Chapter 4 Energy and Economy Involvement
4.1.2 Trade and Investment
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largest natural gas customer, accounting for 6.4 percent of its natural gas and LNG exports.33
Another country from the Gulf that might begin to supply natural gas to China is Iran. Iran and China have signed in the past many agreements for developing natural gas fields, such as the deal between Iran’s Pars Oil and Gas Company34 and CNOOC to develop the North Pars gas field. However, it seems like until now exports of natural gas from Iran to China did not take place, mostly because of UNSC sanctions. Yet, these sanctions also had a positive outcome for China, as it won contracts for natural gas fields development in Iran thanks to the fact that Western companies had to back out due to the limitations imposed by the sanctions.35
After the sanctions were eased, China plans make up for the lost time and re-launch its planned project for a gas pipeline from Iran to China via Pakistan, as was announced by China’s president Xi during his visit to Pakistan in April 2015. The Iranian section of the pipe, 900 kilometers long has already been built, and the remaining Pakistani section of 80 kilometers is scheduled to be built soon.36
4.1.2 Trade and Investment
China attributes great importance to its relations with the Arab world, as it is its seventh largest trading partner, its main partner for energy imports and also a major market for engineering contracts as well as foreign investment. As for the Arab countries, in 2013 China became their second largest trading partner, and even number one trading partner for nine Arab countries. The trade volume between the two sides increased almost tenfold from $25 billion in 2003 to over $241 billion in 2013. Of these numbers, almost 70 percent of the total trade was with the GCC countries.37
In the past few years, more and more sectors are being targeted as areas for cooperation between the two sides, such as finance, space and renewable energy. For instance, the value of new engineering contracts signed by Chinese companies in Arab
33 Feng, Embracing Interdependence: The Dynamics of China and the Middle East, p. 2.
34 Pars Oil and Gas Company (POGC), a subsidiary of National Iranian Oil Company (NIOC), was POGC’s mandate is the development of the South Pars gas field and North Pars gas field.
35 Olimat, China and the Middle East from Silk Road to Arab Spring, p.p. 156-159.
36 Saeed Shah, “China to Build Pipeline From Iran to Pakistan”, The Wall Street Journal, April 9, 2015, accessed June 14, 2015, http://www.wsj.com/articles/china-to-build-pipeline-from-iran-to-pakistan-1428515277
37 Al-Tamimi, “Why Arabs should embrace China’s Silk Road”.
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countries has increased from 2.6$ billion every year up to $29.1 billion in 2013, a remarkable annual growth rate of approximately annual 27 percent.38 Yet, there is still room to examine how these relations can be explored further, as up until now, China has not signed any free trade agreements (FTA) with any Arab or Middle Eastern countries, although there is one FTA under negotiations with the GCC since 2004.39 As part of its efforts to enhance its relations with Arab countries, in June 2014, China’s foreign minister Wang Yi announced the ‘1+2+3 strategy’ during the sixth ministerial conference of the China Arab States Cooperation Forum (CASCF) 40 that was held in Beijing. The first section of the plan refers to increased cooperation on energy, not limited to oil and gas production alone, but also including the safety of energy transport routes. The second section covers infrastructure development, construction and facilitation of trade and investment, and the third section encompasses collaboration on nuclear energy, aerospace satellites and renewable energy.41 Foreign minister Wang also declared China’s plans to expand bilateral trade volume from current $241 billion to $600 billion, and increase non-financial investment in Arab countries from $10 to $60 billion in a time span of only ten years.42
Figure 8: China – Middle East Trade Volume in Millions of USD (2005-2013).43
Country 2013 2012 2011 2010 2009 2008 2007 2006 2005
Bahrain 1544.11 1550.81 1205.85 1051.42 686.5 786.39 487.15 348.73 255.94 Egypt 10214.28 9544.73 8801.58 6958.9 5845.02 6303.2 4672.53 31922.7 2145.18 Jordan 3604.43 3255.74 2769.45 2053.61 2070.65 1949.31 1181.36 10309.8 910.68 Iran 39426.51 36465.84 45103.40 29391.08 21219.09 27757.62 20589.65 11444.3 10083.27 Iraq 24878.85 17567.59 14268.29 9864.96 5147.95 2652.83 1453.18 144474.1 823.79
38 Wang, “Upgrading China-Arab Relations”.
39 “China-GCC FTA “, China FTA Network, accessed June 14, 2015, http://fta.mofcom.gov.cn/topic/engcc.shtml
40 China-Arab States Cooperation Forum (CASCF) was establish in 2004 in order to enhance dialogue and cooperation, as well strengthening bilateral relations between the sides. The forum is consisted of China and the 22 member states of the Arab League and has convened six times up to now.
41 Qian, “’The One Belt, One Road’ Strategy and China’s Energy Policy in the Middle East”.
42 Chengxi Yang, “China Lays Out '1+2+3' Strategy at CASCF Ministerial Meeting “, CCTV, June 6, 2014, accessed June 14, 2015, http://english.cntv.cn/2014/06/06/VIDE1402009324468536.shtml
43 Olimat, China and the Middle East from Silk Road to Arab Spring, p. 55; “Value of Imports and Exports by Country (Region) of Origin/Destination”, China Statistical Yearbook 2013, accessed July 1, 2015, http://www.stats.gov.cn/tjsj/ndsj/2013/indexeh.htm; “Value of Imports and Exports by Country (Region) of Origin/Destination”, China Statistical Yearbook 2014, accessed July 1, 2015,
2015,http://www.stats.gov.cn/tjsj/ndsj/2014/indexeh.htm
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Kuwait 12262.15 12556.99 11303.62 8556.95 5043.54 6790.12 3629.26 27853.1 1648.97 Oman 22941.46 18787.02 15874.66 10723.72 6158.73 12421.36 7270.29 64690.2 4329.9 Qatar 10174.26 8483.20 5893.07 3311.28 2253.87 2385.79 1208.88 9987.9 676.39 Saudi
Arabia
72190.53 73314.22 64317.24 43195.49 35548.39 41846.17 25366.97 201403.7 16070.14
UAE 46234.82 40420.29 35119.22 25686.89 21226.88 2825694 20035.65 142015.3 10775.44
Yemen _ _ _ 4002.94 2405.95 4394.46 2708.34 303048.1 3214.79
Source: China and the Middle East from Silk Road to Arab Spring
In 2003, China established a designated state owned company for projects in the Middle East, its headquarters located in Dubai. The company is named the China State Construction Engineering Corporation Middle East L.L.C. (CSCME), and it is a subsidiary of CSCEC, The China State Construction Engineering Corporation.44 Since 2003, CSCME had been awarded 35 projects, out of which 21 have been completed, worth $3.27. The value of the rest on-going 14 projects is $1.63 billion. These project include banks (for example, the central bank of Kuwait), national highways, hospitals, and other projects of national importance.45
In another attempt to increase its trade with the Arab world, in 2015, China announced its plan to establish a China – Arab free trade zone in the city of Yinchuan, the capital of Ningxia province, which is a Muslim autonomous region of the Hui46 minority. This plan was formulated under the framework of the One Belt One Road initiative.47
In the last decade, China became a major investor in the Gulf region, with 2005 signaling the turning point.48 From 2005 to 2012, China accounted for around eight
44 The China State Construction Engineering Corporation (CSCEC 中国建筑工程总公司) is a Chinese construction company ranked the third largest in the world and the twentieth largest general contractor in terms of overseas sales.
45 “CSCEC Middle East L.L.C.”, China State Construction ENGRG. CORP. (MIDDLE EAST) (L.L.C.), accessed June 14, 2015, http://www.chinaconstruction.ae/csce-middle-east/
46 The Hui (回族) ethnic minority is descended from the Arabic and Persian merchants who came to China during the 7th century. Hui people are ethnically and linguistically similar to Han Chinese with the exception that they practice Islam.
47 “CPPCC delegate: To establish China-Arab States Free Trade Zone in Yinchuan “, China.org.cn, accessed June 14, 2015, http://www.china.org.cn/travel/Ningxia/2015-03/16/content_35066603.htm
48 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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percent of all FDI49 inflows into the GCC ($323 billion). More than half of the Chinese investments in the Gulf during those years went to Saudi Arabia and about one third to the UAE. In 2010, China already ranked the sixth largest investor in Saudi Arabia with 9.4$ billion, a huge jump from the $1 billion Chinese investment to the Kingdom in 2006. Yet, in 2010 Chinese FDI inflows to the GCC countries still represented quite a small share of its total FDI investments that year (barely 3 percent out of 317$ billion).50 In the beginning of 2014, high delegates of the GCC and China held trade talks, the third round of the China – GCC strategic dialogue in which an action plan for economic cooperation from 2014 to 2017 was mapped. The sides also vowed to speed up negotiations towards signing of an FTA. 51 In 2012, Imports from China amounted to
$60 billion while exports stood at 90$ billion. These numbers are quite impressive considering that in 2001, two-way trade was a mere $9, only 6 percent of 2012 trade volume.52
Trade and investment data for 2014 between China and Saudi Arabia were revealed in a meeting between the Saudi minister of finance and the Chinese minister of commerce, that took place under the fifth meeting of the joint Saudi-Chinese committee. Two-way trade exchange amounted to $71.3 billion, while most of Saudi Arabia’s exports to China are oil and petrochemicals.
Currently, there are 88 joint projects between China and Saudi Arabia worth $537 million and 158 Chinese companies in the fields of construction, telecommunications, infrastructure, petrochemicals and many other operate all over the Kingdom.53 In total, 70 Chinese-funded enterprises in the kingdom currently employ 16,000 Chinese workers.54
49 A foreign direct investment (FDI) is a controlling ownership in a business enterprise in one country by an entity based in another country.
50 Kevin Körner and Oliver Masetti, “The GCC going East: Economic Ties with Developing Asia on the Rise”, Deutsche Bank Research (2014): p.p. 6-7. Accessed, June 14, 2015,
http://www.dbresearch.de/MAIL/DBR_INTERNET_DE-PROD/PROD0000000000329687.pdf
51 Xuequan Mu, “China, Gulf States Outline 2014-2017 Cooperation”, Xinhuanet, January 17, 2014, accessed June 14, 2015, http://news.xinhuanet.com/english/china/2014-01/17/c_126023632.htm
52 Abdel Aziz Aluwaisheg, “China-GCC Strategic Dialogue Resumes”, Arab news, January 19, 2014, accessed, June 14, 2015, http://www.arabnews.com/news/511401
53 “China-Saudi Arabia Trade Hits $71 Billion”, AMEInfo, March 17, 2015, accessed June 14, 2015, http://ameinfo.com/finance-and-economy/trade/trade-analysis/china-saudi-arabia-trade-hits-71-billion/
54 Al-Tamimi, China-Saudi Arabia Relations, p.p. 126-143.
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After reviewing China’s largest trade partner in the Gulf, Saudi Arabia, I would lie to discuss its second largest partner, the UAE. In 2014, China overtook India as Dubai’s largest trade partner, as trade between them reached 47.64$ billion.55 By March 2013, the number of Chinese companies registered with Dubai’s Chamber of Commerce reached 2411, almost 20 percent higher than only two years prior to that. The majority of the registered companies are in the fields of building materials, electrical, machinery, garments, gifts and novelty items.56
Several major Chinese banks such as the Industrial and Commercial Bank of China, the Bank of China, China Development Bank and the Agricultural Bank of China opened branches in Dubai.57 There was also an increase in the number of Chinese firms using Dubai’s onshore financial hub, Dubai International Financial Centre (DIFC)58, as a platform to access markets in region. Large Chinese companies such as the Industrial and Commercial Bank of China and oil giant PetroChina have also set up in Dubai.
Moreover, about 60 percent of China’s total trade passes through Dubai, where it is re-exported to Africa and Europe. Hence, China’s trade is dependent on this emirate to a very large extent.59
The UAE is China’s second-largest trade partner in the GCC and the largest market for imported Chinese products in the GCC.60 Presently, there are about 1400 Chinese companies based in UAE (excluding Dubai) and approximately 200,000 Chinese expats living in all UAE countries.61 In the period of 2011 to 2013, Chinese companies won
55 “China Overtakes India as Dubai’s Largest Trade Partner”, Gulf News, March 23, 2015, accessed June 14, 2015, http://gulfnews.com/business/economy/china-overtakes-india-as-dubai-s-largest-trade-partner-1.1478108
56 Courtney Trenwith , “China-UAE Trade: Enter the Dragon”, Arabian Business, March 10, 2013, accessed June 14, 2015, http://www.arabianbusiness.com/china-uae-trade-enter-dragon-492242.html
57 Dania Thafer, “After the Financial Crisis: Dubai-China Economic Relations”, Middle East Institute, September 15, 2013, accessed June 14, 2015, http://www.mei.edu/content/after-financial-crisis-dubai-china-economic-relations#_ftnref11
58 The Dubai International Financial Centre (DIFC) is a federal financial free zone. It has its own legal system and courts distinct from those of the wider UAE, with jurisdiction over corporate, commercial, civil, employment, trusts and securities law matters. The DIFC aims to provide a platform for business and financial institutions to reach into and out of the emerging markets of the region. It was established to create an environment for growth, progress and economic development in the UAE and the wider region by providing the needed legal and business as well as physical infrastructure benchmarked against international standards.
59 Trenwith, “China-UAE Trade: Enter the Dragon”.
60 Thafer, “After the Financial Crisis: Dubai-China Economic Relations”.
61 Trenwith, “China-UAE Trade: Enter the Dragon”.
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more than $4.8 billion of construction projects,62 and trade between the two reached 46$ billion in 2013, after years of exponential growth.63
Iraq is an interesting country to examine in the context of relations with China, as for obvious reasons it is very dependent on the US. While in 2012 Iraq was China’s fourth largest trade partner in the Arab World, in 2014 Iraqi Foreign Minister Hoshyar Zebari revealed that China became its largest trade partner, with two-way trade reaching $24 billion.64
Furthermore, in 2015 China made plans to deepen its investment in infrastructure projects in Iraq, including railway lines between Karbala and Najaf provinces and building an airport in Karbala.65 This announcement is rather surprising, considering the area suffers great instability due to ISIL activity and the US-led coalition fighting the organization.
Regarding Iran, the main US foe in the gulf, since 2007, non-oil trade between the two countries increased dramatically, as China replaced the EU as a major trade partner of Iran due to the international sanctions. 66 In 2013, China became Iran’s largest trade partner, as trade between Tehran and Beijing amounted to $ 41billion.67
As for smaller Arab countries in the Gulf, Qatar’s overall trade with China in 2013 reached $11.5 billion, whereas in the beginning of last decade it was worth less than half billion USD. 68 China’s trade with Kuwait was about the same level, 12$ billion in 201369. Oman passed both Qatar and Kuwait with its trade with China for 2013
62 Thafer, “After the Financial Crisis: Dubai-China Economic Relations”.
63 Mary Sofia, “UAE Looks East, Eyes Larger Trade With China“ Gulf Business, February 14, 2015, accessed June 14, 2015,
http://gulfbusiness.com/2015/02/uae-looks-east-eyes-larger-trade-china/#.VXeoJ9JViko
64 “China Opens Consulate in Kurdistan, Will Boost Trade throughout Iraq”, 2015.
65 “Chinese Company Seeks Cooperation in Railways, Airports in Iraq “, Iraq Tradelinks, January 12, 2015, accessed June 14, 2015, http://www.iraqtradelinknews.com/2015/01/chinese-company-seeks-cooperation-in.html
66 Lauren Dickey and Helia Ighani, “Iran Looks East, China Pivots West”, The Diplomat, August 25, 2014, accessed June 14, 2015, http://thediplomat.com/2014/08/iran-looks-east-china-pivots-west/
67 Jonathan Tirone, “Europe’s Lost Iran Trade May Signal U.S. Sanctions Split”, Bloomberg, March 27, 2015, accessed June 14, 2015, http://www.bloomberg.com/news/articles/2015-03-26/europe-s-lost-iran-trade-may-signal-u-s-sanctions-split
68 Heng Xie and Martin Dokoupil, “UPDATE 2-Qatar to Become First Middle East Clearing Hub for China's Yuan”, Reuters, November 4, 2014, accessed June 14, 2015,
http://www.reuters.com/article/2014/11/04/china-offshore-yuan-idUSL4N0SU3KV20141104
69 “PM’s Visit to China ‘Decisive and Vital’ – Economic Relations Top Agenda”, Kuwait Times, June 3, 2014, accessed June 14, 2015, http://news.kuwaittimes.net/pms-visit-china-decisive-vital-economic-relations-top-agenda/
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amounting to $19 billion, and became China’s third largest trade partner among the 22 Arab countries.70
China is also trying to deepen its trade relations with Arab countries that are not part of the group of its major energy resources exporters. In 2015, a Chinese economic delegation arrived to Bahrain to discuss ways to expand the economic relations between the two countries. During the visit, two agreements for promotion of trade between the sides were signed. Up to now, many Chinese companies have already established operations in Bahrain in order to access other GCC countries. For instance: Bank of China, China Harbour Engineering Company and Huawei.71
4.2 The US
4.2.1 Oil and Natural Gas
It is a well-known fact the US is dependent on energy sources, mostly oil, originated in the Middle East.72 Many believe that this is the main reasoning behind the US military involvement in the Middle East: the first Gulf War in 1991 as well as the invasion to Iraq in 2003.73 Whether this assumption is true or not and to what extent, is not for me to determine, but what can be clearly said is that thanks to the energy revolution in shale and natural gas the US has undergone in the past couple of years, the US dependence on oil from the Middle East has dropped significantly.74
In 2014 alone, the US’s crude oil imports from the Middle East decreased by 5.1 percent. A few years prior to that, it had dropped by 21 percent since 2010 – almost one quarter. The area that marked the largest drop was the Arab states of the Persian Gulf:
In 2014 there was a decrease of imports from the US by 7.5 percent, back to the level of its imports in 2011. There was also a sharp decrease in the imports from Algeria and Libya, a mild decrease from Kuwait, of 5 percent in 2014, as well as a 12.5 percent
70 Jiuhong Wu, “Remarks by H.E. Ambassador Wu Jiuhong at the Photo Exhibition & Reception Celebrating the 35th Anniversary of the Establishment of Diplomatic Relations between China and Oman”, Embassy of the People's Republic of China in the Sultanate of Oman, May 22, 2013, accessed June 14, 2015, http://om.chineseembassy.org/eng/sbgx_1_1_1/t1042597.htm
71 “Bahrain, China to sign major trade agreements “, Trade Arabia, May 26, 2015, accessed June 14, 2015, http://www.tradearabia.com/news/IND_282624.html
72 Colin S. Cavell, “America’s Dependency on Middle East Oil”, Global Research, April 11, 2012, accessed June 14, 2015, http://www.globalresearch.ca/america-s-dependency-on-middle-east-oil/30177
73 Nafeez Ahmed, “Iraq invasion Was about Oil “, The Guardian, March 20, 2014, accessed June 14, 2015,
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from Saudi Arabia. There was an increase of imports only from two Arab countries:
Iraq and UAE: 6.7 percent increase for Iraq, but still lower than the level the US imported before 2012, and a huge increase of 441 percent for UAE, even though it is still a non-significant amount: less than 5 million barrels for 2014 (about 10 percent of the annual import from Saudi Arabia).75
Figure 9: US Crude Oil Imports from Arab Countries 1994-2014.76
Source: U.S Information Administration
The three main Arab countries the US imports crude oil from is Saudi Arabia, Iraq and Kuwait. Saudi Arabia is second in the list of major oil suppliers to the US with 1.17 bpd or 12.6 percent of the US imports, but still far behind Canada, that is responsible for 37 percent of the American imports – just a bit more than one third of Canada. The other three biggest exporters of crude oil to the US are Venezuela and Mexico with 9 percent each, and the last is Russia with 4 percent, all three are much more accessible destinations than the Persian Gulf. 77 In total, the Persian Gulf is responsible for 20.27 May 28, 2015, accessed June U.S. Information Administration,
“U.S. Imports by Country of Origin”,
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14, 2015, http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_epc0_im0_mbbl_a.htm
76 “U.S. Imports by Country of Origin”, 2015.
77 “How Much Petroleum Does the United States Import and from Where?”, U.S. Information Administration, May 11, 2015, accessed June 14, 2015,
http://www.eia.gov/tools/faqs/faq.cfm?id=727&t=6