China and the Persian Gulf

How is China's growing influence affecting its relations with nations in the Persian Gulf? On Monday, July 12, 2010, the Middle East Program, the Asia Program, and the Kissinger Institute for China and the United States hosted a conference to consider China's role in the region, changing views from within the Gulf on China's presence, and what this expanded presence means for the United States.

 China's view of the Persian Gulf has shifted along with changing forms of governance in the region and with Beijing's own national strategy. As Wu Bingbing notes, the communist regime in the People's Republic of China (PRC) viewed the monarchical Gulf states with deep suspicion throughout the 1950s and 1960s. The PRC therefore expanded its ties with Baghdad after revolution in Iraq in 1958 overthrew that nation's ruling regime. From 1967 to 1971, moreover, China supported revolutionary movements in the region, but with the improvement of PRC-U.S. relations, and growing hostility between Moscow and Beijing, China adopted a softer line from 1971, focusing on socialist modernization in the region instead of revolution. In the 1990s, after the show of U.S. force to repel Iraq's invasion of Kuwait proved America's regional dominance, and the collapse of the Soviet Union and condemnation of the Tiananmen Square massacre left Beijing isolated on the world stage, China adopted a low profile in the Gulf, a policy that has continued in the post-9/11 period. China remains "detached generally, involved appropriately" in the region.

According to Emile Hokayem, this policy of detachment has influenced Persian Gulf views of China. With few historical connections, China is seen as an honest broker, freed from the political baggage of colonization or historical military adventurism. This has allowed Beijing to play a larger role in the Gulf. The region is already China's largest oil provider. By 2020, trade between China and the Gulf will top $350 billion, while trade between China and the United Arab Emirates alone will likely reach $100 billion. A free trade agreement with China is also a priority for the Gulf Cooperation Council, and China is bidding for major contracts throughout the region. China's less than demanding labor, environmental, and human rights standards make it even more attractive as a partner to leaders in the Gulf, who can be assured that Beijing, unlike the United States, will not raise these issues in negotiations. As a non-western, but growing nation, moreover, China might also serve as a model of development for Gulf nations.

For the United States, however, China's involvement in the Persian Gulf presents the convergence of two major security problems: First, China's rise; and second, American energy security, an issue that Washington has taken seriously since the oil shocks of the 1970s. Rather than viewing China's growing role in the Persian Gulf as a source of competition, however, Jon B. Alterman believes that China and the United States need to cooperate in their strategies towards the Gulf. This is problematic for China, which has little or no desire to enforce regional security—indeed, Beijing views previous U.S. efforts to do so as destabilizing. While China's support of liberation movements has long ceased, the problem of terrorist groups operating in the region is not as central to Beijing's conceptualization of security as it is in Washington. Nevertheless, Alterman noted that "there is something inherently unstable about a region that relies on the West for security and the East for prosperity," but he interprets moves such as the dispatch of Chinese peacekeepers to Lebanon as a positive sign that there is scope for cooperation on security issues.

China's greater involvement in such operations is a sign that it recognizes the importance of its ties to Gulf states, a recognition that is evidently mutual. Citing the combined Gross Domestic Product of China and India at $6.3 trillion, a combined population of 2.5 billion, and a combined average growth of 7.5 percent, Afshin Molavi noted that it made perfect sense for Saudi King Abdullah bin Abdulaziz to visit New Dehli and Beijing on his first trip overseas after ascending to the throne in 2005. Since 2006 Asia has been the most important trade region for the Middle East, importing 11 million barrels of oil per day, of which China takes 6 billion barrels per day. China and India will consume 26 percent of Saudi oil by 2030 compared to 17 percent for the United States. China and, to a lesser extent, India will continue to consume Gulf oil as their economies grow, a point not lost on officials in the Gulf, who view reliable and sustainable demand for oil, the lifeblood of their region's economy, as a security issue.

For China, however, the issue of reliability revolves around supply, and this affects the way Beijing structures its relations in the Gulf. According to Jean-François Seznec, China has favored relations with Saudi Arabia and its oil company Saudi Aramco, which has a reputation for stability, over other regional actors, particularly Iran. Political instability and even the threat of U.S. or Israeli military retaliation against Iranian provocation make Iran a less than attractive partner for Beijing. This is reflected in the decreasing trade flows between Iran and China, with total bilateral trade amounting to $21 billion, including the $10 billion from Iran's oil trade. By contrast, China's total trade with Saudi Arabia is $60 billion, which includes 20 percent of China's oil supply. Meanwhile, Saudi Arabia uses its cheap and indigenous supply of natural gas—a product that China can procure cheaply elsewhere—to make quality chemicals for use in China's burgeoning manufacturing sector. The deep links forged between Riyadh and Beijing mean that, in Seznec's words, China can afford to "amuse Tehran" by offering deals to which Beijing need not fully commit. This represents a major problem for Iran, given that it desperately needs Chinese investment to fund its natural gas production projects.

Indeed, focusing particularly on China's relations with Iran, Erica Downs noted that the prospects of cooperation between the two nations do not look good. Unlike in Saudi Arabia and Iraq, where Chinese investment is conspicuous, Beijing has learned that Iran is a "hard place to do business." Terms offered to foreign investors in Iran are hard to negotiate and not particularly attractive. Meanwhile, international pressure on China to comply with international sanctions against Iran over the latter's nuclear program have complicated the bilateral relationship between Beijing and Tehran. Downs believes that actual Chinese investment in the exploration and production of Iranian petroleum is barely a fraction of the $80-100 billion that is often reported. This higher figure includes non-binding arrangements, and thus cannot be interpreted as a sign of the extent of the investment relationship.

By Bryce Wakefield
Robert M. Hathaway, Director, Asia Program