China continues to build ‘strategic’ ties with GCC states

As China seeks to expand its influence in the Middle East, the Gulf region’s oil exporters will mainly see a positive impact through greater cooperation with the world’s second-largest economy, analysts told Argaam.

China and the Gulf states have been strategically strengthening ties over the past two decades.

“With China expected to become the largest economy in the world over the next 15 years, there's no doubt that the GCC needs to build closer ties with the Asian economic superpower,” Hussein Sayed, chief market strategist at FXTM, told Argaam.

One of the biggest customers of Middle Eastern crude oil, China last week further cemented its position as a strategic business partner for the Gulf’s oil exporters during President Xi Jinping’s visit to the United Arab Emirates (UAE).

The two countries signed 13 agreements in sectors ranging from energy, industry, e-commerce, infrastructure and trade.

The announcements, which form part of China’s trillion dollar “One Belt, One Road” initiative, are also expected to further boost the already strong trade ties between China and Gulf economies.

“There is an inevitable complementary dynamic between the Gulf region and China,” Mohammed al-Sudairi, researcher at King Faisal Center for Research and Islamic Studies, told Argaam.

With respect to the UAE specifically, the relationship is only a continuation of the already pre-existing strong bilateral economic ties.

“Because UAE has effectively positioned itself as a conduit for Chinese trade … At least 60 percent to 70 percent of Chinese re-exported goods go through UAE ports,” he said.

“UAE's relationship doesn’t necessarily indicate a repositioning or turning towards the Middle East (by China), because this type of engagement has already been happening for some time,” he added.

In 2016, China accounted for 12 percent of the GCC’s imports, making it the largest exporter to the region, according to a study by Saudi Arabia-based King Abdullah Petroleum Studies and Research Center (KAPSRC).

Saudi Arabia, meanwhile, remains one of the top exporters of crude oil to China, accounting for 1.056 million barrels per day of Beijing’s total crude oil imports in November last year.

The Asian country is also the top export market for Saudi Arabia’s non-oil products, totaling at SAR 2.423 billion in April.

“Saudi Arabia and China have mutual interests in building strong economic ties,” Sayed from FXTM said.

“China continues to roll out its ‘One Belt, One Road’ initiative, with the Middle East being one of its significant keystones. Meanwhile, Saudi Arabia's Vision 2030 needs a number of investors and this is where China can play an important role,” he added.

Beyond oil, Chinese investments in the region are set to reach the security sector, real estate, technology, transportation, and finance. The UAE, meanwhile, could also see growing Chinese interest in tourism.

“We also see strong scope for cooperation in the field of transport and logistics and related infrastructure given the GCC’s strategic location at the midpoint on China’s ‘One Belt, One Road’ development strategy,” Daniel Richards, MENA economist at Emirates NBD, told Argaam.

Other than the Belt and Road Initiative, Beijing and the Gulf states are also working on the GCC-China Free Trade Agreement (FTA) – negotiations on which started in 2004.

While the two parties are said to have reached a consensus on most commodities under the FTA, issues pertaining to liberalizing the petrochemicals trade remain an obstacle, according to the KAPSRC study.

In 2016, China released its Arab Policy Paper that spoke of fast-tracking the FTA negotiations.

“We will strengthen exchanges and consultations between Chinese and Arab trade authorities, complete China-GCC FTA negotiations and sign a free trade agreement at an early date,” the paper said.

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com