All roads lead to Beijing

Five years since the launch of the New Silk Road, Xi Jinping's China is transforming Eurasia.

by Alessandra Spalletta
15 February 2019
12 min read
by Alessandra Spalletta
15 February 2019
12 min read

For historical allies, remaining faithful to the alliance with the United States is becoming rather complicated now that China is near, to borrow the title of the famous book published by Enrico Emanuelli in 1957. The same is also now happening to the Middle East. Especially to the Gulf countries, which have established themselves as the most important partners of the Belt and Road Initiative (BRI): the new globalization project promoted by Chinese President Xi Jinping in 2013. With the New Silk Road, Beijing wants to create new infrastructure connections by land and sea between Asia, Africa and Europe. This is an international project involving 68 countries: 65 percent of the population; 40 percent of global GDP; 75 percent of currently known energy reserves. Five years since its launch, the BRI has generated approximately $ 400 billion of infrastructure investments in the countries involved. Between 2016 and 2029, the investments could reach 1,000 billion dollars, according to Chinese data.

This mammoth geo-economic project, shared and inclusive, is destined to transform Eurasia. It’s the strength of official figures. There is talk of 900 new infrastructure projects along the six economic corridors, and of 780 billion dollars originating from trade between countries located along the road that follows the ancient trade routes of the sixteenth century. Furthermore: trade in goods between China and the countries concerned will increase by 117 billion dollars during 2019. These predictions were made a few days ago by commercial credit insurance company Euler Hermes. Beijing has therefore launched a long-term vision: a new engine to support the global economy.

Globalization with Chinese characteristics

Beijing is an increasingly important player in Central Asia, the Middle East and Africa. Between 2005 and 2018, Chinese investments abroad reached nearly 1.9 trillion dollars, despite the squeeze aimed at curbing the flight of capital. In Africa alone, China has invested 300 billion dollars, including over 93 billion in the energy sector.  In the Middle East and North Africa, Beijing has invested 173.2 billion dollars, distributed as follows: 31.1 billion in Saudi Arabia, 27.4 billion in the United Arab Emirates, 25.9 billion in Egypt. 

China is building roads, bridges, railways, ports and pipelines; digital and financial infrastructure, electrical installations. And it is doing so with a pragmatic approach, without a declared willingness to interfere in domestic politics, which for Beijing has always been the founding principle of its foreign policy. Its global plans are proceeding smoothly, despite the recent emergence of the so-called “debt trap”, where works financed with Chinese loans have led some countries that lack the resources to refinance them to sell the same infrastructure to Asian companies.  This happened in Sri Lanka, when the Colombo government was forced to sacrifice the port of Hambantota.

Meanwhile the influence of projects that come under the BRI umbrella on the economic development of the Arab world is growing, as demonstrated by a recent article published by the Xinhua agency. It is no coincidence that China has overtaken the United States as the world’s biggest importer of crude oil: in 2017, Beijing imported 8.4 million barrels a day, while the USA bought 7.9 million, according to EIA data. The new refining and storage capacity, and the fall in domestic production, have both contributed to the increase in imports. China is the fifth biggest oil producer in the world (after the United States, Saudi Arabia, Russia and Canada), while in 2016 it was in second place after the USA in terms of oil consumption, at 13 percent, explains the US Department of Energy agency. According to forecasts, by 2030, China will be importing 80 percent of its total consumption.

There is no shortage of concern among analysts about the recent slowdown in the Chinese economy, which in the year just ended suffered from the repercussions of the trade dispute between Beijing and Washington, while negotiations continue between the planet’s two biggest economies. That 6.6 percent increase (-0.2 compared to the previous year), may lead to a wave of exports to other Asian countries, writes the Wall Street Journal.

In 2017, 56 percent of oil arriving in China came from OPEC countries. More than 35 percent of all the oil used in China is imported from the member countries of the Gulf Cooperation Council (GCC): Saudi Arabia, Kuwait, Qatar, United Arab Emirates (UAE), Bahrain and Oman. And this is happening while the US is reducing its imports and aiming to become self-sufficient in energy with the development of shale gas and fracking. The relationships being forged between Beijing and the powers of the Gulf go beyond oil alone, writes Jonathan Fulton in his book China’s Relations with the Gulf Monarchies.

China and the Gulf

On July 10th last year, Xi Jinping convened representatives of the diplomatic and government circles of 21 Arab states in Beijing, using the occasion to reiterate to the powers of GCC, that the New Silk Road means not only win-win cooperation (projects are financed by Beijing’s financial institutions together with a selection of local partners), but above all development. To do this, Xi’s China is putting forward the vision of a community with a shared destiny, which goes hand in hand with the dream of a “national rebirth.” The goal of the Chinese leadership was sanctioned by the 19th Congress of the CCP, in October 2017, with the inclusion in the Party Statute of the BRI project and - above all - of Xi's thinking on “Socialism with Chinese characteristics for a New Era.” Beijing's strategy goes beyond the Made in China 2025 development plan, i.e. the plan to modernize the industrial apparatus. The Party wants to achieve the goal of a “moderately prosperous” society by 2021, the centenary of the foundation of the CCP, and to lead the People's Republic to regain a position of global primacy by 2049: the centenary of the country’s foundation.

But cooperation between China and the Gulf countries on the Silk Road has long been on the agenda of bilateral meetings; at least since 2014, when Saudi King Salman traveled to Beijing on a State visit. Since then, many delegations from GCC countries have visited the Chinese capital, all united by the purpose of reaching an agreement on their participation in infrastructure projects. Collaborating with China, not only in China. Everywhere.

China became Riyadh’s largest trading partner in 2016, the year when the value of trade reached 45 billion. But that isn’t all: for the countries of the Gulf, forging relationships with the Middle Kingdom is of great political value and is also considered to lead to greater cooperation on energy security. In other words, for these countries, China represents an opportunity to diversify diplomatic relations and to have an economic partner that takes a neutral stance on internal matters. And this is obviously reciprocal.

GCC countries own nearly a third of the world's oil reserves; about a fifth of the world gas reserves; over 8 percent of the global refining capacity. Over time, the impelling demand for oil by the Chinese has made the Gulf an indispensable reservoir in the eyes of Beijing. Let’s see how.

With “Made in China 2025” and “Vision 2030”, China and Saudi Arabia have promoted two national economic restructuring projects, con convergent objectives, even though according to some analysts, the naming of Mohammed bin Salman as heir to the throne, together with the start of reforms, has marked the return of Riyadh to a strategic ally of the United States.  Saudi Arabia, which is set to become a strategic hub port in the Middle East, needs know-how to promote digitization; skills that Beijing can offer in the fields of digital finance, e-commerce and artificial intelligence.

Expectations grow as China is preparing to welcome Mohammed bin Salman for a visit from February 21 to 22. The Crown Prince will co-chair the third meeting of the China-Saudi Arabia high-level joint committee and will meet with President Xi Jinping. The two sides are expected to sign a number of bilateral cooperation agreements to reinforce synergies in different areas, including the development of infrastructures within the Belt and Road framework.

In January 2016, during his state visit to Saudi Arabia, Xi also met the General Secretary of the GCC, Abdullatif bin Rashid Al-Zaya, to whom he underlined his desire to speed up negotiations on the Free Trade Agreement (FTA): a long-delayed agreement that would be crucial to providing an institutional framework for the BIS projects.

But it is in the past year that China's relationship with the GCC countries has really come alive.

 “A bridge to our common future” is how the Belt and Road Initiative was defined by Sultan Ahmed Al Jaber, Minister of State of the United Arab Emirates. And energy cooperation is in the forefront of Chinese leaders’ minds. China and the Emirates have signed two agreements for Chinese involvement in two offshore concessions in the country on the Arabian peninsula. The most eagerly awaited appointment now is the one scheduled in Dubai next year: Expo 2020, which will be followed two years later by the FIFA World Cup in Qatar – two events destined to attract a flow of direct foreign investments to the whole Gulf area.

At the forefront of relations with China is also Abu Dhabi, which in December 2015 launched a $ 10 billion strategic co-investment fund with Beijing; in September of the following year, the China Ocean Shipping group (Cosco) was awarded a 35-year license to operate the containers at Terminal 2 of the Khalifa port.. The biggest Chinese shipping group plans to invest $ 200 million in expanding the terminal. In the subsequent three years, as many as five Chinese companies have announced investments of 300 million dollars in the industrial zone built around the port area. Almost all these operations are financed by the Bank of China, one of the financial offshoots of the Belt and Road Initiative (together with the Silk Road Fund and other bank policies, and the AIIB, although the latter does not have a direct role in the initiative). 

During the aforementioned July conference, in the heat of the Chinese capital, Xi announced loans of 20 billion dollars, in addition to financial support of 106 billion, all destined for the Middle East. Within a few days, on July 26, the first visit by a Chinese leader to the Emirates too place: the first in 29 years, writes the People’s Daily. A profitable mission for Xi, at least judging by the number of agreements signed: as many as 13, from the first financial services company in the Abu Dhabi Global Market, the capital’s international offshore financial center, to the award of a $ 1.6 billion exploration license to China National Petroleum by the national company Abu Dhabi National Oil Company.

An additional boost came from another agreement, this one between DP World and Zhejiang China Commodities City Group, for the joint development of a new Traders Market in the free trade zone of the port of Jebel Ali (Jafza). The expansion of the port of Dubai, which provides 10% of the UAE’s GDP, according to data from a recent study by Boston Consulting, provides for a direct connection with Tianjin (a port city and a crucial place for innovation and world development). The busiest route between the Gulf and East Asia.

Kuwait is also of interest to the Chinese thanks to a Memorandum of Understanding with which it has been awarded an $ 86 billion loan for the Silk City project, which will extend across five islands covering an area of 250 square kilometers, and will include a railway connecting it to the capital, a major port on the Gulf. Future plans involve connecting Kuwait City with railway lines running between China and a series of European cities. A similar project also involves the port of Duqm, in Oman, which the sultanate is turning into a hub thanks to a $ 10.7 billion loan. Granted by a Chinese consortium.