Arab states’ simple equation to solve Chinese investment dilemma

Arab states’ simple equation to solve Chinese investment dilemma

Relations between China and the Arab world are as simple as 1+2+3. 

That’s the formulation conceived by Beijing two years ago in an official policy paper, with each number representing a different aspect of the relationship. The number 1 refers to the energy relationship, seen as a “core” aspect, while the number 2 refers to the two “wings” of infrastructure investment and the facilitation of trade, and the number 3 is a tripartite wish-list of “breakthroughs” of cooperation in the fields of clean energy, nuclear energy and satellite technology.

Ever since Beijing announced the 1+2+3 strategy, the relationship between China and several Arab states has witnessed an acceleration in both the breadth and depth of ties. With multibillion-dollar investments on track in Egypt and Oman, the award of a key oil concession to a Chinese firm in the UAE, potentially massive joint Chinese-Saudi investments in refineries and chemicals plants, growing purchases of Middle East oil by China, and a high-profile visit to Abu Dhabi recently by Chinese President Xi Jinping, the 1+2+3 strategy is in full swing.

In July, China held the eighth ministerial meeting of the China-Arab States Cooperation Forum — an annual gathering that has evolved from generalized diplomatic niceties and aspirational statements of “mutual cooperation” into a substantive policy gathering. Xi addressed the group, laying out “a future-oriented strategic partnership of comprehensive cooperation and common development.” He even dipped his toes into Palestine-Israel waters, declaring $15 million in aid to the Palestinian territories and Beijing’s readiness to support peace talks.

Saudi Foreign Minister Adel Al-Jubeir declared that Beijing was a “political, security and economic partner” and that “the crises and challenges that China and the Arab world have experienced are identical.” He went on to say that “both the Arabs and the Chinese aspire to strengthen and intensify their cooperation in all fields.”

Statements like these are not just diplo-speak. They reflect an underlying geoeconomic and geopolitical shift with substantive ramifications for the future of the Arab world. Make no mistake about it: China has arrived. There’s a new superpower in town.

Arab states contemplating investments from China should not be put off by scare stories and try to get the best deal possible from the new superpower in town.

Afshin Molavi

What this means largely depends on where you stand. Washington is broadly alarmed by China’s rise, with most attention focused on the South China Sea, but also increasingly the Indian Ocean and the Arabian Sea. It has become common in US policy circles on both the left and right to mistrust China’s Belt and Road Initiative as an elaborate ploy to trap countries into piles of debt, and then take over parts of their land.

The usual case made is that of Hambantota port in Sri Lanka. In December last year, Sri Lankan authorities handed over the entire port to Chinese entities in a 99-year lease. The port owed its very existence to Chinese financing and, when Sri Lanka’s debts to China kept mounting, the government simply handed the port over to Beijing. In certain circles, the one-word critical response to China’s Belt and Road Initiative is simply this: Hambantota.

But Hambantota is not only a tale of Chinese “takeover.” It is also a case study in corruption by Sri Lanka’s previous government, questionable assumptions about the need for a new port and associated industries, and poor implementation of the agreed strategy. No side looks good here, but to simply blame Beijing for the poor choices made by Colombo takes away the role of developing countries when they are dealing with China, or any great power for that matter.

Gone are the days of gunboat mercantilism. Nobody forced Sri Lanka to indebt itself so highly, nor has anyone forced other countries to take on high levels of debt from Beijing. This includes Pakistan. As Pakistan struggles economically and seeks a bailout from the International Monetary Fund, more fingers are wagging at China, given its massive investments in the China-Pakistan Economic Corridor. But, once again, to blame Pakistan’s economic woes on China reflects little understanding of the history of poor policy choices made by successive Pakistani governments and fails to point the finger at the elite in Pakistan (who could win multiple gold medals for tax evasion).

The two Arab countries on the “debt trap” radar of the China critics are Oman and Egypt. In the former, China has pledged massive investment to finance a new port and industrial zones in the eastern coastal city of Duqm on the Arabian Sea. The Omani project has also attracted investors from Saudi Arabia, India and South Korea and spawned a breathless CNN headline: “Can Duqm become the Arab world’s next ‘great city?’.” The arrival of the investment hordes has no doubt been disruptive to local cultures, but it is of a piece with other massive infrastructure projects that seek to connect port cities to global supply chains, thus creating jobs and economic development.

In Egypt, a Chinese state-owned real estate development firm is taking the lead in building the administrative and business districts of the new capital city project: An ambitious attempt to move Egypt’s seat of government and locus of commercial power away from traffic-choked and congested Cairo to a new urban development. The brochures and corporate videos promise the creation of jobs and a life of “style and comfort,” but it remains to be seen if the plan will be delivered. 

But the questions for Omani and Egyptian policymakers are these: Does the project make sense? Will it deliver value for citizens? And will it create jobs? If the answer to all these is yes, then they should take the Chinese anchor investment, seek other investors, negotiate the best deal possible, implement the projects with transparency and watch their debt pile. In short, they, and indeed others contemplating investments by the Chinese, should leverage the new superpower in town.


  • Afshin Molavi is the co-founder of emerge85, a lab that explores change in emerging markets and its global impact. He is also a senior fellow at the Foreign Policy Institute of the Johns Hopkins University School of Advanced International Studies. Twitter: @AfshinMolavi

Copyright: Syndication Bureau 

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