also adjunct professor of real estate investing and banking at the American University of Sharjah

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