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Chapter III: Post Cold-War Middle East-China Relations 1990-2010
As presented in the previous chapter, during the 1980’s China started to integrate with the Middle East, in a more efficient way. Unlike Mao and Zhou Enlai's policy that was based on pure ideology in order to strengthen China’s connection with the third world, Deng’s foreign policy was more attractive to the Middle East. China started to be an alternative for countries that had difficulties with the Superpowers. As will be presented in this chapter, the Middle Eastern countries have been taking advantage of the Chinese hunger for energy resources, as today half of China’s oil import comes from the Middle East. Middle Eastern countries have improved their economic situation, and enjoyed the Chinese no strings attach approach, in order to purchase weapons, and strengthen their regimes. However, the case of Iraq that will be fairly discussed might raise few questions about the Chinese commitment to each country in the region.
The bilateral relations between China and the Middle East have deepened beyond the energy sector. The Middle Eastern major oil exporters have expanded their investments in China. China has a growing number of projects in the Middle East, including a verity of industries such as health, construction and tourism. As a result China had expanded its export of labor services to the Middle East. According to Michael Thorpe and Sumit Mitra the attractiveness of China to the Gulf Cooperation Council countries46
46 Saudi Arabia, Kuwait, the United Arab Emirates, Oman, Bahrain and Qatar.
is beyond long-term oil and gas contracts, and also includes a sizeable domestic market for companies, a large expatriate labor force and the opportunity for the economies to play an entre pot role for shipping China’s manufacturing exports into the
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wider region. According to them the challenge for the GCC is to broaden its export opportunities to China47.
The First Gulf War: China choose non-intervention policy
China and Kuwait's mutual interests led to growing interactions between the economies. In the 1980’s Kuwait looked to the new emerging market of China as a potential to diversify its investment in a broader way. The Kuwait Fund for Arab Economic Developments (KFAED) provided China with approximately 200 million USD loans in the early 1980’s for several projects. In September 1989, when the Western world withdrew its money from China after the Tiananmen incident, KFAED have provided a 21 million USD loan to help China finance a ductile cast-iron pipe project48. From 1982 till May 2010, KFAED have approximately loaned 900 million USD to 33 different projects in China49
On November 23 1985, both sides signed an investment agreement for the promotion and protection of joint investments. China’s cheap labor found its way to Kuwait’s contraction projects. By the end of 1989 both sides signed 175 labor contracts, valued more than 530 million USD, and employing approximately 20,000 Chinese workers. The total value of trade in the 1980’s was almost twice than that of the 1970’s.
The relation between the sides also improved in other fields. Chinese and Kuwaiti Muslim delegations visited each other, news agencies, established news exchanges, and the highlight was president Yang Shangkun visit in Kuwait on December 1989, in an era
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47 Michael Thorp and Sumit Mitra, “Growing Economic Interdependence of China and the Gulf Cooperation Counci”l. China & World Economy 16(2, 2008) : 117.
48 Ibid.,193-194.
49 Kuwait Times, “KFAED Plans Education Project in China”, Kuwait Times May 12, 2009,
http://www.kuwaittimes.net/read_news.php?newsid=MTM2MDc4MTcyNw== (accessed October 17, 2010)
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when China suffered from international isolation50Starting from the late 1970’s, the relations between China and Kuwait’s neighbor, Iraq, also significantly improved. As was mentioned in the previous chapter, an important part of the improvement in the relations between the sides was the weapon supply from China to Iraq during the Iran-Iraq war. Apart from weapon deals, China and Iraq signed several agreements in other fields. In order to develop the Chinese agricultural sector both sides signed an agreement in 1980 for the import of Iraqi nitrogenous fertilizers worth 46 million USD. According to another agreement signed in 1985, China imported Iraqi phosphate, palm dates and other agriculture products and in return Iraq imported Chinese textiles, light industryproducts, metal ware, and minerals
. Yang Shangkun visited Egypt and the United Arab Emirates in 1989 Middle East trip as well. Infect, the Middle East was the only place where China’s leaders were welcome, after the Tiananmen incident.
51. Similar to Kuwait, Chinese labor contracts and projects between the sides increased dramatically. Form 1979 to 1986 nearly 20,000 Chinese workers were assigned in different projects, taking an important share in the Chinese foreign exchange during the time52
In a similarity to the Iran-Iraq war, China’s close relations with both Kuwait and Iraq encountered a serious test during the Iraqi invasion to Kuwait on August 2, 1990.
However, at this time China was in a different situation facing deterioration in its relations with the Western world. The first Gulf War in August 1990- February 1991 was a test for the Chinese policy in a decline Soviet power era. There was no more Soviet and American position, both were on the same side. Following the Tiananmen incident in
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50 Mohamed Bin Huwaidin, China's Relations with Arabia and the Gulf, 1949-1999. (London ; New York : Routledge Curzon, 2002) 195.
51 Ibid., 143
52 John Calabrese, China’s Changing Relations with the Middle East. (London ; New York : Pinter Pub, 1991),144.
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1989 China faced pressures from the international community. Western-Japanese embargo was forced on China, which badly hurt China’s foreign relations. Unlike the Iran-Iraq war, this time there was a clear asymmetry between the warring sides. In order to be able to fight with Iraq, Kuwait asked for Arab and international help against the Iraqi invasion. Iraq was without any doubt the aggressor. The Arab world faced a hard decision, when one member of the Arab League tried to conquer another. Saudi Arabia, which established diplomatic relations with China just a month before Iraq invaded Kuwait, was also facing a threat of Iraqi invasion to its boarders.
The UN Security Council had to provide an answer to the Iraqi aggression. In previous conflicts, China was not in a position of a decision maker. However, as part of its role as a UN Security Council permanent member, for the first time China had to vote for a resolution involving a military intervention in the Middle East. Before voting for the use of force against Iraq in UN Security Council Resolution 67853
53 The resolution authorized the use of force by UN members against Iraq. For more information U.N.
Security Council, 2963rd Meeting. "Resolution 678 (1990) [Iraq-Kuwait]" (S/RES/678). 29 November 1990.
, in similar to any other vote, China faced three options. If China voted in favor, it could have risked its relations with Iraq, but on the other hand win the much needed Western appreciation. Voting against the resolution, using its veto, China could have won Iraq sympathy, but it would have led to a conflict with the Western world, and a vast majority of the Arab world.
China chose the third option and decided to keep its non intervention policy, and abstained. Such a vote was more symbolic than meaningful. The Chinese decision to abstain from voting on the UN 678 resolution caused Arab dissatisfaction, the Iraqis and Palestinians on one side, for not preventing operation Desert Storm, and the moderate Arab coalition on the other side for not supporting the operation. In response to China’s
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decision not to defend its interests, Kuwait decided to suspend 300 million USD developments loans to China54
Before abstaining in resolution 678, China voted in favor of eleven UN Security resolutions regarding the First Gulf War. Despite the heavy losses of the Chinese construction companies, the Chinese policy was Yes, to sanctions that might prevent Iraq from continuing its aggression and No, to military intervention. China decided not to favor a resolution that involves external military intervention, just as it traditionally did during the Cold War in other Middle Eastern conflicts. The Chinese traditional policy, as explained earlier, was that the countries in the region should solve their disputes by themselves.
. Nevertheless, the fact that China did not put a veto on the resolution can be seen as an act of support.
China knew that aliening with the West in the war, could have been a way out to improve its foreign relations. On the other hand, turning their back on Iraq might be seen as a weakness and surrender to the Western world. However, from China's point of view, it was more important to improve its relations with the Western world, than keep its good relations with Iraq. The first Gulf War was also the first time that Arab countries created a coalition with an alien power against another Arab country. The strong Arab support for the Desert Storm operation put China’s improving connections with Middle Eastern states in danger if the Chinese had not supported the move. Iraq failed to translate its close relations with China to a support in the UN Security Council. The Chinese dependence on the Western world was too strong. Iraq failed to make interdependent relations with China, thus China decided to sacrifice Iraq and making it the new pariah state. As both
54 Lillian Craig Harris, “The Gulf Crisis and China’s Middle East Dilemma”. Pacific Review 4(2, 1991):
116-125.
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countries interests were on a top priority, the Iraqi-China relations have stayed stable.
Both Iraq and Kuwait did not create interdependence with China. Although China had its growing interests in both countries, there was not a mutual dependence, a change in China’s relations with Iraq or Kuwait could not affect Beijing in a sense that will change the national interest. Nevertheless, China was dependant on the Western world, therefore Beijing decided not to resist a military operation against Iraq.
Energy Relations: The core of the interdependence
The end of the First Gulf War brought the region into a new era. The unity between Arab and Western forces in Desert Storm operation proved that there is only one clear hegemon left. There was no more a possibility to hide under the Soviet umbrella.
The Chinese foreign policy changed as well and became more pragmatic. However, one thing has not changed, Middle East countries economies still relied on oil. The fast growth of the Chinese economy after the four modernization plan, have made China an important harbor for the world industry. Until 1992, China was a net oil exporter55. However, in order to meet the demands of both the industry and the civilian sector, China decided to start importing crude oil in 1993. According to the U.S. Energy Information Administration, in 1993, China more than doubled its oil import compared to previous year56
55 China exported 136 thousand barrels a day in 1992, in 1993 the number drop to 80 thousand barrels a day.
It was only in 1997 that the number of barrels exported had surpassed 1992. Additional information can be find at U.S. Energy Information Administration website:
, and there is a constant growing ever since.
http://www.eia.doe.gov/
56 China imported 145 thousand barrels a day in 1992, and 354 thousand barrels a day in 1993.
Additional information can be find at U.S. Energy Information Administration website:
http://www.eia.doe.gov/
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Relations between China and the Middle Eastern oil suppliers have increased dramatically in the post-Cold War era. Major players among the oil rich Gulf Cooperation Council states, have welcomed the new Chinese approach that was based on the economic incentive. The ‘Waking Dragon’ from the east, have provided the Gulf monarchies a new no string attached alternative, and a possibility to diverse the markets, or as Charles W. Freeman Jr., former U.S. ambassador to Saudi Arabia said, “The Arab Take a Chinese Wife, and since Saudi Arabia is a Muslim country, it does not mean that they divorce their former American wife”57
GCC member states with the exception of Bahrain are among the world's leading energy producers and their economy relies on export of their precious natural resources.
Saudi Arabia is the world's largest oil producer and home to approximately one-fifth of the global proven oil reserves. Saudi Arabia is also a major source of natural gas. The UAE is the world's eighth-largest oil producer, and boasts the world seventh-largest oil reserves and sixth-largest natural gas reserves. Kuwait is the world's ninth-largest oil producer and has the world's fifth-largest oil reserves. Qatar boasts the world's third-largest natural gas reserves and is the world's top exporter of Liquefied Natural Gas (LNG). Qatar is also a major oil exporter and
.
Oman is an important producer of oil and a potential exporter of LNG.
In 1990, Saudi Arabia, the world largest oil producer, was the last Arab country to establish diplomatic relations with China. The Saudis, who enjoyed American support during the Cold War, played an important role in China’s growing relations with the
57 Charles W. Freeman Jr, “The Arabs Take a Chinese Wife: Sino-Arab Relations in the Decade to Come” a speech given in Remarks to the World Affairs Council of Northern California, Middle East Policy Council May 17, 2006, http://www.mepc.org/articles-commentary/speeches/arabs-take-chinese-wife (accessed October 24, 2010).
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region. The close integration between the world largest oil producer, and the world’s second largest oil consumer, is natural. In 2010, out of 8.5 million barrels per day consumption58
In 2009 following the global economic recession China surpassed the U.S. as the largest export market for Saudi oil
, China bought one million oil barrels a day from Saudi Arabia. Since China is producing half of its consumption, Saudi oil is almost one quarter of the total oil import to China. If we take into consideration the Saudi and OPEC aspiration to sell one barrel at a price of 80 USD, it is 80 million USD a day. The interdependence between is increasing, as the Chinese need for energy make Beijing more sensitive, regarding the oil supply from the Middle East. On the other hand, as China deepen its investments in the energy sector in the Middle East, the region economies become more vulnerable to changes in the Chinese consumption.
59. Saudi Arabia is becoming less dependent on the American market. The growing Chinese need for energy resources, meets the Saudi need to diverse its market. Saudi opening to the Chinese market can be seen in a growing number of contracts given to Chinese companies in the energy sector. For example in 2004, China stateown oil company SINOPEC, together with fourother companies, have won the right to develop a new gas field in Saudi Arabia. SINOPEC outbid several American companies in this bid60
58 Mark Shenk, “Oil Declines as Chinese Demand Growth Slows, Dollar Rebounds Versus Euro”, Bloomberg October 22, 2010,
.
http://www.bloomberg.com/news/2010-10-21/oil-declines-as-chinese-refinery-demand-growth-slows-to-least-in-18-months.html (accessed October 24, 2010)
59 Jad Mouawad, “China’s Growth Shifts the Geopolitics of Oil”, The New York Times, May 19, 2010 http://www.nytimes.com/2010/03/20/business/energy-environment/20saudi.html (accessed October 25, 2010)
60 Steven Mufson, “As China, U.S. Vie for More Oil, Diplomatic Friction May Follow”, The Washington Post April 15, 2006
http://www.washingtonpost.com/wp-dyn/content/article/2006/04/14/AR2006041401682.html (accessed October 25, 2010)
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Unlike Chinese investments in the energy sector in other parts of the world, the investments in the energy sector in the Middle East are not one way. Middle Eastern giants invest in Chinese energy market as well. In 2007 Saudi giant Aramco bought, 25 percent of Fujian’s refinery and petrochemical joint venture61. Another Saudi giant, Saudi Basic Industries Corporation, has signed a 1.7 billion USD deal with Sinopec to establish a joint venture and build a one million ton ethylene derivatives complex in Tianjin62. Kuwait Petroleum Corporation started to build in Zhejiang, a 9 billion USD joint venture refinery and ethylene complex. The joint venture singed with Sinopec will produce, 300,000 barrels per day refinery oil, and 1 million ton per year of ethylene63.
Economic Relations: Mutual investments to strength the interdependence
As presented above, oil is the core of China’s relations with the GCC countries.
However, China is interested to use its strong economy and create interdependence between the sides as well as decreases its trade deficit with the region. The GCC states are interested in expanding the relations with China to other fields in order to take advantage of the ‘Waking Dragon’ growing need for their ‘black gold’. Bilateral trade between China and GCC has reached 70 million USD in 2008. For example, Saudi Arabia’s 2008 trade surplus with China reached over US$ 20.4 billion as part of 41.8 billion USD bilateral trade, as Saudi imported 10.7 billion USD and exported 31.1 billion USD. More than 70 Chinese companies are doing business in Saudi Arabia, of which 62
61 Reuters, “Aramco, Sinopec, Exxon Sign Fujian Refinery Deal”, Reuters, February 25, 2007 http://www.reuters.com/article/idUSL2549125020070225 (accessed October 24, 2010)
62 Reuters, “Sinopec, SABIC to Build 1-mln Tonne Ethylene Plant”, Reuters, January 31, 2008 http://www.reuters.com/article/idUST17341720080131 (accessed October 24, 2010)
63 Aizhu Chen, “China grants Clearance to Sinopec-Kuwait Refinery”, Foxbusiness, September 8, 2010 http://www.foxbusiness.com/markets/2010/09/08/china-grants-clearance-sinopec-kuwait-refinery/
(accessed October 24, 2010)
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are construction firms employing close to 16,000 Chinese people64
On March 23-24, the first China-GCC business forum took place in Bahrain. The forum was part of the effort to strengthen the economic ties between China and the Gulf, in other sectors besides energy. Using the money earned from its vast oil fields, the GCC states are looking to diverse their investments. GCC producers are looking to take advantage of China’s growing demand for raw materials such as aluminum. China tried to increase the trade with the Arab world. China built in Dubai the “Dragon Mart”, a 150,000 square meter trading hub for Chinese products, the largest one outside China
. China is exporting its cheap labor to build projects in the region.
65. The UAE largest private sector developer Damac is building a 3 billion USD mix-use project in Tanggu district in Tianjin. The project's total value is estimated around 7 billion USD66. In September 2010 China-Arab States Economic and Trade Forum took place in Ningxia Muslim autonomous region, as part of the effort to increase the mutual trade. Similar to other markets, China is trying to take advantage of the growing consumer market in the Arab world and sell its relatively cheap consumer products to the big Arab market67.
64 The data are estimated and originally written in Saudi Riyal. John Sfakianaikis, Saudi-China Trade Relations: A Powerful New Trading Partner. (Sabb, 2009).
65 Lara Setrakian and Matthew Ghazarian, “’New Silk Road Runs Through Dubai’s Dragonmart”,
ABCnews, July 30, 2009 http://abcnews.go.com/Travel/story?id=8200782&page=1 (accessed November 12, 2010)
66 Saifur Rahman, “Damac Enters China With Dh10b Project”, Gulfnews, June 18, 2006
http://gulfnews.com/business/property/damac-enters-china-with-dh10b-project-1.241386 (accessed October
http://gulfnews.com/business/property/damac-enters-china-with-dh10b-project-1.241386 (accessed October