China’s Engagement With The Gulf Cooperation Council: Latest Updates


Over the past 20 years, China has become increasingly engaged with the six Gulf Cooperation Council (GCC) members – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE). While Beijing’s interest in the region may have been initially driven by energy needs, the relationship is now diversifying. China has become a significant partner for GCC states in several fields, such as infrastructure investment, trade in goods and services, digital technology, and defense.  

China has emerged in recent decades as a significant trading partner for many Cooperation Council (GCC) states, most notably Saudi Arabia and the United Arab Emirates. Most of the GCC governments depend on energy trade to support the diversification of their economies, while China requires the Gulf hydrocarbons to power its economy.  

Relations between China and the GCC 

In the second half of the 20th century, when Deng Xiaoping (1978–89) started his modernization drive and looked to the Middle East (West Asia) as the only place that could provide enormous quantities of oil and gas, China became interested in the region. By the end of 1993, Beijing had established diplomatic relations with all major Arab states. 

Fast forward to the turn of the century, and China was exporting a wide range of goods, stepping up its investments, constructing infrastructure, and transferring technology, while importing half of its energy needs from the region.  

Beijing has emphasized the strategic importance of its economic ties with the Arab Gulf states on numerous occasions. During his official tour in 2022 to the region, Chinese Foreign Minister Wang Yi emphasized that Beijing wants to “inject new momentum” into improving ties with the GCC and “accelerate” discussions on the creation of a free trade area. 

China-Arab States Cooperation Forum (CASCF) 

Beijing established the China-Arab States Cooperation Forum (CASCF) in 2004 and the uptick in commercial engagement outcome was noticeable: trade between China and the Arab League nations increased from US$36.7 billion in 2004 to US$145.4 billion in 2010. The cooperation was taken to a further level when, in March 2012, China and the Arab countries established the Higher Council for Energy Cooperation. Chinese and Arab governments applauded the accomplishments of their first 10 years of collaboration (2004–2014) during the Sixth CASCF in 2014, jointly hosted by China and Morocco. Common objectives for the future ten years (2014-2024) are to broaden the areas of collaboration, boost cross-investments, and improve communication between civic societies. 

China-Gulf states economic ties 


The heart of China-GCC collaboration remains Chinese energy needs. Saudi Arabia provided 17 percent of China’s oil imports in 2021, making it the latter’s top crude oil supplier. Qatar, a major natural gas exporter to China, signed several long-term contracts with Chinese firms in December 2021 after placing its first order for vessels carrying Chinese liquefied natural gas (LNG) for US$762 million in October of the same year. Similarly, a huge portion of oil exports from Kuwait, Iraq, the United Arab Emirates (UAE), and Oman are directed to China. 

In the GCC economies, where the oil and gas industry still generates the bulk of public sector revenue, there has been a persistent lack of economic diversification, in turn resulting in an indirect fiscal dependence on big energy users like China. However, the distribution of this indirect dependence varies considerably across the region. In the first half of 2021, China bought around 83 percent of Oman’s total oil exports, but other GCC states do business with a variety of trade partners.  

Moreover, while Asia accounts for a large portion of the demand for crude oil from the Gulf, China is not the only partner in the equation. The third largest Arab crude oil exporter after Saudi Arabia and Iraq – the UAE – delivered more oil to Japan than any other nation in 2020. In 2021, the International Energy Agency (IEA) predicted that, over the next two decades, India will account for the largest portion of the increase in global energy consumption. About 85 percent of India’s oil demands and 50 percent of its natural gas needs are imported, with oil and gas likely to continue to satisfy the baseload of the country’s energy demand in the near future. 

Other sectors 

China also appears destined to play a significant role in the continued growth of the GCC’s non-oil industries. There is great synergy between China and GCC governments on anticipated development areas like tourism, telecommunications, renewable energy, smart cities, artificial intelligence, and technology-oriented businesses. The relatively young population in the Arab Gulf will steadily be exposed to a growing Chinese technology presence, from social networking applications to digital payment platforms.  

Beyond the GCC, Chinese influence is becoming more noticeable in the Gulf’s financial and educational sectors. The Iraqi government and two Chinese businesses entered into agreements in December 2021 to construct 1,000 schools over a two-year period. Chinese initiatives to reduce educational disparities in Iraq, in exchange for payment in oil products, have the potential to significantly influence regional socioeconomic trends.  

Within the GCC, sovereign wealth funds are promoting closer ties: in 2015, a US$10 billion UAE-China Joint Investment Fund was established by Mubadala in Abu Dhabi, China Development Bank Capital, and the Chinese State Administration of Foreign Exchange. In recent years, officials from the GCC sovereign wealth funds have pushed to focus more of their portfolios on Asian economies, especially China’s. 

China-Gulf states: investment and trade  

The China Global Investment Tracker by the American Enterprise Institute shows a persistent Chinese interest in investing in Gulf economies. Chinese investments and construction projects totaled US$43.47 billion in Saudi Arabia, US$36.16 billion in the UAE, US$30.05 billion in Iraq, US$11.75 billion in Kuwait, US$7.8 billion in Qatar, US$6.62 billion in Oman, and US$1.42 billion in Bahrain between 2005 and 2021. Chinese investments are dispersed throughout the region in a manner that is roughly inversely correlated to the gross domestic product of each nation. 

China has swiftly overtaken Saudi Arabia as the country’s main commercial partner, with total bilateral trade rising from US$42.4 billion in 2010 to US$76 billion in 2019. As of the third quarter of 2021, China continued to be Saudi Arabia’s biggest import and export partner; nevertheless, the value of imports and exports has not increased consistently during the previous 10 years. About 80 percent of Saudi Arabia’s exports to China in 2019 were made up of minerals, including crude oil and petroleum gas, showing that energy prices are a significant factor in shifting trade flow values. 

Special Economic Zones 

Trade and investment flow between China and the GCC are supported by several policy initiatives, including special economic zones. The China-UAE Industrial Capacity Cooperation Demonstration Zone, for instance, is in the Khalifa Industrial Zone in Abu Dhabi and is being built by the Jiangsu Overseas Cooperation and Investment Company under the direction of the China National Development and Reform Commission. Not every zone plan has been successful. For example, Chinese promises for a US$10 billion joint investment park in the Special Economic Zone in Duqm, Oman, have taken a long time to materialize. 

The role of the Gulf states in the Belt and Road Initiative 

The Gulf countries’ position on China’s Belt and Road Initiative (BRI) has typically been centered on regional partners, building projects, and energy, in addition to being essential nexus locations for commerce in emerging countries.  From the standpoint of the Gulf region, the BRI represents a crucial support connection for allies like Pakistan and Egypt. Through the BRI, China has been instrumental in the development of the Suez Canal Area Development Project in Egypt as well as the Gwadar port and pipeline project in Pakistan. 

Considering the current national digital plans in GCC countries, the BRI’s Digital Silk Road is incredibly pertinent to the area. Digital infrastructure initiatives for Chinese companies continue to be feasible even during times of resource shortages and delivery-related difficulties due to pandemic-related supply chain delays and lockdowns. Long before the COVID-19 pandemic broke out, Gulf countries began to see the intensification of technology-based cooperation to diversify their industries and build knowledge economies. In the years to come, technology-based cooperation is expected to stay prioritized. 

China-Gulf states future trade prospects  

It is no secret that China would like to reach an FTA with the GCC. This kind of deal would enable China to engage with the region under preferred trade status. Moreover, a Chinese-Gulf FTA would be a significant boost for the area. Five rounds of negotiations between China and the GCC have so far resulted in agreements on most trade-related issues. The focus of these negotiations has been on energy-related products, though not exclusively. Other products, particularly those related to agriculture, fruits, spices, building materials, and lastly, trade in services, are being taken into consideration. 

From a financial perspective, the economic power of the GCC countries, which control sovereign wealth funds worth more than US$2 trillion, is important to China’s global financial system, as in the GCC foreign currency markets, particularly in the UAE and Qatar, the RMB has a high standing. Several banks in Dubai issued foreign bonds in RMB in 2021. 

Finally, many of the GCC countries plan to align their national economic development programs with Chinese projects, particularly those sustained through the BRI. These include Saudi Arabia’s 2030 Vision and Kuwait’s 2035 Vision. 

This article originally appeared on China Briefing


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