Retrenchment from Africa Has China Eyeing the Middle East

Yun Sun

Image courtesy of AFP

China’s announcement late last year that it will scale back the money it lends to Africa, from $60 billion to $40 billion over the next three years, has raised questions about Beijing’s long-term strategy on the continent. But it has also opened another line of inquiry: If Chinese infrastructure investment is leaving Africa, where is that money going?

The Middle East could be part of the answer. Last month, in a span of just five days, foreign ministers from Saudi Arabia, Kuwait, Oman, and Bahrain visited China along with the secretary general of the Gulf Cooperation Council. China also invited the Turkish and Iranian foreign ministers, ostensibly for talks on trade and investment.

These trips reflect shifts in China’s relationship with the Middle East. GCC leaders are mobilized by the aspiration of restarting talks on a China-GCC free trade agreement. The two sides held nine rounds of negotiations between 2005 and 2016 before they were disrupted by intra-GCC politics – namely, the severing of Saudi, Emirati, and Bahraini ties with Qatar. With the internal rifts now mended, negotiations with China are back on track.

China, for its part, also appears ready to move swiftly. The Chinese foreign minister recently listed “speedy conclusion of the GCC FTA arrangement” as a priority of China’s foreign policy in 2022. And while details of the meetings with the Turkish and Iranian foreign ministers have not been made public, Chinese media has speculated that regional development and economic cooperation are the top priorities for all three countries.

Much of China’s economic engagement with the Middle East has taken place under the framework of the Belt and Road Initiative (BRI), Xi’s grand strategy for global economic engagement. Given the region’s importance for trade and energy, the Middle East naturally occupies a significant place in China’s BRI plans. This is also why the first three years of the BRI brought a rapid increase of Chinese lending to the Middle East, from $300 million in 2014 to $8.8 billion in 2017 (including a 10-fold increase in 2015 alone).

Africa was another important region for China’s BRI plans. But China’s economic slowdown in recent years, and a decrease in Beijing’s BRI-related lending amid pandemic-induced debt sustainability concerns, made many African countries less appealing for Chinese lending. Compared to Africa, China-MiddleEast ties are less susceptible to a BRI slowdown. This is primarily because China’s energy demand from the Middle East is relatively stable and could increase in the next three to five years ahead of 2030, when China’s carbon emissions are set to peak.

Meanwhile, the Middle East’s demand for Chinese products and services is likely to grow rather than decline. Unlike many African countries, which have been heavily dependent on Chinese loans to fuel their domestic infrastructure development, Middle Eastern states are in a better financial position and therefore do not need to borrow money from China to support domestic growth. In this sense, Middle Eastern countries are better shielded from China’s economic fluctuations than Africa ever was.

Just as China’s commitment to Africa enters a new phase, China’s economic ties with the Middle East continue to evolve. For example, in the energy sector, renewable energy – such as solar, wind, hydropower, and civil nuclear power – has been added to the traditional cooperation portfolio. China also views the Middle East as a tremendous opportunity for infrastructure development given the region’s under-developed transportation system – such as railways, highways, and ports – and Chinese companies’ comparative advantage. Shifting focus from infrastructure development in Africa to the MiddleEast makes financial and practical sense.

Indeed, the intensive diplomatic engagement between China and Middle Eastern countries indicates the increasingly important role China plays in the region, and vice versa. This is first and foremost reflected in bilateral trade. In 2020, China was the region’s largest trading partner, with a total trade volume of $272.63 billion. Contrary to the perception that China-Middle East ties consist exclusively of energy imports, China in fact runs a trade surplus with the Middle East. In 2020, China imported 250 million tons of Middle Eastern crude, around 50 percent of China’s global imports. The same year, Chinaexported $144 billion worth of machinery, equipment, automobiles, and other products to the Middle East.

Equally important from China’s standpoint, the Middle East occupies a relatively small portion of Chinese total foreign direct investment. In 2019, China’s total FDI to the region was $2.75 billion, roughly 2 percent of its global total.

China’s investment in the Middle East is not new. The most impressive economic package China has delivered in the region was unveiled during President Xi’s visit to Egypt, in January 2016, when China committed $55 billion in financing, including $15 billion for industrial development and $10 billion for energy cooperation. Xi’s interest in the region boosted China’s engagement, elevating it in 2016 to the largest investor to the Arab world.

But as China increasingly seeks to insulate its investments from risk, China’s retrenchment from Africa could be a boon for Middle Eastern states. While it is not yet clear what China’s new relationship with Africa will look like, what is increasingly obvious is that Beijing views investment in the Middle East as a safer long-term bet.

Yun Sun is director of the China program and co-director of the East Asia program at the Stimson Center in Washington, DC. Her expertise is in Chinese foreign policy, US-China relations and China’s relations with neighboring countries and authoritarian regimes.