China’s economic presence in the Middle East is growing fast. Chinese engineers assembled the 26,000 reflective glass panels for Dubai’s Burj Khalifa, the world’s tallest building. Chinese consumer goods such as clothes and electronics sell well in Dubai’s malls and the bazaars and souks of Egypt and Morocco.
Oil is an important part of the relationship between China and the Middle East. China’s rapid industrial growth and continued urbanisation have increased its energy needs. In 1993 China became an energy importer. By the end of 2013 China had overtaken the US as the world’s largest importer of crude oil.
China imports more oil from the Middle East than any other region. The International Energy Agency expects China’s imports of Middle Eastern oil to rise from 2.9 million barrels a day in 2011 to 6.7 million in 2035.
Trade between the Middle East and North Africa and China has increased 50-fold in the last 20 years
Saudi Arabia is the largest source of China’s oil imports. Saudi oil companies own refineries in China, while Chinese firms have begun to invest in Saudi infrastructure and industry. Abu Dhabi, the capital of the United Arab Emirates (UAE), recently signed a joint oil production deal with China National Petroleum Company to boost output from the UAE’s ageing oilfields.
Trade in other commodities and manufactured goods is also growing. Trade between the Middle East and North Africa and China has increased 50-fold in the last 20 years to nearly USD300 billion in 2013. The Middle East is looking to build economies that have the capacity to create jobs for its large, youthful populations in sectors including tourism, technology and aviation. Saudi Arabia’s exports of plastics, chemicals and pharmaceuticals are already growing faster than oil exports.
Negotiations for a free-trade agreement between China and the Gulf Cooperation Council (GCC) appear close to restarting after a pause of more than two years. Given China is now the GCC’s main trade partner, this is encouraging. China can play a role in supporting Middle East economic diversification.
As the trading relationship between the Middle East and China grows, companies are beginning to weigh up the advantages of financing trade and investment flows in the Chinese currency, the RMB, as opposed to dollars or euros. Chinese steel is being used to build Abu Dhabi’s Midfield Terminal, the multi-billion dollar extension to the airport and key pillar of its 2030 economic vision. The steel is being paid for in RMB, which can reduce the total cost of each shipment. In the longer term there is the prospect of the price of commodities contracts, including oil, being set in RMB.
It is no surprise that high-level delegations from both regions have worked to deepen relationships in recent years. In 2006 Saudi Arabia’s King Abdullah made Beijing for his first overseas state visit, underscoring China’s importance to the Gulf. Closer trade links could help the Middle East secure lasting prosperity.