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China strengthens economic ties with Middle East

Chinese President Xi Jinping recently completed his visit to the Middle East at a crucial time.
Tensions rose between Saudi Arabia and Iran in January, leading to strained diplomatic ties between the region’s heavyweights, and sanctions on Iran were lifted some days earlier.
In his Middle East tour, President Xi Jinping visited Egypt, Saudi Arabia and Iran.
A central element of the five-day visit was to gather support for China’s “One Belt, One Road” plan, an initiative that intends to increase the integration between Asia, the Middle East, Europe and Africa through extensive infrastructure building, free trade and cultural exchange.
All three countries, Egypt, Saudi Arabia and Iran agreed to collaborate in the Chinese initiative, and all three signed different forms of agreements and announced Chinese investments.
The details of the agreements are not known, but it seems that, in Egypt, the total amounts to more than $15 billion worth of projects, mostly in the construction field, to develop the new administrative capital, and increase Egypt’s industrial capacity in power generation and transport.
The funding will be mostly channeled via state-owned companies.
For instance, China Development Bank will lend $700 million targeting the implementation of infrastructure projects.
The Central Bank of Egypt will receive a $1 billion to enhance Egypt’s international reserves.
China also upgraded relations with Saudi Arabia and Iran to “comprehensive strategic partnership”, a title granted by Chinese diplomacy to signal the intention to strengthen economic and diplomatic ties.
According to the Chinese Embassy in Riyadh, President Xi Jinping signed 14 agreements in Saudi Arabia in energy, communications, environment, culture, aerospace, science and technology.
A key deal was the $2.43 billion investment in the building of a nuclear power plant scheduled for completion in 2022, and an additional 15 plants by 2032. Saudi Aramco and China’s Sinopec also agreed to undergo a $1-1.5 billion expansion in their joint venture Yasref oil refinery, China’s largest project in the region.
In Tehran, 17 agreements were signed for cooperation in areas such as energy — upstream and downstream, with a specific mention to the nuclear sector — trade, science, transportation, banking, human resources, culture, customs and tariffs, and media communications.
Like in the case of Saudi Arabia, the details of the deals were not made public, with the exception of a plan to boost trade to $600 billion over the next 10 years, a tenfold increase from 2015 levels.
All in all, China announced initiatives amounting to $35 billion in the Middle East, mostly in industrial and energy projects.
In addition, China also announced the establishment of an investment fund with the UAE and Qatar worth $20 billion focused on developing energy, infrastructure and high-end manufacturing.
With half of China’s crude imports coming from the Gulf, turmoil in the region has greater implications on China today.
Overall, President Xi Jinping made clear that the interest of China in the region is rising, but its involvement will remain limited to the economic arena.
He carefully avoided taking positions in regional disputes.
In fact, the initial plan included a visit to the UAE that was later replaced by the trip to Iran.
To bring balance, China declared its support for the Yemenite government’s fight against Iranian-backed Houthis.
The traditional neutrality of China is not bringing comfort to GCC countries, which could benefit from a strong ally to compensate the loss of interest in the region by the US and the Russian alignment with Syria’s President Bashar Assad.
The lack of a powerful country patrolling the zone is increasing uncertainty in the region.

— Camille Accad is an economist at Asiya Investments Company

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