Dragon in the Desert: China’S Growth Strategy in the Middle East
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Image Courtesy: Foreign Policy Issue Brief V Dragon in the Desert: China’s growth strategy in the Middle East Arjun Gidwani Research Intern, Chennai Centre for China Studies December 23 2019 About the Author Arjun Gidwani is currently an International Business Analyst based in Hyderabad and has more than 10 years of experience in Market Research, Industry and Sector Analysis, Trade analysis, Macroeconomic forecasting and Financial Analysis. He has earned his post- graduate degree from the Indian Institute of Foreign Trade (IIFT), Delhi and has also completed his studies in Advertising Management and Public Relations from MICA, Ahmedabad. Specializing in research and strategy, he has worked on market entry strategies for Indian manufacturing companies into new geographic markets with a focus on the Middle East and North Africa (MENA) countries, revenue generation strategies for a Hyderabad based consultancy, and has been a member of the policy drafting Race Committee for the Dubai World Cup – Horseracing. About C3S The Chennai Centre for China Studies (C3S), registered under the Tamil Nadu Societies Registration Act 1975 (83/2008 dated 4th April 2008), is a non-profit public policy think tank. We carry out in depth studies of developments relating to China with priority to issues of interest to India such as geopolitical, economic and strategic dynamics of India-China relations, Chinas internal dynamics, border issues, Chinas relations with South Asian countries, prospects of trade, the evolution of Chinese politics and its impact on India and the world, ASEAN and SAARC relations, cultural links, etc. C3S attempts to provide a forum for dialogue with China scholars in India and abroad and give space for the expression of alternate opinions on China related topics. We also provide a database for research on China with special attention to information available in Chinese language. Additionally, events, lecture discussions and seminars are organised on topics of current interest. What is an Issue Brief? C3S launches its Issue Brief initiative. The reports under this series analyse the status and developments of current scenarios in detail. They attempt to aid the reader to get a more comprehensive idea of the issue being addressed through a detailed illustration in the form of images, data and facts Issue Maps are available for download as PDFs. Abstract In the last few years the People’s Republic of China (PRC) has made great efforts to expand its strategic presence and its economic clout in the Middle East Region. Prior to this, China’s involvement in the Middle East was relatively passive and restricted to mainly two strategic priorities: 1. The sale of arms to client countries in the Middle East Region, with the most obvious and conspicuous client being the Islamic Republic of Iran. 2. Acquisition of the Middle East Region’s energy resources to fuel the Chinese Economy expansion. This article studies China’s drive for regional importance in the Middle East which is extremely consequential to the future of the Middle East and its relations with its major partners in the subcontinent, namely India. Also, China’s drive to establish regional supremacy in the Middle East is the least reported. Through this article, we will understand China’s approach to its Middle East strategy in the context of the Belt and Road Initiative (BRI), the pillar of its foreign policy. The article also gives brief insight into India’s current strategic involvement in the Middle East, its progress and the challenges it faces. The article concludes with brief note on the way ahead for India. Chinese presence in the Middle East: An Overview: In the last few years the People’s Republic of China (PRC) has made tremendous efforts to expand its strategic presence and its economic clout in the Middle East Region. Chinese growth in the Middle East is of prime importance to Middle Eastern countries and their trading partners as China holds the power to reshape regional markets. This happens as the local governments reorient their economies to take advantage of the Chinese outreach and initiatives. Up till a few years ago, China’s engagement in the Middle East was relatively passive and was restricted to two main strategic priorities: 1. The sale of arms to client countries in the Middle East region, with the most obvious and conspicuous client being the Islamic Republic of Iran. 2. Acquisition of the Middle East region’s energy resources to fuel Chinese economic expansion A few indicators of the recent explosion in China’s involvement in the Middle East are: - Chinese President Xi Jinping’s visits to Saudi Arabia, Egypt and Iran in 2016 followed by a visit in 2018 to the UAE with the view to reinforce the strategic importance of the Middle East Region to China - The Saudi monarch, King Salman bin Abdulaziz Al Saud’s visit to Beijing in 2017, where MOUs were signed with President Xi Jinping exploring USD 65 billion in JVs. - Pledging of USD 23 billion in loans and development aid to the countries in the Middle East region by Chinese officials in the July 2018 Ministerial Meeting of the China – Arab States Cooperation Forum (CASF). A decade ago, the Middle East region as a whole received just USD 1 billion in total Chinese annual investment. - China’s involvement in many infrastructure and construction projects in the region such as the Madinat Al Hareer (Silk City) project in Kuwait and the Port of Duqm in Oman. The Rationale: China’s Foreign Policy The Belt and Road Initiative has become the central pillar of China’s foreign policy. It is a series of hard and soft infrastructure projects consisting of the Silk Road Economic Belt, an overland route across Eurasia, and the Maritime Silk Road Initiative traversing the Indian Ocean Region. Though the BRI was conceived as a means of addressing a shortage of infrastructure investments in Asia, its main focus is on expanding China’s influence and power across Asia into Middle East, Africa and Europe. As its assets and interests increase in states where it has traditionally played an insignificant role, China’s foreign policy transitions from being that of a regional power to that of a global power. The Middle East Strategy The Middle East, outside of the Asia-Pacific, is the most important region for China. China’s strategy in the Middle East is driven by its economic interests. The Middle East is a strategic location as it connects China, through the Suez Canal to the Mediterranean and Europe, thereby providing access to economic markets around the world. The region is also, an area of expanding economic ties and a very critical source in fulfilling China’s energy needs. With its sights set on establishing itself as a superpower in the eyes of the Middle Eastern countries, China has adopted a strategy that emphasizes the maintenance of positive relations with all the countries in the region without getting overtly involved in the various conflicts in the region. Image Courtesy: Business times Economic Interests China is the top oil customer of both Saudi Arabia and Iran, and imports half of its oil from Middle East and North Africa. As per the International Atomic Energy Agency, China is expected to double its imports from the region by 2035. The stage was set for a higher profile growth in the economic relationship between China and the Middle East with the launch of the Belt and Road Initiative in 2013. At the Third Plenary Session of the 18th Central Committee of Communist Party in China, the Middle East was designated a “neighbor” region by Beijing. The signifies that the region falls into China’s top priority geostrategic zone. Energy, infrastructure and construction, new energy sources, finance, agriculture and investment in nuclear power forms the focus of China’s trade and investment in the region involving the Gulf Countries. Central Node of the Belt Road Initiative (BRI): IRAN Strategic Importance: The central node in the Belt and Road Initiative for China in the Middle East has been the Islamic Republic of Iran and this can be observed by the growing number of Chinese factories, road, rail and port projects there. There is already a direct freight train between China and Iran. The route is referred to as the New Silk Road and it stretches 2300 kms from Urumqi in western China’s Xinjiang Uyghur autonomous region to Tehran, connecting Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan cutting transportation from 45 to 50 days (by sea) to 14 to 15 days. As a part of the global New Silk Road, China is also building a 926 km railroad from Tehran to the eastern city of Mashhad, Iran’s primary pilgrimage site. The proposed period for the construction of the electrified railway by China National Machinery Import and Export Corporation (which is an SOE – State Owned Enterprise), is four years. On completion it will reduce the travel time from 12 hours to 6 hours and increase transportation capacity to 25 million passengers and 10 million tons of cargo per year Global Policy Challenges: Joint Comprehensive Plan of Action (JCPOA) Under US and UN sanctions that preceded the Joint Comprehensive Plan of Action (JCPOA), China, despite being affected, continued its trade and oil imports from Iran. This resulted in many Chinese banks and companies being sanctioned themselves. Till the JCPOA was concluded in July 2015, China developed its plans for the BRI megaproject circumventing Iran so as to not be the target of sanctions. Post the conclusion of the JCPOA, China changed course, re-planning its initial BRI routes. The central land and sea routes were to cross Iranian territory recognizing Iran’s strategic central position between Asia on one side and Europe and Africa on the other.