Trump's trade war sees China make gains in the Gulf

Trump's trade war sees China make gains in the Gulf
Comment: The UAE and China have found love in the middle of a trade war, writes Elisabeth Siegel.
7 min read
31 Jul, 2018
Crown Prince of Abu Dhabi rolled out the red carpet for President Xi Jinping's visit[AFP]
As the United States buckles down on its trade war and hikes up its tariffs on Chinese imports, China has been busy tightening up its Belt and Road Initiative (BRI), with several new projects announced during a flurry of visits to Middle Eastern and African countries since the start of the trade war in July.

BRI, masterminded by President Xi Jinping, aims to link China with 68 other countries by land and sea, through investing in infrastructure and energy projects that promote commerce, technological innovation, and fast transportation. Countries involved in the gambit extend from Southeast Asia to Europe and East Africa.

Of late and especially since the start of July, China has expanded its economic presence throughout key BRI countries, who are drawn to the sprawling technological and energy-related infrastructure advancements that China is funding for BRI client states.

China has received positive responses from staunch US allies, including the UAE and Saudi Arabia, in spite of China's positive relationship with Iran.

Consider the UAE: Xi Jinping made the first Chinese Communist Party (CCP) state visit to the United Arab Emirates in 29 years last week. Greeted with fanfare, a 21-gun salute, and the Chinese flag beaming from all 163 floors of the Burj Khalifa, Xi met with the ruler of Dubai and the crown prince of Abu Dhabi before jetting off to more meetings on the African continent.

BRI took centre stage during meetings and in the 13 total Memoranda of Understanding (MoUs) signed between China and the UAE during the visit.

Chinese investments may find a home in UAE's dynamic tech industry

The UAE currently sources most of its imports from China, and is particularly attractive for key investment and partnership areas: Dubai has a strong business-friendly infrastructure, and recently the UAE cabinet passed a ruling that allows 100 percent foreign ownership for certain industries to be determined later this year.

Chinese investments may find a home in UAE's dynamic tech industry, specifically within the growing IT sector, which is valued at almost US$8 billion and set to grow five percent every year until 2020.

The UAE government has simultaneously zeroed in on technological innovation as a priority for its vision to diversify its economy. It has created, for instance, the Dubai Blockchain Strategy, which is ripe for the support of China, a world leader in fintech.

Chinese President Xi Jinping (R) and Crown Prince of Abu Dhabi Sheikh Mohamed bin Zayed Al Nahyan (L) review the 
honourary guards at the presidential palace in the UAE capital on July 20, 2018. [AFP]

Dubai Internet City has paved new Chinese partnerships, with Chinese giants Huawei and several others. Technological exchanges between the UAE and China have intensified over recent years and endeared the UAE government to China's prowess.

China has set up exchange programmes that have physical bases in its western provinces and in five locations throughout the GCC, such as the China Arab States Technology Transfer Center. These centres have allowed for significant agricultural technologies to be shared with the UAE along with Oman, Saudi Arabia and other states, with Dubai receiving intelligent greenhouse management and water saving systems.

UAE's tech-focused vision dovetails neatly with China's current industry strengths in renewable energy and Artificial Intelligence (AI). Thus, the UAE and China have found love in the middle of a trade war, so to speak, as China is further incentivised to turn to client states on the BRI pipeline and away from major rivals like the United States for commerce and investments.

UAE's tech-focused vision dovetails neatly with China's current industry strengths

Enter the US-China Trade War.

China is seeking out viable alternatives to its American choices of cargo, and Xi is willing to help Arab countries if it means getting what he wants.

More deals with UAE, encompassing everything from oil and commodities to people-to-people exchanges, were signed to indicate both parties' literal and ideological commitment to the BRI.  

Read more: UAE, China sign raft of deals after Xi visit

During the state visit, the Abu Dhabi National Oil Company signed a deal with the China National Petroleum Corporation (CNPC) to strengthen collaborations and to award a contract worth US$1.6 billion to the CNPC for the world's largest offshore 3D seismic survey.

The UAE AI & Robotics Award for Good at Dubai Internet City on 6 February, 2016 in Dubai, United Arab Emirates [Getty]

Dubai's DP World inked a pact with Zhejiang China Commodities City Group for a BRI-focused new traders' market at the Jebel Ali Free Zone. The UAE and China set a goal to double both China-UAE trade and the annual volume of Chinese tourists to the UAE by some unstated point in the future. Also in the UAE, China's Silk Road Fund took on around 24 percent interest in the world's largest single-site solar thermal plant.

Saudi Arabia's Aramco has also received increased Chinese attention since the start of July, as China has swooped in to staunch the bleeding from flagging global demand. This year alone, 970,000 tons of Aramco oil have been already shipped to China, compared to the total sale of almost 1.1 million tons in all of last year.

China's activity in the UAE and Saudi Arabia is a part of its wider strategy of late. In July, during the China-Arab ministerial forum, the Chinese administration promised more than US$23 billion to Middle East countries in an "oil and gas plus" model of investment, involving both humanitarian aid and loans.

As the United States has backed away from the region, China has increasingly stepped in, providing the economic and political support that MENA leaderships are so used to receiving from the United States.

China announced an additional US$20 million of humanitarian aid to Palestine

At the forum, China announced an additional US$20 million of humanitarian aid to Palestine and urged both sides of the conflict to respect the "international consensus" on controversial issues.

Even as China maintains strong economic ties with Israel, its stated neutrality toward the larger conflict (compared with the United States' bankrolling of the Israeli occupation) and continued aid to Palestine could endear it among other Arab states.

China's long-term goal, according to some analysts, is a Free Trade Agreement with all 21 Arab countries and even its own "Marshall Plan" that extends over BRI countries, particularly in the Middle East and Africa. It is the crowning glory of prominent Chinese political scholar Wang Jisi's 2013 exhortation for China to "March Westward" during the Obama administration's "pivot to Asia."

Achieving that end goal is not going to be easy, especially with the vortex of conflict within the destabilising environment of the ever-escalating Saudi-Iran rivalry.

Many Arab countries may be galvanised to buy into the BRI, as they do not want Iran alone to reap all of China's goodwill and the BRI's tangible benefits.

However, China's strong relationship with Iran may act as a stumbling block for future collaborations with Gulf countries, particularly as the strongest two economies in the region - Saudi Arabia and the UAE - remain stalwart US allies and diametrically hostile toward Iranian influence.

Tensions in Syria, Lebanon, Yemen and Palestine may jeopardise China's regional investments if they cause Saudi Arabia and Iran to spin out of control. China most of all worries that instability and radicalisation caused by extremist actors like IS and the Taliban may spill over to affect its critical western regions, particularly Xinjiang, which have become key economic and transport hubs under BRI.

China is further incentivised to turn to client states on the BRI pipeline and away from major rivals like the United States 

The United States' new policy of eschewing multilateralism in favour of a zero-sum desire to "win" in every exchange and relationship (except maybe with Russia) signifies that China can exert a more seductive pull on BRI countries through its (allegedly) "win-win" deal-making and technological exchanges.

The underlying psyche that prods the US administration to undertake a trade war with its rival is a growing anxiety over the popularity of the China Model - a planned economy with a capitalist-only-when-it-suits-me mindset - and its challenge to the America-led liberal market system.

Whether this trade war will see the United States better off on a macro scale cannot be predicted. The one thing for sure, though, is that this policy decision has caused China double down on its March West at a renewed pace, and tighten the BRI up a notch, cementing its influence throughout the Middle East.

Elisabeth Siegel spent the summer as a research intern with Albright Stonebridge Group's MENA practice. She is a student at the Jackson Institute for Global Affairs at Yale University focused on Middle East politics and China-Middle East relations.

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Opinions expressed in this article remain those of the author and do not necessarily represent those of The New Arab, its editorial board or staff.