On the domestic front, the Chinese government has been embarking on a program of upgrading local industries to ensure that they are technologically and energy efficient, so as to avoid future trade restrictions on Chinese exports based on environmental issues. The Chinese have also been acquiring strategic assets abroad that add depth to their natural resource base, as well as foreign companies that complement their own operations. However it is the more recent Chinese moves on the world's financial markets that are now being closely examined to see if these are one-off affairs, or indicate a strategic shift in Chinese international financial policy. The Gulf Cooperation Council (GCC), having also amassed significant liquid reserves over the past few years due to high energy prices, have begun to note these unfolding financial geo-political events.

The expansion of Chinese economic influence, especially in minerals rich Africa has triggered some unease by the US about China's growing influence, especially its so-called "no-strings" trading and investment policy. In turn, China has now publicly defended its economic and trade relations with African nations, pointing out that China is now Africa's largest trading partner, strings or no strings attached, and that bilateral trade grew more than 43 percent to nearly $115 billion in 2010. At the same time, Chinese direct investment in Africa has jumped from a meager $0.5 billion in 2003 to a healthy $9 billion in 2009. Undeterred by US concerns, the Chinese have now publicly stated that they plan to expand their Africa relationship to a larger and broader scope, providing an indication of what the Chinese might be doing next with Europe and other parts of the world.

The Chinese involvement in the current euro crisis began in June 2010, when the Chinese government decided to ride to the rescue of the beleaguered European Union with its purchase of Greek bonds and scooped up assets on the cheap while it was at it, such as Piraeus Port. That assistance came with substantial support for the euro to help it recover from the sharp fall to 1.20 levels against the dollar. Just as in Africa, China has now openly stated that the euro zone would become a major market for China's foreign exchange investments. It is not surprising that this has come as a sweet note to countries feeling the financial heat in Europe and wondering from where the next assistance package would come, given the already heavy burden on Germany and some of the other EU countries to fund struggling euro zone countries.

For the time being, analysts believe that the Chinese-EU financial relations will go beyond the immediate issue of purchasing EU sovereign bonds as symbolic or more serious indications of support for the EU. Meaningful Chinese support will become increasingly focused on the more palatable EU wide mechanisms, with bilateral support focused on European - Chinese trade and foreign direct investment issues to avoid possible European obstacles or objections to Chinese direct investment. Beyond financial stability considerations, as the Chinese are duly aware like the GCC countries that they need to build up a viable alternative to the US dollar in the long term, better relations with Europe has been a major strategic objective of the Chinese government to offset what is now turning out to be a more competitive and sometimes sour relationship with the US.

The increase tempo of high level diplomatic musical chairs visits carried out by both the US (South Korea, India, Indonesia and Japan) along with military exercises by the US are considered by the Chinese as strategic encirclement messages directed at growing Chinese power. And so the Chinese have been holding their own musical chair visits to India, Pakistan and Russia, and it is no surprise that increased economic cooperation and ties with a financially distressed Europe are part and parcel of this geopolitical rivalry. It would seem that China is now conducting a scaled down version of the post-World War II US Marshall Plan for Europe, with China already quietly benefiting from  this growing Sino-European relationship as evidenced during the last G20 meeting in Korea, when the Germans watered down criticism of Chinese foreign exchange policy, and instead were more forceful against American quantitative easing and weaker dollar policy.

And so back to the future for the GCC and how they can be part of evolving geopolitical economic alliances. Like the Chinese, they can affect a two pronged policy for their surpluses - supporting the euro zone by purchasing euro bonds through the European Financial Stability Facility (EFSF), while at the same time establishing deeper trade and FDI bilateral flows. The alternative is doing nothing, and become marginal players buffeted by financial crisis whose outcomes are beyond GCC influence ...
 
(Mohamed A. Ramady is a former banker and currently visiting associate professor, finance and economics at King Fahd University of Petroleum and Minerals, Dhahran.)