Wang Huiyao: How China is helping Middle East economies pivot away from Gulf oil

SCMP | December 14 , 2022

---

From SCMP， 2022-12-14

---

 

■ China’s tech and trade offers dovetail nicely with Gulf ambitions to deepen ties with Asia in search of a cleaner, greener future.

■ The shared interest in building partnerships outside America’s orbit could see the SCO expand and the birth of a China-GCC free trade pact.

 

By Wang Huiyao | Founder of the Center for China and Globalization(CCG)

 

President Xi Jinping wrapped up his trip to Saudi Arabia on Saturday, having met several leaders from the region as he took part in the first China-Arab States Summit and the China-Gulf Cooperation Council summit.

As well as marking a continuation of China’s diplomatic re-engagement with the world after a flurry of meetings around the G20 last month, Xi’s visit underscored how ties between China and the Gulf Cooperation Council (GCC) are deepening and diversifying as both sides seek to secure their economic futures. China and Saudi Arabia vowed to upgrade their partnership and announced a raft of deals covering sectors such as energy, information technology, cloud services, logistics and construction.

Of course, fossil fuels remain central to this rapidly growing relationship. China is the world’s largest importer of oil and Saudi Arabia is the world’s largest exporter. In October, the kingdom produced 10.9 million barrels of crude oil per day, with the United Arab Emirates and Kuwait adding another 3.5 and 2.8 million barrels respectively.

But finite supplies, mounting climate change concerns and the shift to cleaner fuels have cast a shadow over long-term oil revenues, even if the war in Ukraine and the resulting energy crisis have shifted power back to the petrostates for now. To deal with this long-term challenge, Gulf states are undertaking an economic pivot away from relying on oil exports to the West.

The first component of this pivot is a turn towards fast-growing Asian economies. At current growth rates, trade between the the GCC and emerging Asia – a group that includes China, India and most members of the Association of Southeast Asian Nations – is set to reach around US$578 billion by 2030, surpassing trade with advanced economies, according to projections by Asia House.

China plays an outsize role in the Gulf’s reorientation. Its trade with the GCC has doubled since 2010 and last year marked a milestone: GCC’s trade with China exceeded the council’s trade with the United States and euro zone for the first time. Meanwhile, China’s trade with Saudi Arabia hit US$81.7 billion, surpassing Riyadh’s combined trade with the US, euro zone and United Kingdom.

The second aspect of the GCC’s economic pivot is to diversify away from hydrocarbons into emerging sectors, using bumper revenues from high oil prices to support investment in infrastructure and hi-tech sectors, as reflected in plans like Saudi Arabia’s 2030 Vision and Kuwait’s 2035 Vision.

China’s strengths and approach to development dovetail nicely with these economic diversification programmes. While the Gulf region is affluent, it lags in research and technological development. Chinese companies, with strengths in information communications technology, innovation and infrastructure, are ideal partners for this push, and are already making major inroads in the region.

Clean tech is a hotspot for cooperation as Gulf states prepare for life after oil. During Xi’s visit, Chinese and Saudi companies signed investment pacts for green hydrogen and solar energy. China’s Enovate Motors agreed to build an electric vehicle factory to produce 100,000 cars a year. Earlier this year, China’s NWTN announced that it would build an electric vehicle assembly facility in Abu Dhabi.

Telecoms and IT are also focal points for joint development. Huawei Technologies Co has just struck an agreement with the Saudi communication minister to establish 10-gigabits-per-second mobile internet and a cloud computing facility in the kingdom. Since 2019, Huawei has signed 5G contracts with most GCC telecoms firms.

In February, Huawei and the Saudi Digital Academy signed a deal to develop local tech talent, including several joint projects that will see around 8,000 Saudis trained under Huawei-accredited programmes on IT and communications.

Huawei’s growing presence in the region highlights another factor supporting the development of China-GCC economic ties – geopolitics, and in particular the shared interest in building partnerships on the world stage outside Washington’s orbit. While Huawei has increasingly found itself shut out of Western markets as tensions with the US and its allies increase, the Chinese telecoms giant has found the Middle East more welcoming territory.

Unlike other major powers, China has stayed out of regional spats and continues to maintain strong ties with all countries in the Gulf and the broader Middle East. It is one of the few countries to enjoy comprehensive strategic partnerships with both the major regional rivals Riyadh and Tehran.

Beijing’s favourable position stands in contrast to the US, which carries heavy historical baggage from its interventions in the region, and while engaged in a long-term stand-off with Iran also sees relations with Saudi Arabia at a nadir.

Xi’s visit to Saudi Arabia has added extra impetus to China’s deepening ties with the kingdom. Leaders of the two countries will meet every two years under the new strategic partnership agreement.

Eyes now turn to the next milestones in this unfolding story. One could be an expansion of the Shanghai Cooperation Organisation (SCO) into the Middle East. Saudi Arabia, already an SCO dialogue partner, is interested in upgrading to observer status. Last month, Iran passed a bill to join the group.

Another item to watch is the negotiations on the China-GCC free trade agreement, reportedly in the final and critical stage. The relationship between China and the Gulf will be one to watch as both sides seek to diversify their economies and external relations in an increasingly uncertain world.

 

From SCMP， 2022-12-14