Ri Insights

Implications of One Belt, One Road for Sino-Arabian Gulf Trade

By Maya Yang

Published exclusively by Rai Insights

Dubai: In late 2013, Chinese President Xi Jinping unveiled the One Belt, One Road initiative (OBOR), an ambitious two-pronged plan that aimed to assert China’s growing developmental and economic role in a transcontinental context. The land-based Silk Road Economic Belt and the ocean-based 21st-century Maritime Silk Road span primarily across Asia and Europe, passing through a vital region bridging the two continents: The Middle East. Conveniently, as China seeks to expand its influence throughout Asia, the Arabian Gulf state have simultaneously adopted a “Look East” policy.
In recent years, the United Arab Emirates (UAE), Saudi Arabia, and Qatar have been exceptionally successful in luring in Chinese business and investments. Last year, the UAE even began issuing visa-upon-arrivals for the 600,000 Chinese tourists entering the country. As the Gulf Cooperation Council (GCC) countries rely on China’s consumer demand, and Beijing depends on Middle Eastern markets and natural resources as integral parts of OBOR, one must look beyond the economic benefits and consider the political risks and opportunities involved, especially as relations within the region become increasingly complicated due to countless factors.


OBOR, extending over sixty countries, yields a hefty amount of benefits to China as it crosses through the Middle East, two of them being maritime importance and trade amongst the energy sector. Part of the OBOR includes a project called the ‘Gulf Pearl Chain,’ a sub-agenda of the larger development strategy aiming to strengthen multilateral relations between China and the six immensely affluent Gulf countries. With one of the world’s most important waterways, the Hormuz Strait, situated in the Arabian Gulf, it is only logical for China, the world’s largest importer of energy resources, to take advantage of this geostrategic location and heavily invest in the energy and infrastructural development of the region. After all, it is through this tiny oil chokepoint where approximately 20 percent of the world’s oil passes. One of the many Chinese companies investing in the Gulf is Cosco Shipping Ports. Last September, it announced the establishment of a container terminal at the UAE’s Khalifa Port, the world’s second-fastest growing container port. Not only will such a port serve the Chinese interest in gaining access to one of the world’s most energy-abundant region, it will also drive forth the UAE’s ever-expanding and diversifying economy.


At the same time, China’s heavy involvement comes as part of its soft-power approach in a region where countries like the US and Russia meddle predominantly through hard-power politics. Part of the OBOR agenda includes a Sino-Arab cooperation strategy titled “1+2+3.” The first pillar seeks to stimulate further cooperation between China and the Arab world regarding oil and gas production and ensure the preservation of major energy transport routes, including Hormuz Strait. “2” represents OBOR’s agenda of enhancing infrastructural development and trade/investment facilitation in the region. The last pillar deals primarily with renewable energy and refers specifically to the China-Arab Gulf breakthroughs to be made in nuclear energy and aerospace satellites, as well as the overall development of renewable energy sources, which remain particularly beneficial to both China and GCC countries. With China becoming the world’s leader in renewable energy sources, the Arabian Gulf states are also actively resorting to renewable energy as an alternative for the imminent post-oil era. Such an approach gives off the impression of China as a different major power compared to the others involved in the region and makes it a viable partner many choose to turn to. As the US and Russia remain heavily involved in conflict zones and frequently fail in their post-war reconstruction plans, China strategically flexes its soft-power muscle and looks towards the strengthening of diplomatic ties through increased trade, economic fortunes, and socioeconomic development.


China’s OBOR also conveniently falls in line with the GCC’s “Look East” policy. Realizing that Asia is becoming a rapidly developing hub for economic advancement and global investment opportunities, many GCC countries have pivoted to countries such as China and India to increase trade relations. China imports  3.9 million tons of liquefied natural gas from Saudi Arabia, remaining the Arab country’s single largest trading partner. The Gulf sees China as a highly lucrative source of income and has thus opened up its markets to many Chinese companies. In 2015, the UAE, alongside Saudi Arabia, Qatar, and Oman became one of the founding members of China’s Asian Infrastructure and Investment Bank (AIIB). Serving as a competitor to the World Bank and the International Monetary Fund (IMF), which are often regarded as Western-centric, China’s AIIB will focus exclusively and infrastructure and development initiatives in Asia. This alternative proves highly beneficial to the GCC countries since their interests at World Bank and IMF are not always catered to, primarily due to these institutions’ quota systems and that determines the voting powers of their members. As explained by Sultan Al Jaber, the UAE’s Minister of State, “Being a founding member of AIIB will boost the prime economic role played by the UAE regionally and internationally, by focusing on efforts on development projects with great socioeconomic benefits.”


Despite the mutual benefits, several complications and concerns remain on the table for both parties. China’s OBOR crosses through multiple nations in the Middle East, and so in addition to the GCC countries, it also deals extensively with Iran. In fact, while the maritime routes pass through the entire region, it is OBOR’s Silk Road, or its overland route, that centers predominantly around the Shiite power. Taking into account the wariness with which the GCC has regarded Iran ever since the signing of the JCPOA and the lifting of sanctions, it is understandable why the Gulf countries may find China’s engagement with Iran a conflict of interest. While China is primarily seeking to stimulate the nations’ economic growth, its hefty arms sales to Iran cannot be ignored. In November last year, Beijing and Tehran signed a military deal to conduct joint military exercises in the region. Furthermore, China’s long history of cooperating with Iran on missile projects has evolved into the likely possibility of China transferring some of its most modern missiles to Iran in order to strengthen the latter’s existing systems. According to Farzin Nadimi, a Washington-based specialist on security and defense affairs in the Arabian Gulf, these missiles are designed to target carrier battle groups and are ideal for denying access to the GCC.


The conflict of interest comes into play as China simultaneously supplies the Saudis and Emiratis with Chinese UAVs in their coalition against the Iranian-backed Houthi rebels in Yemen. Moreover, China has taken a step further and declared its political support for the Saudis in their efforts to preserve the sovereignty of Yemen’s government. At the same time on the Syrian front, China has expressed its support for the Tehran-backed Assad regime and thus finds itself at odds with the Saudis and many other GCC countries who think otherwise. Many may regard this flurry of diplomatic hyperactivity as a surprise from the Middle Kingdom which has traditionally maintained its steadfast stance on non-interventionism. It would be naive to believe that China’s hefty engagement is merely a show of economic opportunism and an attempt to secure its business interests in a highly volatile region. Instead, it appears that China is wedging itself into the region through soft-power and a fine balancing act of playing nice with both the Saudis and the Iranians. This comes conveniently at a time where the US and Russia are increasingly failing in their efforts to maintain the balance between the two regional archrivals.


As of this moment, China’s relations with both the GCC and Iran remain steady. However, it would be highly problematic for China if it decides to prioritize its deepening of relations with Iran over the GCC, or vice versa. Furthermore, while it is seen by many in the region as a viable partner, China needs to learn from its co-power players and realize that extensive political engagement in the region will almost always yield to disastrous outcomes. This is especially important, as China has already demonstrated to Iran and the GCC its converging interests in their conflicts. The Middle Kingdom can continue to drive forth trade relations between all countries in the region through its OBOR, but that should be as far as its engagement extends.


With that said, there remains one other obstacle in this overall situation: Qatar. Ever since the Gulf crisis broke out in June, China has remained neutral and continued its trade relations with Saudi Arabia, UAE, Bahrain, as well as Qatar. However, as Qatar turns increasingly towards Iran and Turkey, China needs to make sure its economic relations with the country does not jeopardize its relations with the countries blockading the Arabian emirate. More importantly though, as many as 114 of China’s Uighurs, a Muslim population situated in China’s western region of Xinjiang, have joined ISIS, one of the many terrorist groups that Qatar has repeatedly been accused of funding. These Uighurs have pledge allegiance to ISIS and vowed blood will flow in rivers in China. China needs to decide whether it wants to maintain extensive economic relations with a country shouldering such accusations and possibly jeopardize its relations with other GCC countries, or bolster its economic ties with other nations such as Kuwait and Oman, alternative and more politically stable trading partners than Qatar.


Overall, China’s OBOR has been largely advantageous to both itself and many of the GCC countries, as well as Iran. China’s aim at gaining a footing in some of the most lucrative markets in the world falls conveniently in line with the GCC’s “Look East” policies. Nonetheless, despite the strengthened diplomatic ties through increased trade and exchange of cultural values, there still largely remains the issue of conflict of interest and China’s budding political involvement in the region. Should China wish to maintain its image as a highly viable partner to the GCC and other nations in the region, it should make sure that its involvement remains exclusively within the economic and development sphere and not extend into the political arena, as that could yield to complicated consequences. At the same time, the GCC should continue its embrace of the Chinese presence in its markets as that has and continues to drive forth their already rapidly developing socio-economic and business projects. Only this way will OBOR’s vision of increased Asian economic integration and societal development manifest into tangible and sturdy Sino-Arabian Gulf friendships over the years.


**Maya Yang is a contributor to Gulf State Analytics (@GulfStateAnalyt), a Washington, DC-based geopolitical risk consultancy.

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