China and the GCC
November 2, 2018
China and the GCC
Chinese Investment in the GCC
Over the past decade, China and the six Gulf Cooperation Council (GCC) states have been enjoying deeper trade relations. These relations are primarily driven by China’s ever-increasing quest to secure oil imports. China is the Saudi Kingdom’s biggest oil customer, as it provides around 20% of the Chinese oil demand. Given the swelling foreign exchange reserves, China and the GCC states have also started diversifying their bilateral economic relations beyond oil to include infrastructure, security and defense.
China and the GCC states set in motion their negotiations for a Free Trade Agreement (FTA) in 2004. The round of negotiations is still underway. The GCC states are part of China’s Belt and Road Initiative (BRI), which is an ambitious effort to improve regional cooperation and connectivity on a trans-continental scale. This initiative aims to strengthen infrastructure, trade, and investment links between China and some other 65 countries accounting for over 30% of global GDP, 62% of population as well as 75% of known energy reserves. Lately, China has stepped up its investments in a number of countries of the GCC. For example, China and Saudi Arabia have found common ground and integrated some aspects of their respective development programs: China’s Belt and Road Initiative and Saudi Arabia’s Vision 2030 program. Accordingly, in terms of construction projects, China will supervise for example the construction of commercial and residential homes in Saudi Arabia to help the kingdom ease its chronic housing shortage. China has also launched a significant investment drive in countries like Oman, Kuwait and Bahrain in the GCC.
China plans to invest $10.7 billion in Duqm, an Omani fishing village situated between the Gulfs of Oman and Aden. China aims to invest heavily in Duqm as part of China’s endeavor for the Belt and Road Initiative to create an industrial city for its own needs. For Oman, investment in a special economic zone in Duqm is part of the country’s quest to diversify its economy beyond oil in line with the Vision 2020 given that the sultanate’s oil resources are gradually giving out. Moreover, Duqm also has the potential as a logistical and operating base for Chinese businesses because of its proximity to raw materials and resources import routs such as oil and gas. Chinese officials announced their willingness to build a “strategic partnership” with Oman in the future by investing further in the country due to what they described as many measures taken by the sultanate to facilitate the work of foreign companies and the existence of a sophisticated investment law. Oman enjoys a strategic location as the first logistical stop after Straight of Hormuz.
Kuwait was among the first countries to sign an agreement on the Belt and Road Initiative with China. In a joint statement that came out of bilateral talks between the Chinese President Xi Jinping and Kuwaiti Emir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah, both sides agreed to “synergize” the Belt and Road Initiative with Kuwait’s own Vision 2035 and work to promote the establishment of a China-GCC free trade area. China is also planning to build a city to accommodate approximately 700,000 residents on a designated urban area of 250 square kilometers by 2023. The city is supposed to be connected to Sheikh Jaber Al Ahmad Al Sabah Causeway, which is one of the largest infrastructure ventures in Kuwait. Kuwait has called for greater Chinese investment on its soil as part of its own developmental needs.
There are a large number of Chinese companies presently based in Bahrain such as the well known Huawei. In fact, the company’s Middle East headquarters is located in Bahrain, employing some 500 people as part of a $ 28-million worth of investment. Chinese investors also helped build the Dragon City, Bahrain’s largest commercial mall home to more than 787 commercial units. Moreover, there has also been growing interest from China’s tech sector, especially e-commerce companies, in Bahrain. Bahrain has also invited Chinese companies to invest in the country’s newly discovered oil fields which are projected to contain up to 80 billion barrels of oil.
China is invested in improving bilateral relations with GCC states as a strategic imperative to secure oil and gas imports in the long term and contribute to the region’s infrastructure needs as part of the BRI initiative. In addition to China offering to buy 5% stake of Saudi ARAMCO directly, Chinese investors are bringing in the investment funds without ideological scrutiny that has troubled GCC-US and GCC-EU bilateral trade relations. As Chinese investments increase in GCC, the political risk profile will change for US and EU companies interested in the GCC markets.