“As I speak,” said Khalid al-Falih, the chief executive of Saudi Aramco, in an address at Tsinghua University in Beijing in November 2009, “a tanker full of Saudi Aramco petroleum is passing a container ship laden with Chinese manufactured goods bound for the Kingdom’s ports.” As he went on to remind his audience, “Chinese industry and commerce depend on the reliable supply of our oil to fuel their factories, and we in turn use Chinese equipment and services in our fields and facilities to maintain our reliability.”
This symbiosis has been strengthening rapidly in recent years to the extent that Saudi Arabia’s trade links with China are now second only to those with the United States. The gap is continuing to narrow. In the five years ending in 2008, bilateral trade with the US grew less than threefold; that with China grew more than fourfold. In 2009, the value of Saudi Arabia’s two-way trade with the US was only $3.6 billion greater than that with China; five years earlier, the difference was $19.6 billion. Reinforcing the eastward shift in the balance of trade, in late January 2010, the very same al-Falih declared to reporters at Davos: “We are already exporting more [oil] to China than to the US.” Similarly, in 2009, for the first time, China’s total exports to Saudi Arabia surpassed those of the US. These trends explain why King ‘Abdallah visited Beijing on his first foreign trip as head of state in 2006.
The dynamics are also evident in the wider region; in 2009, China overtook the US as the world’s largest exporter to the Middle East, selling over $60 billion of goods in Arab markets. In total, Sino-Arab trade was worth $107 billion, more than three times its value just five years ago.
Given China’s projected energy needs, bilateral ties between China and the Middle East will only thicken. Clearly, then, the Arabian Sea — the body of water linking the Middle East to points east — looms large in China’s geostrategic considerations.
China’s increased activity in the oil patch, along with its rising global influence, has raised alarm bells in Washington, where the government and think tanks are ever alert for potential threats to the unipolar world order. Hardliners, like Daniel Blumenthal of the American Enterprise Institute, have called for a confrontational stance on the predictable grounds that “the Chinese Communist Party understands and respects power.” In a July 2010 article in Foreign Policy, Blumenthal argues that President Barack Obama’s “soft power” approach to China is being exploited by the Asian hegemon. [1] Robert Kaplan speculated in a 2005 Atlantic article on “How We Would Fight China.” On the more conciliatory end of the spectrum, a Congressional Research Service report on China’s foreign policy has proposed various options for the US to compete with China’s growing global clout, including balancing China by establishing greater US engagement in areas of Chinese interest.
Powering China’s Factories
Trade links between China and the Gulf will continue to grow rapidly, as China pays for its ever increasing demand for oil with rising exports. In the decade ending in 2009, China’s domestic oil consumption almost doubled. Currently around 40 percent of its domestic consumption is met by imports; Middle Eastern states ship more than 50 percent of these goods. But China’s reliance on imported oil will increase sharply. According to the International Energy Agency, by 2030, China’s crude oil imports will rise more than threefold from the current level of around 3.5 million barrels per day to upwards of 13 million barrels per day. Consequently, by then imports will constitute as much as 80 percent of China’s total domestic oil consumption. Middle Eastern — particularly Gulf — producers will make up for most of this growth; the region’s share of China’s oil imports is expected to grow to more than 70 percent, meaning that upwards of 9 million barrels per day could be heading for Chinese ports from the Middle East — up to five times current levels.
There are other dynamics at play as well. As the world’s workshop, China today manufactures half the world’s computers, half the world’s clothes, more than half the world’s digital electronics and more than 75 percent of children’s toys. Besides the fact that the Gulf supplies a rapidly growing share of the energy China needs to power its factories, the region’s seas carry a large proportion of the goods China exports. Indeed, 80 percent of the 22,000 container vessels that transit the Gulf of Aden every year head for Europe, China’s largest export market.
Also situated in the vital trade and oil zone is Sudan, the site of China’s largest overseas oil investment. Exact figures are difficult to come by, but many reports suggest that China has pumped in as much as $20 billion of investment into Sudan, most of it into the country’s oil industry. Sudan supplies around 6 percent of China’s oil imports.
A Great Leap Outward
This trade reality has forced a seismic shift in China’s foreign policy. Although it still officially adheres to its traditional non-interventionist stance, over the past two decades China’s outlook has swung from “responsive diplomacy” to “proactive diplomacy.” The new approach is manifest in China’s moves to settle its border disputes and its increased involvement in international organizations and agreements. Under the rubric of this “Great Leap Outward,” China has clearly stated that it will seek to expand its influence in the Middle East. This expansion will be supported by “new historic missions” undertaken by the People’s Liberation Army Navy (PLAN), which will “gradually develop its capabilities for conducting operations in distant waters and countering non-traditional security threats,” according to a 2008 Chinese government Defense White Paper.
The growing threat of piracy in the Gulf of Aden and Indian Ocean has provided China with the perfect pretext to enact this policy and establish a naval presence in the Arabian Sea and its branches. In January 2009, the PLAN joined an international naval force protecting merchant shipping from piracy in these waters — the westernmost seas in which the PLAN has been deployed. In the last week of March, two Chinese warships docked in Abu Dhabi’s Zayed port, marking the first time the PLAN has entered the Persian Gulf. A few months earlier, in October 2009, a separate Chinese warship called at the port of Aden, in what Yemeni officials termed a “good will visit.”
Since commencing its operations in the seas around the Horn of Africa, the PLAN has been resupplying and refueling at a French naval base in Djibouti, but a senior Chinese naval officer has been reported as saying that China ought to set up a permanent base in the region in order to support its maritime operations there. This ambition chimes with China’s “string of pearls” strategy, by which it seeks to establish naval bases along its main trade and energy supply routes. Already it has leased the Coco Islands in the Indian Ocean from Myanmar and built a maritime intelligence center there. China is also constructing a large deepwater port on the Arabian Sea at Gwadar in Pakistan. A base in the Gulf of Aden or Horn of Africa region would be a natural extension of this policy.
But there are sensitivities to China’s creeping encroachment. Most obvious is the strong and long-standing presence of the US. With the US Fifth Fleet stationed in Bahrain, the Persian Gulf is America’s sixth Great Lake. Consequently, China has been keen to dismiss claims that its deployment in the Gulf of Aden is evidence of a more radical “interventionist” stance. It counters such suspicions by insisting that the extended reach of the PLAN is all to do with “peaceful development.”
But more hardline elements within the Chinese establishment recently voiced their concern that Washington’s desire to take its “war on terror” to Yemen poses a real threat to Chinese strategic interests as it enables the US to choke China’s energy and other trade lifelines should hostilities break out between the two great powers, for example, over Taiwan. This worry lends credence to the argument that China is using piracy to extend its influence quickly in the Gulf of Aden — without seeming overly assertive — in order to reduce its vulnerability to US regional power in the long term. China may also be keen to extend both its influence and presence in the region while US political capital is at a nadir among Arab regimes. From the Arab perspective, the US is an increasingly overbearing presence in the region. US dominance in the region, along with its blind support of Israel, has hardened Arab governments’ attitudes toward Washington. China, meanwhile, is seen as an increasingly beneficial ally. A 2010 report by the Institute for Near East and Gulf Military Analysis, a Dubai-based consultancy firm, argues that “Gulf countries are weaning themselves from their traditional orientation toward and dependence on the United States” and that “many Gulf states find their burgeoning relationship with China refreshing,” particularly when set against Washington’s stress (sporadic as it may be) on freedom, democracy and human rights. [2]
It’s Just Business
Sudan finds its relationship with China similarly enriching. During the 1990s, when international NGOs seized on the fact that Sudan’s newly acquired oil revenues were fueling conflict between the north and the south and providing the northern regime with the funds with which to purchase arms, they waged a dedicated campaign against Western joint-stock companies operating in Sudan. One by one, the big Western brands divested — Rolls Royce, Siemens and Hilton among them. A Canadian company, Talisman Energy, finally succumbed to a four-year campaign by the NGOs, and left the country in 2003, after the value of its stock had fallen by 12 percent. Even US pension funds were forced to relinquish any investments in Sudan and in 2007, Fidelity Investments, the world’s largest mutual fund, announced the sale of 90 percent of its US depository receipt holdings in PetroChina, a subsidiary of the China National Petroleum Corporation, and one of the largest investors in Sudan’s oil industry.
The move by Fidelity highlighted China’s role in Sudan, showing that its state-owned companies had taken full advantage of the void left by Western corporations vulnerable to shareholder pressure. It also proved to Sudan that China’s relative immunity from stakeholder sensitivities, combined with its unconditional approach to investment, made it a valuable partner. All the more so, given that China is one of Sudan’s primary arms suppliers and is also prepared to provide diplomatic cover for Sudan in multilateral institutions, such as the UN. This lack of conditionality, underpinned by strong support for Khartoum’s incumbent regime, is clearly related to the level of investment China has in Sudan. But it also stems from China’s traditional statist principles, whereby sovereignty is sacrosanct. Furthermore, China looks at human rights from a collective, rather than individual, perspective, according to which personal political liberties are subordinate to the wider economic wellbeing of society.
African governments have been easily seduced by China’s unconditional approach to bilateral relationships, and while such an approach is arguably even more enticing to Arab governments who have more fraught relationships with the US, it does not automatically mean that China would operate in the Gulf and the wider Middle East in the same manner. For there is a big difference between the two: In Sudan and in Africa as a whole, China rarely treads on America’s toes, but the Middle East is Washington’s turf.
China has proven sensitive to criticism. Perturbed by Fidelity’s sale of its shares, PetroChina announced that it was making a $1 million donation to the Sudanese Ministry of Welfare and Social Development to help fund “social support” activities. The company also claims to have spent more than $30 million on charitable activities in Sudan since it commenced operations in 1995. Since then, it has loudly trumpeted its various good works, supporting the building of hospitals and roads, providing development assistance and writing off debt.
China’s experience in Sudan appears to have awoken it to the fact that the deeper its overseas involvement, the more it will be drawn into local issues. This reality not only places its non-interventionist stance under greater strain, but it also raises much wider moral issues for China as a growing global power. There are signs that China is tempering its support for the Sudanese government at the UN, encouraging Khartoum to pursue a negotiated option with Darfuri rebels and to improve its humanitarian record. It has sought to mollify the international community by financing the African Union peacekeeping force in Darfur.
Washington’s Turf
This shift in China’s outlook is reflected in its relations with the Gulf; strengthening ties with Saudi Arabia, combined with the necessity of maintaining a working relationship with the US, are reflected in its position on Iran. China has until now threatened to block stiffer sanctions against Iran, mainly because the Islamic Republic is its second-largest supplier of
oil from the Middle East and also because it has invested huge sums in the development of Iran’s oil and gas industry (in July 2009, China agreed to pump up to $40 billion into Iran’s downstream refining capacity).
But pragmatism seems to be prevailing and China appears to realize that its position as the main obstacle to halting Iran’s nuclear program is no longer in its wider interests. Over the last year, China has very gradually drawn down its oil imports from Iran; in February 2009, Iran’s share of China’s oil imports was around 16 percent, by January 2010, the proportion had fallen to 6 percent. Conversely, Saudi Arabia’s share has risen and it now exports to China around four times the amount of oil that Iran does. Riyadh has also promised to make up for any additional shortfall China experiences due to disruptions of Iranian supply.
The Iran affair demonstrates that China is increasingly less able to hedge its bets in the Middle East. Its rising dependency on the region will draw it deeper into regional affairs and, as the presence of its navy in the Gulf of Aden attests, it will deploy its military might to safeguard its strategic interests. For now, these are broadly aligned with those of the US. Both the US and China want to eliminate terrorist threats emanating from the region and both want stability throughout the Arab world to ensure a secure energy supply. In particular, China currently benefits from the role that US forces play in securing energy supplies from the Middle East — crucially, at little cost to itself.
But some Chinese strategists see the US desire to dominate the Persian Gulf region as a possible danger to its long-term security goals. For all its growing dependency on the Gulf, however, China’s relations with the region will also be determined by its own economic ties with the US, providing a sharp reminder that the fortunes of the Middle East are often influenced by relationships between extra-regional powers. The Gulf may provide China with its energy, but its economic wellbeing is far more reliant on the US. One fifth of all China’s exports head there. Totaling $300 billion, they dwarf China’s exports to the Middle East. According to the Institute for the Analysis of Global Security, an American think tank that promotes reducing American dependence on imported oil, “the shelves of Wal-Mart alone account for 1 percent of China’s GDP.” As has been widely pointed out, if Wal-Mart were a country, it would be China’s sixth largest export market.
The Chinese leadership understands well that its relationship with the US goes much deeper than bilateral trade; the welfare of the global economy is balanced on a stable US-China fulcrum. For all their mutual wariness, and occasional spats over currencies, protectionism and Google, both countries recognize the necessity of accommodating the other. So China will strengthen its relations with its key energy suppliers in the Gulf and bolster its strategic presence in the region, but not at the expense of the US. For the time being, at least.
Endnotes
[1] Daniel Blumenthal, “Contrary to China’s Recent Behavior, Washington Is Still Stronger than Beijing,” Foreign Policy, July 21, 2010.
[2] Daniel Wagner and Theodore Karasik, The Maturing Chinese-Saudi Alliance (Dubai: Institute for Near East and Gulf Military Analysis, April 6, 2010), available at: http://www.inegma.com/?navigation=reports&page=2#.
