Chapter 2: From monetary power to global dominance — through pivoting the Middle East?
China’s global aspirations
In October 2017, China’s president Xi Jinping opened the five-yearly National Congress by outlining the country’s plan to become the world’s biggest superpower within the next 30 years. He set out his plan for the country to become a “global leader” by 2050, speaking in the Great Hall of the People for 210 minutes (Khan 2017).
His words to the audience were very clear. According to him, it was time for China to become a “mighty force” that would lead the world on political, economic, military, and environmental issues and added that the country’s future is “a new historic juncture in China’s development” (Rühling 2018). “The Chinese nation (…) has stood up, grown rich, and become strong — and it now embraces the brilliant prospects of rejuvenation. It will be an era that sees China moving closer to center stage and making greater contributions to mankind.” He further stated that “The Chinese people are a great people; they are industrious and brave, and they never pause in the pursuit of progress.” (Rühling 2018). Since Donald Trump has been inaugurated, Xi — who became the chairman of the Communist party and hence, has been the nation’s leader since 2012 — has continuously portrayed himself as a diplomatic statesman, demonstrating China’s ability to be a responsible global power (Khan 2017).
According to data from the National Science Foundation, China is already on a good track to becoming a leading power in the most important areas of science and innovation, being the second-largest spender on research and development (R&D) after the US and accounting for 21% of the world’s total to nearly 2 Trillion USD in 2015 (National Science Foundation 2018: 11). China’s spending on R&D grew by an average of 18% per year between 2010–2015, which is more than four times faster than the growth in US spending in the same domain (National Science Foundation 2018: 14). According to the World Economic Forum, China’s rapid growth increases the likelihood of the country to become the leading power in this area within the next five to ten years (Harris 2018).
Being an important indicator of investment in technology and future capabilities, R&D plays an immensely important role in processes related to innovation and the creation of new products and services. The number of students studying in fields related to science and technology is an additional, critical measure of the advances in this area. In this aspect, China is also improving and has already overtaken the US, although this figure refers partly to the simple fact of China’s population size. The number of Chinese graduates in science and engineering per year went up from about 359,000 to 1.65 Million between 2000 and 2014 (Harris 2018).
A knowledge-based economy demands a workforce that is well educated in the highest levels of science and engineering skills, as well as a system of education that can produce these employees in sufficient numbers, as the National Science Board reports. With respect to the two additional key measures of innovation, which are patents and venture capital, China is gaining ground, although it is still lagging the behind the US (National Science Foundation 2018: 11).
On a global scale, the US Patent and Trademark Office grants patents to inventors. In 2016 more than 300,000 patents were granted, primarily to the US, Japan, and the European Union. (Figure 5.2).
Even though industrialized states are leading in this area, patents to inventors from emerging economies have risen drastically, from 1% in 2000 to 6% in 2016 and China (4%) and India (1%) are accounting for the majority of these (Figure 5.3).
The last essential piece needed to spur innovation is seen in access to financial services through venture capital investment. While the US attracted slightly more than 50% of the 131 billion USD of the venture capital funds around the globe, China’s share continued to rise rapidly, to 27% in 2016. These numbers represent China’s capability in economic fields, but they also indicate that China has not been able to close the gap to the US up to now. Their demand for R&D is still very high, and there are many incentives to import the knowledge and products from the Western World to enhance their economy’s efficiency.
China in the Middle East
Between China and the Arab World, there is a long history of collaborative exchanges. For almost 600 years, many foreigners travelled to China to advertise trade between the People’s Republic and their domestic country (Chinese Ministry of Foreign Affairs 2014). Significant accomplishments in bilateral relations were achieved at the beginning of the 21st century, and great success was reached through comprehensive cooperation, focusing on mutual benefits within the framework of the China-Arab Cooperation Forum (Chinese Ministry of Foreign Affairs 2014). Due to the US-American “Greater Middle East” initiative that was presented earlier, bilateral initiatives were distorted.
As stated precisely, the Arab world has always been a main area for power struggles and among China’s foreign concerns, the Middle East is of unique significance.
A major event in Sino-Arab relations occurred in 1956, when Syria, Egypt and Yemen first established diplomatic ties with China (Yao 2007: 4). The 1950s are a breakthrough in China’s diplomacy with the Arab World. In the Bandung Conference in 1955 ‘Five Principles of Peaceful Coexistence’ and enhanced mutual understanding between China and the Arab countries were promoted, bilateral relations were opened at a time when national independence movements emerged at several places in Asia and Africa (Algeria 1954 / Sudan, Morocco, Tunisia 1956) (Yao 2007: 4). China’s support won the affection among many Arab people and China established diplomatic relations in many Arab countries. In the 1960s the disturbance of China’s “Cultural Revolution” and its stress on ideology in diplomacy incurred suspicion and estrangement among many Arab countries, leading to some setbacks in Sino-Arab relations (Yao 2007: 4). After adjusting its foreign policy in the 1970s, China renewed its diplomatic ties with the Middle East (Yao 2007: 5). With the reforms and new focus on economic developments in the 1980s, China abandoned the principle of “drawing a line” between the People’s Republic and others. It implemented a different social system comprehensively promoting its relations with all countries in the spirit of the “Five Principles of Peaceful Coexistence”. Consequently, Sino-Arab relations entered a new era of development in the 1980s, establishing diplomatic ties with the UAE, Qatar, Palestine and Bahrain, and Saudi Arabia in the 1990s (Yao 2007: 4). By 1990, China had built diplomatic ties with all Arab countries including the arguable leader of the Arab World, Saudi Arabia (Yao 2007: 4).
The dramatic transformation of the Arab World in the new century starkly contradictedChina’s economic boom. Nevertheless, the Middle East became even more important in Beijing’s eyes. Exchanges between China and the Arab World have become more dynamic and in January 2004, former Chinese president Hu Jintao implemented four principles for developing Sino-Arab relations when he met Secretary-General Amr Musa and the delegates of the 22 members of the League of Arab States (Yao 2007: 4). Jointly, they decided to build the China-Arab Cooperation Forum in 2016, representing a new type of Sino-Arab partnership (People`s Daily 2004: 3)
With its BRI announced in 2013 China intends to enter a new era of the country’s history and the Middle East is supposed to play a major role, since it is where the two planned routes shall come together for Europe and Africa. For several reasons, the region holds great appeal for China. Fast growing Arab populations, a rising middle class and increasing wealth accumulation across the MENA region provide the opportunity for Chinese companies to engage with these countries and build and construct in the Middle East, and to supply China and its BRI with the necessary energy.
China’s promise of an enormous infrastructure and investment plan is very appealing for many countries of the Middle East, as their economies slow due to falling oil prices and political instability. The pledges to the BRI are promising, considering that they may reach as high as a trillion USD (Perlez and Huang 2017). Beside the financial aspects, China is also expanding its educational and cultural exchanges. As mentioned in the introduction, China is promoting a people-to-people dialogue and intends to offer training for technical experts of the countries engaging in the BRI. Hence, the reasons why Arab countries are interested appear to be obvious. Egypt has already coordinated its own domestic economic plan and set the BRI as its priority while Jordan, the UAE and Saudi Arabia intend to follow. Moreover, Chinese companies have already promised to invest 20 billion USD in infrastructure financing in Egypt. Having been awarded with contracts to build major portions of the new projects that are set to be established in the East of Cairo, Egypt is already immensely engaged with Chinese businesses. Concerning mergers and acquisitions, Egypt is listed by the Chinese government as one of the top five destinations (Reuters 2016). Moreover, tourism from China in the country is growing fast, up to 215% over the last two years (New China 2017).
The UAE has also stepped up its bilateral ties. Outposts in China were created to support Emirati firms and the country’s leaders have conducted several trade missions. The UAE shall serve as one of the main transport hubs for the BRI because of its geographic location, and hence, are of a high importance. The Emirati priority as a hub for trading can precisely be observed in the cooperation between COSCO, China’s largest shipping company, and Abu Dhabi Ports. In preparation for the collaboration, the companies started to jointly build new terminals to meet the expected increased flow of commodities along the BRI routes (Lehr 2017). In addition, the UAE is a founding partner of the Asian Infrastructure Investment Bank (Lehr 2017). The multilateral development bank which was initiated by China aims at supporting the infrastructure of the Asia-Pacific region. It is worth noting that the US is not a member, yet.
In Saudi Arabia, foreign policy and diplomacy still underpin the Chinese-Saudi Arabian relationship. Nevertheless, economic ties are also growing against the background of slower economic development in the Arab country. Considering that energy is the main source of both, development and economic growth, China is the largest importer and Saudi Arabia the largest exporter of crude oil (Lehr 2017). In the last 20 years alone, China’s oil consumption has dramatically risen by almost the 4-fold, from 2.9 Million barrels per day in 1993 to 11.9 in 2016 (Lehr 2017). In 2017, Saudi Arabian King Salman led a trade mission to China, which resulted in more than 65 billion USD worth of economic trade deals that were signed (Lehr 2017). It is important to note that Chinese companies have built and operated many of the logistical facilities in Mecca during the Hajj. The ties are expected to grow as Saudi Arabia aligns its own domestic economic priorities with those of the BRI. Looking at these developments of the Sino-Arab relations against the background of the BRI, a pattern emerges.
The BRI is a central aspect of China’s strategy to expand both, its reach, and its influence all over the world. The MENA region plays an essential role in the initiative, which is in large parts a result of economic rather than political motives. One of the most crucial features that explains and constitutes the Middle Eastern priority for the BRI is China’s seek for access, if not even control over the necessary natural resources. These are an indispensable requirement to sustain Chinese economic growth. Estimates forecast that China’s dependency on oil and gas imports will reach 67% in 2020 (Lehr 2017). MENA countries will obviously be the ones who meet this demand, considering that GCC countries, Iran, and Iraq now account for 60% of China’s imported oil. China now is the second largest oil export market for these countries (Lehr 2017).
Not only the need of natural resources provides an explanation for China’s interest in the region. Trade flows between China and the Arab World are aimed to be doubled to a volume of 600 Billion USD in 2020 (Lehr 2017). China is the biggest trading partner with the region and is negotiating an additional free trade area with the GCC, besides the already existing one with Egypt. According to several sources, China is looking to also establish a free trade agreement that includes Iran, which would bring China in a difficult position (Lehr 2017). Still, the government is cautious about choosing any side within the regional, Middle Eastern conflict. Nevertheless, its foreign policy is significantly more active under Xi Jinping because of growing economic ties. China’s ambassador to the US has said that the People’s Republic’s foreign policy will inevitably follow its investments, and many observers see exactly that. Wang Yi, China’s minister of foreign affairs, has taken a very active role in the talks to find solutions for the Syrian crisis. Moreover, after the Iranian nuclear deal, negotiated and ratified under the Obama administration, Xi- Jinping was the first major leader to visit Teheran with the goal of assessing chances to increase bilateral trading and investments (Lehr 2017). As a result, China’s state owned ‘China Petroleum Corporation’ signed a 4.8 billion USD natural gas development project. China will hold 30% of the shares of this project, alongside two additional partners (Lehr 2017). Xi did not only visit Iran, his diplomatic trip was balanced with a visit in Egypt and Saudi Arabia. In addition, China has sent a naval frigate to rescue its stranded Chinese workers during the crisis in Yemen. In 2017, China has also established a military outpost in Djibouti, and experts of the Middle East Institute expect many additional military ties and sales to be made throughout the MENA region (Lehr 2017).
This foreign policy strategy also includes implications for the US. Under Obama, officials were leery of Beijing’s efforts to use its economic power to establish and renew ties in Asia and Africa, especially the MENA. Since the US is not a significant funder of infrastructure projects, they did not really have a say in these countries regarding their attachments to China’s BRI (Lehr 2017). However, the Trump administration seems to recognize that the US should carefully pay attention to the actions and developments under the umbrella of the BRI (Lehr 2017).
In a policy rehearsal after the Mar-a-Lago Summit between Donald Trump and Xi Jinping in June 2017, the US administration sent a National Security Council Senior Director to attend the BRI Forum in Beijing spontaneously (Lehr 2017). This gesture occurred in recognition of the BRI’s capability to impact the dynamics in the region, and for American companies, the chance to receive contracts under the initiative was regarded important. It appears like China has something to offer that is highly demanded, which the US is not able to provide to the countries of the Middle East, which is the combination of infrastructure financing in large and growing export markets, with limited strings attached. Even if the whole BRI does not come to pass, the initiative has brought China in a position of direct competition with the US for economic influence in some of the strategically and economically most important countries around the world.
Nevertheless, at least in the short term, the US will most likely remain the political powerhouse in the MENA region. Obviously, Xi Jinping’s motivation is not to enhance Middle Eastern infrastructure in the first place, but to build China’s new Silk Road and thereby reshape the economic balance throughout Asia, the Middle East, North Africa, and Europe. The goal is to enhance China’s economic, and consequently its political influence on the global stage to establish a new, leading position for the People’s Republic of China.