The Middle East and North Africa (or, following the Chinese nomenclature, Western Asia and North Africa) region has been of growing importance to Beijing for the past two decades. This has been predominantly due to China’s need to ensure its energy security. However, as the Belt and Road Initiative (BRI) expanded, so did the strategic importance of the land and sea routes connecting East Asia and Eurasia with Europe via the Persian Gulf, and the Red and the Mediterranean Seas. The need to protect these economic interests resulted, in turn, in the expansion of Chinese involvement in the region into political, military and cultural realms.
The BRI, inaugurated in September 2013 by the Chinese President Xi Jinping, initially excluded most MENA countries. As the initiative evolved, however, more and more countries were incorporated by virtue of signing relevant Memorandums of Understanding. The foundations for a closer relationship with countries in the region had already been laid in the mid-2000s, when the China-Arab States Cooperation Forum (CASCF) and the Forum on China-Africa Cooperation (FOCAC) were established. By the end of 2010, the China-GCC Strategic Dialogue had also been founded. Since the BRI was launched, bilateral relations between China and individual countries in the region have evolved further, with comprehensive strategic partnerships (China’s highest level in diplomatic relations) signed with Algeria, Egypt, Iran, Saudi Arabia, and the UAE, and strategic partnerships with another eight states in the region (Sidło et al., 2020). As its geographical scope expanded, so the BRI’s goals evolved, which currently encompass the enhancement of trade, connectivity, financial integration, political coordination and people-to-people relations (Xu, 2015).
Investment and Construction
What remains at the heart of the BRI, however, are infrastructure projects. Given the above-mentioned importance of MENA as a supplier of energy products, energy-related investments have been the primary focus for the Chinese (both before and after the launch of the BRI). Indeed, out of the USD 21.6 billion invested in the region by Chinese state-owned companies (SEOs) between 2014 and 2019, 58% was directed to that sector (the next important sector, agriculture, secured 14% of the funds; own calculations based on data from AEI, 2020). Out of those, the oil sector received the largest share (40%). As of the end of 2018, most of the Chinese FDI stocks in the region were held in UAE (USD 6.43 billion, up from USD 2.3 billion in 2014) and Israel (USD 4.62 billion, up from USD 86.7 million in 2014) (MOFCOM via ChinaMed). In the latter, Beijing has been particularly keen to make investments in the technology sector (which has been particularly worrying to Israel’s closest ally, the United States).
Although the increase in Chinese FDI to MENA must be recognized, it should also be noted that its scale has been dwarfed by the Chinese investment flows to other parts of the world – as well as by the European Union’s FDI to the region (see Chart 1). Equally importantly (and unlike China’s economic involvement in the EU or the US), the value of Chinese FDI has been far exceeded by the value of construction contracts awarded to Chinese (almost exclusively state-owned) companies, which from the beginning of 2014 to the end of 2019 totalled USD 92.4 billion, over quadruple the amount that has been invested in the region. Many of these contracts concerned construction in the energy sector (44% of the worth of all contracts that entered between 2014-2019) followed by transport (23%) and real estate (21%). Unsurprisingly, then, oil-exporting Algeria, Saudi Arabia, UAE and Egypt are among the countries where most construction contracts have been awarded to the Chinese globally. Region-wise, more contracts were signed in Sub-Saharan Africa alone than in all of MENA.
CHART1 Inward FDI stocks and flows of MENA from the EU and China, 2018 (EUR million)
The trade exchange between China and countries in the MENA region has been steadily increasing since 2001, when it amounted to a mere EUR 16.9 billion. After a temporary drop between 2014 and 2016 (a decrease which mirrored a global trend), it gained pace again in 2017 and currently stands at EUR 240.5 billion. While the region is not among the most important trade partners for Beijing (that spot is invariably claimed by the European Union and – despite the trade war with the United States – North America), due to its abundance in energy resources, MENA remains a crucial supplier for what is currently the world’s second-largest oil and natural gas consumer.
Accordingly, oil-exporting GCC countries remain China’s main trading partners in the region, with roughly 30% of Chinese energy products (in USD) imported from the block (excluding Iran, 40% came from the entire MENA region in 2019) (ITC trade map). In 2019, the volume of trade between China and the six GCC countries amounted to EUR 158.7 billion (up from EUR 150.9 billion for the previous year) – almost EUR 30 billion more than the value of trade in goods with the EU27. This established China as the most important trade partner for Oman, Saudi Arabia and the United Arab Emirates, the second most important for Qatar and Kuwait and the third most important for Bahrain that year.
TABLE 1 MENA/China trade in goods, EUR million
|GCC||€ 142,287||€ 150,881||€ 129,083||€ 158,690|
|Maghreb*||€ 112,798||€ 16,732||€ 102,958||€ 12,328|
|Mashreq**||€ 99,441||€ 46,859||€ 82,455||€ 49,987|
|Turkey||€ 139,521||€ 20,010||€ 129,215||€ 19,522|
|TOTAL||€ 494,047||€ 234,482||€ 443,711||€ 240,527|
Source: International Monetary Fund
*Algeria, Libya, Mauritania, Morocco, Tunisia
** Egypt, Iraq, Israel, Jordan, Lebanon, Palestine, Sudan, Syria, Yemen
For most non-oil exporting countries (as well as Algeria and Egypt) China is predominantly a source of imports (and so a trade deficit), predominantly sending machinery and electronics, textiles and clothing (T&C), and metals. Its trade relationship with the Arab Levant states and Maghreb countries remains among its least developed, although this situation is slowly beginning to change. The relative lack of importance of the MENA region as a trading partner for China (beyond the import of energy products) is reflected in the fact that out of 16 Free Trade Agreements (FTAs) signed by China to date, none has been with a country in the region (MOFCOM, 2019). Talks with the GCC, resumed in 2016 after a decade, are stalled, and concluding negotiations with Israel and Palestine any time soon may prove challenging for political reasons.
It is also worth noting that for a number of countries in North Africa, China is also a major trade competitor, notably in the textiles and clothing (T&C) sector. While Morocco and Tunisia used to be the primary source of textiles and clothes for the EU, they have been overtaken by China, which currently accounts for well over a third of the EU’s T&C imports.
Development Aid and other Official Flows
Chinese official finance, due to its opaqueness and disregard for the concessionality principle, does not easily fall into the traditional categories of “developmental assistance” or “official flows” (Strange et al., 2017). Befittingly, the relatively recently (March 2018) established China International Development Cooperation Agency (CIDCA) was tasked with ensuring that Chinese aid “better serves [the country’s] overall diplomacy and the construction of the BRI” (Rudyak, 2019).
While recent data is challenging to obtain, according to AidData Research Lab (2017), between 2000 and 2014 the region received USD 2.9 billion in Official Development Aid-like finance, USD 7.4 billion in Other Official Flows-like finance, and USD 5.5 billion in vague official finance. Altogether, over USD 15.8 billion in various forms of official finance was distributed in the region over a period of 14 years prior to the launch of the BRI (as a comparison, during the same period Iran alone received USD 36.6 billion). More recent information is available mostly through Chinese public announcements, such as when in July 2018 Beijing promised USD 24.06 billion in loans (83% of the sum), financial aid (4%), and for the China-Arab investment fund. Just as Beijing has been keen to promote awareness of its (planned) aid-related activities, it has vehemently denied accusations of conducting “debt-trap diplomacy” (admittedly a major issue in Sub-Saharan Africa, but not so much in MENA).
As China’s economic interests in the region grow, Beijing has been increasingly forced to revise its strict “non-interference policy.” A need to secure its own economic interests has been an important incentive to promote stability in the region through partaking in anti-piracy and peacekeeping missions, as well as joint military drills (like the one with Iran and Russia in the Gulf of Oman in December 2019).
Complimentary to these efforts is the Chinese “charm offensive” in the region – a strategy that seems to be working inasmuch as, unlike in most of the EU or the US, the majority of the political elites and the general public in MENA perceives China’s engagement in the region in predominantly positive terms (Arab Barometer, 2020; Pew Research Center, 2019). Broadly speaking (and generalizing), what is particularly attractive for MENA – beyond Chinese money – is the country’s development model, in which democracy is not a sine qua non for achieving economic growth. Citizens of the region, in turn, seem to appreciate the well-publicized investment that is believed to come without any strings attached and does not evoke memories of the region’s colonial past, in contrast to Western investment.
Impact of the COVID-19 Pandemic and Oil Price Crisis and Outlook for the Future
The double shock of the COVID-19 pandemic and oil price crash, which rocked the world at the beginning of 2020, will not only have severely affected societies and economies of both China and countries in the MENA region, but will also likely affect the relationship between the two. First of all, China has been using the pandemic to further expand its influence in the region through the deployment of “mask diplomacy.” Since the outbreak of the pandemic in MENA, Beijing has been very publicly sending numerous assistance packages (a mix of aid and paid-for medical equipment) to various countries in the region. While MENA’s ruling elites made a point of expressing their profound gratitude for Chinese generosity, it is unclear to what extent this strategy will be effective in the long run in diverting the public attention from the fact that for weeks China concealed the outbreak of the virus on its territory (as concluded by US intelligence, but vehemently denied by Beijing).
Secondly, as China may, for some time, adopt a more inward-looking approach, to mitigate the effects of the pandemic domestically, countries that are less critical to Beijing (such as those in North Africa) may, in the short to medium term, see limited investment and construction activity under the BRI (although globally, the health silk road might undergo a revival and the digital one an expansion). At the same time, China’s main partners in the region – the Gulf countries – have been adversely affected by the low oil prices and decreased demand for oil globally due to pandemic lockdowns, as well as pandemic lockdowns of their own economies. To what extent they will be able to attract pre-pandemic levels of Chinese official finance remains to be seen.
Although one must be careful while comparing China’s and the EU’s FDI to the region due to the reporting differences.
AidData. Global Chinese Official Finance Dataset, Version 1.0. 2017. Retrieved from http://aiddata.org/data/chinese-global-official-finance-dataset
American Enterprise Institute (AEI). China Global Investment Tracker. Retrieved from www.aei.org/china-global-investment-tracker/
Arab Barometer, 2020. Retrieved from www.arabbarometer.org/
DOTS (Direction of Trade Statistics). IMF Data. Retrieved from https://data.imf.org/?sk=9D6028D4-F14A-464C-A2F2-59B2CD424B85
China’s Ministry of Commerce (MOFCOM). China FTA Network, 2019. Retrieved from http://fta.mofcom.gov.cn/english/index.shtml
Pew Research Center. Spring 2019 global attitudes survey. 5 December 2019. Retrieved from www.pewresearch.org/global/wp-content/uploads/sites/2/2019/10/Pew-Research-Center-Value-of-Europe-Topline-for-Release-FINAL.pdf
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Sidło, K., Andersen, L.E., Lons, C., Peragovics, T., &Rózsa, E. “The Role of China in the Middle East and North Africa (MENA) Region. Beyond Economic Interests?” EuroMeSCo Joint Policy Study, 2020
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