Chasing the dragon

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Trade ties are deepening between China and the Gulf states, with Beijing edging out the US as the biggest single country exporter to the Middle East. But is this new pairing a love match or just a marriage of convenience?

Yiwu is a small city. Tucked away in China’s coastal Zhejiang province, it is home to fewer than a million people, a speck by Chinese standards. It is also home to more than 1,000 Arabic translators, a dozen Arabic restaurants and what is described as the largest wholesale market in the world. More than 200,000 Arabs visit its bustling streets each year. All have come to trade.

A new Silk Road is on the rise, weaving from China’s bustling ports and market towns through the Gulf’s oilfields and back. The merchants on this route are Gulf states, looking East for long-term oil contracts and cheap consumer goods, and China, searching to plug its energy deficit and find growing markets for its factories.

In the past eight years, trade between the two regions has rocketed. In 2000, Chinese exports into Saudi Arabia stood at SR4.48bn ($1.19bn). According to a research note by SABB, trade volume last year had leapt to SR40.13bn ($10.7bn). Saudi, for its part, tussles with Angola and Iran to be China’s largest oil dealer (China’s energy demands outstrip its domestic supply) last year exporting SR116.25bn ($31bn) worth of oil — the equivalent of 720,000 barrels per day. Not bad for a country that only established diplomatic relations with China in 1990.

“It’s clear relations are strengthening rapidly,” says Ben Simpfendorfer, chief China economist at Royal Bank of Scotland and author of ‘The New Silk Road’. “For all the talk of China’s imports of oil from the Middle East, its exports of consumer goods to the Middle East almost match that amount.”

China earlier this year overtook the US as the largest single country exporter to the Middle East. Trade with Qatar alone, the smallest Gulf state, topped $2bn.

“Chinese exporters now cite the region as a focus area for them because of growing demand,” says Simpfendorfer. “It’s not enough to replace the US [market] but it’s another source of demand.”

Historically, China and the Gulf are both ardent suitors of the West, each counting the US as their prime ally. So why the change? Put simply, China needs a vast amount of oil and the Gulf has it to sell. The Middle East wants consumer goods, and China can supply them. It is largely a marriage of convenience, says academic Christopher Davidson, who has studied trade ties between the two regions.

“On the one hand, you have Islamic states and on the other, a socialist and increasingly capitalist state in China. They are not comfortable bedfellows,” says Davidson, author of ‘Abu Dhabi, Oil and Beyond’. “I don’t think they really like each other. There is a certain cultural incompatibility in inviting secular people from a communist background — that is against everything the Gulf economies stand for. But this unusual marriage makes good business sense at the moment.”

From a slow start, relations have warmed; largely through necessity. The backlash against Middle Easterners in the wake of the September 11 terror attacks forced Gulf businesses to search for new places to park their petrodollars, as America shut its doors. At the same time, China relaxed its previously ironclad visa restrictions, opening up a new market for Arab traders. While it took two weeks to get a visa for America — if it arrived at all — China delivered in one day.

It was a timely move. As China emerged as a major exporter of consumer goods, rising crude prices — partly fuelled by Saudi’s third oil boom in 2003 — created a new breed of cash-rich Arab buyers. It was, says Simpfendorfer, a “fairly explosive combination”.

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