Chapter 4 Energy and Economy Involvement
4.3 Local reactions to Energy & Economy External Involvement
In 2012, the four main Arab destinations for US FDI were Egypt, the country that received the highest amount of investment worth17.1$ billion97, followed by Qatar that received 10.6$ billion98, Saudi Arabia with 9.7$ billion99 and the UAE that attracted 7.8$ billion100. There was a significant expansion for US investment in all these countries from previous years, from 14.6 percent in the case of Egypt and up to 34.1 percent increase in the investment rate in Qatar.
Figure 13: US-MENA Foreign Direct Investment (FDI), 2011.101
4.3 Local reactions to Energy & Economy External Involvement
Now that I have covered the extent of trade and investment between Arab countries and China and Arab countries with the US from both Chinese and American perspectives, I will relate to the opposite angle - how the Arab countries perceive their relations with these two global powers, whether it is positive or negative, and if they have any preference between the two, if at all.
97 “Egypt”, Office of the United States Trade Representative, May 9, 2014, accessed June 14, 2015, https://ustr.gov/countries-regions/europe-middle-east/middle-east/north-africa/egypt
98 “Qatar”, Office of the United States Trade Representative, May 6, 2014, accessed June 14, 2015, https://ustr.gov/countries-regions/europe-middle-east/middle-east/north-africa/qatar
99 “Saudi Arabia”, Office of the United States Trade Representative, May 6, 2014, accessed June 14, 2015, https://ustr.gov/countries-regions/europe-middle-east/middle-east/north-africa/saudi-arabia
100 “United Arab Emirates”, Office of the United States Trade Representative, May 8, 2014, accessed June 14, 2015https://ustr.gov/countries-regions/europe-middle-east/middle-east/north-africa/united-arab-emirates
101 Akhtar, Bolle and Nelson, "U.S. Trade and Investment in the Middle East and North Africa:
Overview and Issues for Congress", p. 13.
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First of all, regarding FDI, No Arab country is among the 20 biggest investors in the US as of 2013. As a matter of fact, FDI from the Middle East, as negligible as it is, is mainly originated in three countries: Israel, Qatar and the UAE. Out of these three, the biggest investor is Israel that in 2013 invested almost $10 billion in the US, more than twice the amount of investment from Qatar and the UAE combined.102 Thus, Arab FDI in the US is rather insignificant.
However, Arab countries’ FDI to China quite is minuscule as well. Flows of trade from Arab countries expanded at a steady pace since 1999, thanks mostly to the contribution of the GCC countries. In 2008, FDI flows from Arab countries to China reached the highest level of $404 million. Yet, this amount represented only 0.44 percent of China’s total FDI inflows.
As a result of the financial crisis of 2008, FDI from Arab countries to China plummeted sharply by about 40 percent to $241 million, and a meager 0.27 percent of the FDI to China. Since then, investment flows between the GCC countries and China have been quite small, but again on the rise. In 2011, Arab states invested in 207 projects in China. Out of these projects, 129 were in wholesale and retail, 34 in manufacturing, and 25 in leasing and business services.
The largest Arab investors in China were the UAE ($71.40 million), Saudi Arabia ($23.94 million), Yemen ($8.88 million), Jordan ($6.31 million), and Egypt ($5.52 million), together accounting for almost all of FDI from Arab states to China.
Nevertheless, these amounts represent an insignificant share of the total FDI in China’s, constituting less than one percent of it. Moreover, Arab investments in China account for less than 10 percent of the Arab outflows of FDI to the US,103 and less than one percent of the total Arab investment outflows.104
After reading abundant information about the manifold investments of Arab countries, mostly of the GCC countries, in China, I was rather surprised to come across the actual data that suggest minimal amounts of investments. One possible explanation
102 “Foreign Direct Investment in the United States”, Organization for international Investment (2014):
9. Accessed June 14, 2-15, http://www.ofii.org/sites/default/files/FDIUS2014.pdf
103 Florence Eid-Oakden and Charlene Rahall, “Arab FDI 'Pivots' to China”, Middle East institute, October 16, 2014, accessed June 14, 2015,
http://www.mei.edu/content/map/arab-fdi-%E2%80%9Cpivots%E2%80%9D-china
104 S. Raja, “UAE Tops Arab Capital Outflow; Saudi Leads Regional FDI”, Arabian Gazette, October 17, 2012, accessed June 14, 2015, http://www.arabiangazette.com/uae-tops-arab-capital-outflow/
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is that even though many contracts between the sides were signed, they were either not counted or fulfilled as Arab investors in China face many bureaucratic difficulties. For example, even though many investments deals in the field of petrochemicals and oil refining were signed, the only one operating in China is a Sinopec facility in Fujian with Saudi Aramco105 106. Another explanation is that because of the Chinese restrictions on foreign investment in its oil industry, the Arab capital flows to Chinese companies located in Hong Kong, and thus these deals are not counted as parts of Arab FDI to China and the official numbers remain low.107
As China’s most valuable partner in the Gulf, it repetitively shows its confidence in the alliance with China. As mentioned above, Saudi Arabia made large investments in China’s refining industry and Saudi Arabia’s Aramco bought 25 percent shares of the Chinese Fujian refinery. Aramco also formed a joint venture with PetroChina for the construction of a 200,000 bpd refinery in Yunnan province.108
Saudi Arabia was even willing to enter a long term commitment with China as the two countries signed an agreement in 2012 to enhance cooperation on nuclear energy.
Under the agreement, Saudi Arabia committed to build not less than sixteen nuclear power reactors over the next twenty years, the first one is planned to operate in 2022.109 In 2014, after signing of a number of memorandums of understanding in the fields of investment and cooperation in space sciences and technology and technical cooperation program in the commercial field, Crown Prince Salman, deputy premier and minister of defense who visited China to sign the agreements stated that these agreements confirm the depth of the partnership between the two countries.110
Another major investment in China from another Gulf country, Qatar, was made by the Qatar Investment Authority (QIA), one of the world’s largest sovereign wealth funds has pledged to establish an investment venture with China’s CITIC Group$10
105 Saudi Arabia’s national oil company (for petroleum and natural gas) and world largest oil producer.
106 Based on the interview I conducted with Liu Chang-Cheng (劉長政) from the Department of Arabic Language & Culture in NCCU.
107 “GCC Trade and Investment Flows”, The Economist Intelligence Unit, (2014): p.p. 10-11, p. 29.
Accessed June 14, 2015,
http://www.economistinsights.com/sites/default/files/GCC%20Trade%20and%20investment%20flows.
108 Eid-Oakden and Rahall, “Arab FDI 'Pivots' to China”.
109 Ibid.
110 “KSA Seeks Strategic Chinese Partnership”, Arab News, March 15, 2014, accessed June 14, 2015, http://www.arabnews.com/news/540551
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billion worth. In 2014, the group had already invested billions in China, including in CITIC Group, Alibaba Group Holding Ltd and Hong Kong department-store owner Lifestyle International Holdings Ltd. Previously, in 2012, the QIA bought $2.8 billion of Agricultural Bank of China Ltd. shares during its initial public offering, and according to the chief executive officer of the QIA, Ahmad Al-Sayed, Qatar sees China as a real long-term investment potential.
Other Gulf countries, for example the UAE, are also interested in that kind of partnership with China. In 2015, during a visit to the Boao forum for Asia Financial Cooperation Conference in Dubai, Abdullah Al Saleh, undersecretary to the UAE’s Ministry of Economy said that the UAE will also start a similar joint investment fund with China.111
Beyond the bountiful investments of Qatar in China, in 2014, Qatar took its trade relations with China a huge step forward by signing a memorandum of understanding that sanctioned it to open a Renminbi (RMB) clearing bank112. It is the first RMB clearing bank not only in the Gulf, but in the Middle East as well, and The Industrial and Commercial Bank of China's Doha branch has been appointed to operate it.
The opening of the RMB clearing bank that was launched in April 2015,113 is expected not only strengthen bilateral economic relations between the two countries, but position Qatar as the regional center for RMB clearing and settlement, according to the Qatari central Bank.114 This development also means that Qatar believes that transactions in the area made in RMB are likely to increase. As today the main currency for financial transactions in the area is the USD, it means that Qatar is confident that the Chinese RMB will take over a certain share of USD based transactions.
It is important to mention that interest in using the RMB in financial transactions began even before the establishment of the RMB clearing bank in Qatar. Already in 2012, Dubai’s largest and most important bank, Emirates NBD, issued the first RMB
111 Sofia, “UAE Looks East, Eyes Larger Trade with China”.
112 A clearing bank can handle all parts of a transaction from when a commitment is made until it is settled. Having such a bank can reduce costs and time taken for trading, boosting activity in a financial center.
113Amena Bakr, “Qatar launches first Chinese yuan clearing hub in Middle East”, Reuters, April 14, 2015, accessed June 14, 2015,
http://www.reuters.com/article/2015/04/14/qatar-china-yuan-idUSL5N0XB2D220150414
114 Xie and Dokoupil, “UPDATE 2-Qatar to Become First Middle East Clearing Hub for China's Yuan”.
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bond in the gulf. 2012 was also the first year in which Chinese banks began selling offshore RMB bonds in the region.115
Another clear statement of confidence in the Chinese economy was manifested in 2015, as many Arab countries joined the China’s led bank, AIIB, despite attempts by the US to dissuade its allies from doing so.116 The Arab countries who joined AIIB as founding members are Jordan, Kuwait, Oman, Qatar, Saudi Arabia, Iran and the UAE.
Besides Iran, all the Arab countries that joined AIIB are close allies of the US.117 Even though China is the largest importer of crude oil from the Gulf, the price China is paying as compared to OECD countries is 15 percent higher. The reason for that is that historically, OPEC oil sale prices to Asian and OECD countries were based on different benchmarks. The oil exported to Asia is priced according to benchmark prices set in Abu Dhabi118, while OECD prices are based on the West Texas Intermediate (WTI)119 or Brent120 benchmark prices, which are about twenty percent lower than the Abu Dhabi benchmark. LNG has no international pricing rule like oil, but similar to oil, LNG prices for shipments to Asia are usually 15 percent lower than shipments to the West, even if the transportation distance is similar.121
Naturally, China is interested in changing the pricing methods that are discriminatory against Asian economies and in favor of the West. CNPC former CEO urged the Chinese government to form an energy importing alliance to protect China’s interest regarding oil and gas pricing methods. Other Chinese energy experts advised the same. However, it seems like Arab countries were reluctant to do so, as giving China
115 Ibid.
116Jeffrey Heller and Tom Heneghan, “Israel Applies to Join China-Backed AIIB Investment Bank”, Reuters, April 1, 2015, accessed June 14, 2015, http://www.reuters.com/article/2015/04/01/us-asia-aiib-israel-idUSKBN0MS46J20150401
117Angelo Young, “China Welcomes Iran, UAE to Asian Infrastructure Investment Bank; Founding Members Now Number 35”, International Business Times, April 7, 2015, accessed August 22, 2015, http://www.ibtimes.com/china-welcomes-iran-uae-asian-infrastructure-investment-bank-founding-members-now-1872553
118Abu Dhabi benchmark is a reference for oil of a slightly lower grade than WTI or Brent. A “basket”
product consisting of crude from Dubai, Oman or Abu Dhabi. Dubai/Oman is the main reference for Persian Gulf oil delivered to the Asian market.
119West Texas Intermediate (WTI) – WTI refers to oil extracted from wells in the US and sent via pipeline to Cushing, Oklahoma. The fact that supplies are land-locked is one of the drawbacks to West Texas crude – it’s relatively expensive to ship to certain parts of the globe. WTI continues to be the main benchmark for oil consumed in the US.
120 Brent Blend – roughly two-thirds of all crude contracts around the world reference Brent Blend, making it the most widely used marker of all. Because Brent Blend oil supply is water-borne, it’s easy to transport to a distant locations.
121 Feng, Embracing Interdependence: The Dynamics of China and the Middle East, p.p. 4-5.
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a discount would cut their profitability.122 The fact that the Arab countries are not willing to agree to grant China a discount, suggests that their relations are not that intimate and can rather be defined as normal commercial based relationship.
It was only in January 2015 that Saudi Arabia’s Aramco offered its Asian customers a discount on its benchmark prices – the biggest discount in 14 years. Yet, the move was not a part of a deal with China or yielding to Chinese pressure, only pure commercial move by Saudi Arabia, competing over its global market share.123
Until now I discussed the US’s allies, who might have a conflict between their long standing relations with the US as opposed to their relations with the emerging Chinese actor. One country that is an exception to that is Iran, that has no official diplomatic ties with the US since 1979, and is in conflict with the US on many issues, not only the nuclear dispute. The conflicts with the US led to its isolation, American and European bilateral sanctions and UNSC sanctions that prevented most of the American and European companies to deal with Iran and even back out of contracts that were signed but not executed. Iran could choose between yielding to the international community or to bypass their demands, but it chose the latter and turned to countries like China and Russia for help.
China, even though it was part of the international team negotiating with Iran, jumped on the opportunity of American and European companies backing out from Iran because of the sanctions and filled the vacuum by taking over the Western companies’
place.124 When it comes to Iran, its preference is crystal clear: more Chinese involvement in the area is desirable, especially if it comes at the expense of the American influence.
In this section, I have found many evidences to the approval of the Arab countries to China’s involvement in the area. The Arab countries are not passive in this economic relationship, and they react to China’s extended hand by actively promoting Chinese investments in their economy, for example, by establishing the clearing bank mechanism, investing in the Chinese economy and allowing a large amount of Chinese
122 Ibid, p.p. 4-5.
123 Wael Mahdi, “Saudi Arabia’s Oil Exports Fell in 2014 in ‘Tough Year’”, Bloomberg Business, February 18, 2015, accessed June 14, 2015, http://www.bloomberg.com/news/articles/2015-02-18/saudi-arabia-s-oil-exports-fell-in-2014-in-tough-year-
124 “China to Double Iranian Investment”, BBC, November 16, 2014, accessed June 14, 2015, http://www.bbc.com/news/business-30075807
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companies and Chinese expatriates to operate in their territories. I could not find any negative reactions to China’s deepening economic involvement, nor evidence for fear from growing Chinese economic presence in the area.
Regarding the US, it was more difficult to find reaction from Middle Eastern countries, as their economic relations is already established, and American economic presence in the region is not a novelty. Yet, it is important to emphasize that I did not find any negative reactions to US economic involvement in the Middle East, but public declarations about the importance of the US to the countries in the gulf, of course with the exception of Iran, that does not have diplomatic relations with the US, and thus, also no official economic relations.
As for any preference between the two, I could not find any tendency to one side or the other. Arab countries’ FDI in both the US and China is rather low, and could not be an indicator for any inclination. The Arab countries are being pragmatic and invest according to economic interests and not political motivations. For example, the fact the China could not bargain a better arrangement than the current discriminating benchmark implies that China is not a strategic economic ally for whom the Arab countries are willing to change their oil pricing policy.
The Arab countries have their own interests and they are not looking for a patron, especially not when it comes to economic interests. They are not inclining to either the US or China when it comes to their trade and investment relations, and just follow the economic interests. I was looking for a clear preference, a choice between the two countries, but it seems like such a preference does not exist. The primary reason that China’s relations with the Arab countries are increasing is that it is a fast growing economy, looking for energy resources, a profitable market for investments and for selling its goods. If the US could provide the same, then its relations with the Arab countries would have been better.125
It is important to emphasize that the Arab countries have strong relationships with other countries besides the US and China. Other Asian countries, for example, India and Japan are also major trade partners of the Gulf countries and main consumer of
125 Based on the interview I conducted with Liu Chang-Cheng (劉長政) from the Department of Arabic Language & Culture in NCCU.
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Middle Eastern oil.126 Thus, the Gulf countries are not particularly dependent on either China or the US. As a matter of fact, China might be more dependent on the Arab countries then they are dependent on China.127
4.4 Conclusion
After reviewing and comparing the numbers, it is obvious that currently, China’s economic and trade relations with the Arab countries are more robust than the relations with the US. China is importing significantly more oil and LNG from the Persian Gulf, and consequently, its dependence on energy resources in the region is growing. At the same time, the US is becoming less dependent on imported energy resources from the Middle East. The numbers also reveal that while at the beginning of the 21st century China was a rather insignificant trade partner of the Arab countries, after a decade of steady growth, China became the largest or second largest trade partner.
As many researchers claim128, China’s main interest, and according to some, the only interest, is the economic one. There is no doubt that China is being very pragmatic in promoting its interests in the Middle East and being friendly as it can with all countries. It is very impressive that China is able to maintain close relations with Iran, while at the same time also being close to Saudi Arabia. I believe that China’s maneuvering to bypass the sanctions on Iran and its dealing with the Houthi rebels for
As many researchers claim128, China’s main interest, and according to some, the only interest, is the economic one. There is no doubt that China is being very pragmatic in promoting its interests in the Middle East and being friendly as it can with all countries. It is very impressive that China is able to maintain close relations with Iran, while at the same time also being close to Saudi Arabia. I believe that China’s maneuvering to bypass the sanctions on Iran and its dealing with the Houthi rebels for