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The risks and rewards of China's deepening ties with the Middle East
John Calabrese
7/15/2005

China has raised its diplomatic profile in the Middle East and North Africa, successfully negotiating a number of big sticker long-term energy contracts in the region. What do these activities reveal about China's evolving role in world affairs and in Middle Eastern affairs in particular? And what do they portend for the United States?

Senior Chinese officials and commercial delegations have been busy at work in the Middle East and North Africa, seeking to benefit from the traditionally friendly relations they have developed over the years with the region's various governments. The primary aim of China's diplomacy in the Middle East, as in other regions, is to serve the central task of economic modernization. With respect to the Middle East, China's core economic interest is access to oil and gas to meet its skyrocketing energy needs.

Diplomacy has helped pry open the door for China's giant state oil firms to secure equity stakes in oil and gas fields from the Maghreb to the Persian Gulf. In addition, Chinese diplomacy has succeeded in institutionalizing Sino-Middle Eastern relations through mechanisms such as the newly established China-Arab Cooperation Forum and the China-GCC Framework Agreement (which sets the parameters for future economic cooperation).

Though Beijing laid the groundwork for business in the Middle East, it is China's three state-run energy conglomerates that have capitalized on it. The China National Petroleum and Chemical Corporation (Sinopec) has scored big successes in Iran and Saudi Arabia: a $100 billion contract with Iran to buy 10 million tons of liquified natural gas (LNG) per year over 25 years, and a 50 percent stake in the Yadavaran oilfield; not to mention a contract to explore and produce natural gas in the Rub al-Khali Basin in Saudi Arabia. The China National Petroleum Corporation (CNPC) continues to invest heavily in Sudan's energy sector, which it entered in 1995. Moreover, Sinopec, CNPC and the China National Offshore Oil Corporation (CNOOC) have secured oil import and prospecting contracts in Algeria.

These activities should be viewed in historical context. Seldom noted is that China had a policy toward the Middle East and North Africa long before it became a significant stakeholder in the region's energy market. For many years, this policy was tinged with Maoist ideology, and guided by the principles of third world solidarity and support for national liberation struggles. Yet, in material terms, this support never amounted to much.

Until the 1980s, the Middle East was a relatively low priority for Beijing, whose attention focused mainly on state consolidation and developments in Northeast and Southeast Asia. Sino-Middle Eastern cultural exchanges and diplomatic contacts were relatively infrequent, personal and institutional relationships were comparatively few, and China's capacity to project either hard or soft power was limited.

Still, China's economic presence in the region pre-dated the launching of Deng Xiaoping's Four Modernizations. Over the years, the scale and scope of these economic activities progressively developed from road-building crews, to the occasional engineering and turnkey projects, and then to large-scale, long-term contracts primarily, though not exclusively, in the energy sector.

Not surprisingly, the aspect of China's burgeoning Middle Eastern presence that captured the international attention was its sale of ballistic missiles and related technology to Iran and Iraq during the Iran-Iraq conflict, and of long-range CSS-2 missiles to Saudi Arabia. These transactions raised questions both about the effects and the underlying strategic objectives of China's growing involvement in the Middle East, particularly the Persian Gulf.

The Fourth Plenum of the 16th Chinese Communist Party (CCP) Central Committee in September 2004 marked the beginning of the Hu Jintao era. The Plenum "Decision" document assigns top priority to defending national sovereignty and state security at a time when "hostile forces are still pursuing their strategic attempts to westernize and divide China." For China's Fourth Generation leaders, as for their predecessors, at the forefront of these concerns is Taiwan a flashpoint of potential conflict between the U.S. and China in spite of the fact that since 9/11 the Sino-American bilateral relationship has been generally stable and constructive.

How, then, does the Middle East factor into Chinese geopolitical thinking? Over the years, the Chinese leadership has consistently viewed developments in the Middle East through a global strategic lens. They have long regarded the region as a focal point of great power rivalry, and have viewed developments there as reflecting and reinforcing broader geopolitical trends.

American preeminence is the dominant structural feature of the present-day international system. This is something with which the Chinese leadership is not at all comfortable. Most troubling to Beijing are the cardinal elements of the Bush Doctrine unilateralism, regime change, and preventive war. The fact that this doctrine has been applied chiefly in the Middle East has been of some benefit to China. American attention and resources have been diverted from East Asia at the very time when China is seeking to consolidate its power and influence in that region.

But the substantial American military presence in Iraq and elsewhere in the Gulf, as well as the post-9/11 military thrust into South and Central Asia, poses a challenge to China. A gradual deterioration of the Sino-U.S. bilateral relationship cannot be ruled out, nor can the possibility of conflict. Either eventuality would place in jeopardy the economic ties with the Middle East that Beijing has worked assiduously to develop ties that today make the region vitally important to China.

The Middle East's strategic significance to China is directly related to the trajectory of the Chinese economy. As a result of its massive industrial expansion, China's energy consumption and dependence on foreign sources of supply have soared. Accordingly, the development of and trade in fossil fuels and petroleum products lies at the heart of Sino-Middle Eastern relations.

The Director of Energy Economics and Development Strategy at China's National Development and Reform Commission, Gao Shixian, along with other Chinese officials estimate that by 2010, oil will account for between 51.4 percent and 52.6 percent of China's energy needs, up from 29.1 percent in 2000. According to the International Energy Agency (IEA), China currently imports 32 percent of its oil, but this is likely to double between now and the end of the decade. China's gas consumption is rising at an even faster pace, with imports projected to increase from zero in 2000 to 20-25 million cubic meters by 2010.

Today, 58 percent of China's oil imports come from the Middle East. In order to mitigate the risks associated with such a high degree of dependency and to reduce exposure to sharp price hikes on the open market, China has adopted a global strategy of geographical diversification of supply and acquisition of equity stakes in foreign oil/gas fields. As a result, China's energy firms own such shares in 20 different countries. But diversification away from the Middle East has its limits. Two-thirds of proven oil reserves are located in the region, most in the Gulf. Meanwhile, reserve-to-production ratios show that the reserves of non-Middle Eastern producers are fast being depleted, as are China's own fields. The IEA expects Chinese oil imports from the Middle East to rise to at least 70 percent by 2015. The future of the Chinese economy is thus inextricably tied to the Middle East.

Yet it must be said that China is not alone in seeking to adjust to its increasing reliance on Middle Eastern energy supplies. India is the other "locomotive" driving global oil demand and cross-regional energy interdependence. Like China, India has joined the hunt for equity stakes in oil and gas blocs both in the Middle East and farther afield. While this has spurred intense head-to-head competition, it has also engendered partnerships between Chinese and Indian state energy firms, which are joint stakeholders in large oilfield development projects in Iran and Sudan.

China's drive to meet its energy requirements is occurring in tandem with efforts to secure access to raw materials with which to feed its industries. From the Middle East and Africa to Latin America, Chinese firms are investing in the development of the physical infrastructure needed to extract and transport these resources. Meanwhile, Chinese consumer products and other manufactures are becoming increasingly desirable and price competitive in the Middle East, as in other regions.

Taken together, these developments signify that China has become a powerful actor in the global economy. Yet, the Chinese leadership, though flush with confidence in the face of these achievements, is profoundly concerned that growth might stall or could be disrupted. In this sense, China's most acute strategic liability is heavy dependence on foreign energy supplies, a large proportion coming from the Persian Gulf and carried by tankers along a maritime passageway patrolled by the United States.

In order to sustain the present rate of economic growth, China requires vast quantities of inputs, not least secure access to increasing amounts of Middle Eastern oil and natural gas. This is reason enough to explain why China has already invested considerable attention and resources in building long-term multifaceted relationships in the Middle East.

What are the secrets to China's success? For one thing, China has skillfully exploited its comparative advantages. It does not carry the historical baggage of being a colonial power. It has not laid out a vision or a policy to transform the region. And it is a huge market and magnet for investment. China has also been opportunistic willing to engage those whom the U.S. has sought to isolate, and willing to "barter for safety" by offering preferential loans and other financial inducements.

What are the implications of the further consolidation of Sino-Middle Eastern ties? On the diplomatic front, China, focused on protecting and positioning itself for long-term access to Middle Eastern energy supplies, is slowly shedding its cautious posture. This could eventually lead Beijing to make the strategic decision to play a more assertive role in mediating regional disputes or to insist that no regional problem be tackled without Chinese participation.

In the meantime, there is a risk of more frequent diplomatic collisions with the United States, as in September 2004, when China threatened to use its veto to block U.S. sanctions on Sudan over the crisis in Darfur; two months later, China signaled opposition to the U.S. call to refer the issue of the Iranian nuclear program to the UN Security Council.

On the military front, China is expanding its navy but is a long way from becoming a major maritime power on a scale that could challenge or supplant the United States. And in the meantime, China enjoys a U.S. guarantee of safe passage of energy supplies from the Persian Gulf. It is conceivable that China might seek to form an exclusive strategic relationship with one or more Middle Eastern oil states. But even were Beijing to proffer such an arrangement, what putative partner would accept it? Finally, China could team up with other extra-regional powers to counter American predominance in the Middle East but with which powers and by what means? Clearly, Beijing seems to favor for now flexible partnerships and issue-specific tactical alignments.

The greater danger is that China might trade certain weapons or technologies (e.g., anti-ship cruise missiles or radar defense systems) for access to energy. Here, China's past practices are not reassuring. In January 2005, the U.S. imposed penalties on eight Chinese companies, including two firms affiliated with the PLA, China Great Wall Industry and China North Industry (Norinco), for transferring ballistic missile technology to Iran. The fact that the European Union, under strong U.S. pressure, has decided to maintain its embargo on arms sales to China has, for the time being, reduced the danger that some of this technology might be re-routed to Iran. Yet, even without the aid of new Western technology, China has a good inventory of conventional weapons available for sale, as does India and Russia.

For China there are risks associated with pursuing its interests in the Middle East. Beijing must tread carefully lest it be drawn into regional rivalries or a clash with the United States. For the United States there are risks associated with maintaining an extensive military presence and unilaterally asserting its prerogatives in the broader Middle East. The U.S. must tread carefully lest it unwittingly help to bring about the eventual collision with China that prudence would suggest can and must be avoided.

Dr. John Calabrese teaches U.S. Foreign Policy at American University and serves as book review editor of The Middle East Journal. He is the author of China's Changing Relations with the Middle East (1990) and numerous articles, including "Dragon by the Tail: China's Energy Quandary."

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