Zhang Dejiang, chairman of the Standing Committee of China's
National People's Congress, with the UAE's chairman of the Federal
National Council Mohammed Ahmed al-Mur
Chinese firms have been investing in blue chip companies, snapping up high-end real estate and logistics firms around the world. Shanghai International bought American meat company Smithfield for $4.7 billion in May, and China Merchants Holdings (International) Company acquired a 49 percent equity stake in port operator giant CMA CGM’s Terminal Link in June. But there have been hardly any such acquisitions, manufacturing deals or the like in the Middle East and North Africa over the past few years.
Between 2005 and 2012, there were just 16 Chinese investments of more
than $100 million in the MENA region out of 404 investments worldwide,
or 3.63 percent, according to data compiled by the Heritage Foundation.
So far in 2013, there have been none.
Out of the $688.1 billion that Chinese firms have invested globally
since 2005, MENA accounts for $82.15 billion, or 11.9 percent of the
total, a few points ahead of Chinese investment in Australia alone, at
$58.2 billion, or 8.4 percent. Exclude firms’ investments in Iran,
Israel and Turkey, and the Arab world accounts for $55.45 billion, or 8
percent of Chinese firms’ investment flows.
“Much of the trade is still limited to small traders
and companies. Direct investment is rare,” says Ben Simpfendorfer,
managing director of Hong Kong-based consultancy firm Silk Road
Associates, which has been involved in the Dubai International Financial
Center’s “New Silk Road” conferences. “What will drive the relationship
forward will be private investment.”
China-MENA trade is not strictly limited to MENA
energy flowing to China with Chinese goods and contractors heading the
other way, yet the “New Silk Road” that is frequently touted has not
materialized to the same degree as many expected. “It is a bit of a
mystery, as the relationship should be much closer,” says David Roberts,
director of Royal United Services Institutes (RUSI) in Qatar, a British
think tank with an office in Doha. “It is an issue of how to do it, to
make it stronger, but there is no panacea.”
Nonetheless, the Arab world and China are keen to bolster ties further,
certainly at the trade level, setting a target in 2012 at the Fifth
Session of the Ministerial Meeting of the Forum on China-Arab
Cooperation of a projected $222 billion in bilateral trade this year to
reach $300 billion in 2014.
“The relationship has definitely gone beyond energy. It is not just
Arabs wanting to expand economic relations, but also the Chinese trying
to reach out to the Arab world,” said Ghanem Nuseibeh, founder of London
and Dubai-based political risk analyst group Cornerstone Global
Associates.
Yet such figures compared to the European Union and the US are far from
stellar — China-EU trade in 2011 was $567.2 billion, and bilateral
trade with the US was $536 billion in 2012. From the Gulf Cooperation
Council (GCC) countries, far more heads in China’s direction — primarily
hydrocarbons — than the other way, with exports of $92 billion in 2012,
compared to imports from China of $59 billion. Excluding Bahrain and
the UAE, the other GCC countries run sizable trade surpluses with China.
Public over Private Investment
China is attempting to cozy up to MENA countries, but this is
complicated by not being able to bring much to the table. Capital rich
GCC countries have no real need for the Chinese to build roads, railway
networks or the like; the GCC countries themselves can pay for these
networks. Indeed, Chinese contractors are winning government contracts,
not Beijing-funded overseas development projects. Away from energy and
construction projects, China wants to invest in technology and valued
added goods, and to acquire stakes, or outright own companies, not just
build-operate-transfer (BOT) style deals.
“A lot of MENA countries don’t want to sell their oil
assets, even though the Chinese would love to buy — and overpay for —
them, as they do all over world. So if not buying, then something else
is needed. That is where energy and construction comes up, and the
Chinese are very good at power plants, which a lot of MENA needs. It is
about building stuff to improve overall diplomatic ties and strengthen
[the] energy relationship,” said Derek Scissors, an Asia economist in
charge of the China Global Investment Tracker at the Heritage Foundation
in Washington, D.C.
Looking at China’s investments in the MENA overall, there is a clear
bias toward energy producing countries. Those that are less significant
energy exporters but could do with financial and infrastructure aid —
take Yemen or Lebanon — do not attract the same levels of investment
from China; they cannot compete with resource-rich Algeria, Libya, Iran
or the sub-Saharan African countries.
While there are clear foreign policy objectives in Beijing’s overseas
business dealings, opinion is split over the degree that foreign
investment and projects are a state-orientated means of expansion. “As
far as China is concerned, a lot of state-backed ventures are not
necessarily looking for returns. It is not unusual to come across a
Chinese state fund expecting a return on investment of zero. The reason
for that is purely political, and much of that is being reciprocated
from the Arab side,” said Nuseibeh.
Simpfendorfer believes that while there is a degree of state interest
in gaining new markets, and a “quirk of the contemporary period,” it is
not all about bolstering relations to the detriment of the bottom line.
“The government sets general policy and guidance, and if, say, a company
wants to get into the resource sector, it may find it easier to get
preferential financing, or approval for direct investments, but more in
the sense of guidance,” he said. “It is not the [Chinese] government
saying ‘we want you in this sector by buying this asset.’ Ultimately
these companies are driven by profit. It is a bit like a horse race,
with 10 all competing, and all going in the same direction. It does give
the appearance that state companies are responding to direct state
intervention, but [they] are typically behaving in a way the state
approves of.”
Arab investment in China, however, is more overtly
foreign policy driven, being primarily sovereign wealth funds (SWFs) and
energy companies seeking to consolidate the relationship. And Scissors
points out that MENA investors missed out on opportunities in the 1990s
when China really started to become an economic behemoth, and the
opportunities have been drying up since then. “MENA came late to the
game and is very energy focused, and now [China] is not a really great
place to invest,” he said.
One of the obstacles to developing the MENA-Sino relationship is that
it has not really moved beyond state-to-state level deals: these include
a $2 billion deal with the Industrial and Commercial Bank of China
(ICBC) and the China State Construction Engineering Company in 2012 to
fund and develop 30 projects for the Abu Dhabi government-owned Aabar in
the emirate, and GCC SWFs investing in China’s Qualified Foreign
Institutional Investor program.
As RUSI’s Roberts noted, “Look at Qatar, for example.
It wants to invest in China, and the Qatar Investment Authority, the
country’s SWF, opened an office in Beijing, but the biggest investment
was an [initial public offering] for the Agricultural Bank of China —
$2.8 billion in 2010 — and not much else. These things have to be
offered on a silver platter, with a great big IPO, and [then Qataris]
are happy to invest. Otherwise I don’t think they have the capability,
and the Qataris are not alone. They won the right to invest in China’s
Qualified Foreign Institutional Investor scheme. So they have that
ability, but the question is, now what?”
Bolstering the Relationship
For the relationship to go beyond oil and mercantile
trade, private investment in both regions needs to be bolstered. China’s
financial market is largely insular and has had a mixed track record,
and its currency, the Renminbi, is not traded on international markets.
MENA, on the other hand, is more Western orientated, particularly when
it comes to finance and large scale investments. In that sense,
Chinese-Arab relations are very minor compared to Arab-Western banking
and financial relations. “I don’t expect Chinese banks to replace or
take a big chunk of MENA finance. It will take a long time for the
Chinese to creep into that sector — probably the last one [China is]
able to effectively penetrate,” said Nuseibeh.
For such relations to change, there needs to be better connections at
the top levels. “Gulf investors and politicians don’t know their Chinese
counterparts but know people who matter in all the capitals in Europe;
they’ve been to their houses and have their phone numbers and will get a
call if there is an opportunity, but that is not the case with China.
And why make acquisitions in a place they’ve never heard of in China,
when they could buy Harrods [of London]? A flippant point, but worth
making, that the GCC is more comfortable with the EU,” said Roberts.
Change is afoot however at the cultural-linguistics level. Some 3,500
Gulf students are studying in China, while Chinese Muslims are being
encouraged by Beijing to go and work in the Arab world. Furthermore,
some 1,200 Chinese diplomats are studying Arabic. “That will obviously
lead to stronger relations with people. The Chinese are taking their
time, but on a firm road to strengthen relations,” said Nuseibeh.
It appears that it will be some time before the “New Silk Road” will be about more than just energy.
| Chinese Investment in MENA | |||
| Country | Sectors | Amount | Year(s) |
| Oman | Agriculture | $150 mn | 2005 |
| Algeria | Transportation ($8.8 bn) Real estate ($2.3 bn), Energy ($390 mn) | $11.5 bn | 2005-2013 |
| Iran | Metals ($2.7 bn), Transportation ($2.1 bn), Energy ($13.9 bn) | $18.6 bn | 2005-2013 |
| Turkey | Transportation ($1.4 bn), Real estate ($780 mn), Energy ($4.3 bn) | $6.4 bn | 2005-2013 |
| Saudi Arabia | Metals ($5.2 bn), Transportation ($1.2 bn), Real Estate ($2.2 bn), Agriculture ($1.3 bn), Energy ($3.3 bn), Other ($350 mn) | $13.6 bn | 2005-2012 |
| Libya | Transportation ($2.6 bn), Real Estate ($400 mn) | $3 bn | 2007-2008 |
| Kuwait | Transportation ($410 mn), Real Estate ($960 mn), Energy ($350 mn) | $1.7 bn | 2007-2012 |
| UAE | Technology ($120 mn), Real Estate ($4.9 bn), Agriculture ($130 mn), Energy ($3.3 bn) | $8.5 bn | 2008-2013 |
| Egypt | Metals ($940 mn), Transportation ($340 mn), Real Estate ($650 mn), Energy ($2 bn), Other ($230 mn) | $4.2 bn | 2006-2012 |
| Israel | Technology ($240 mn), Agriculture ($1.4 bn) | $1.7 bn | 2010-2013 |
| Qatar | Transportation ($880 mn), Real Estate ($1.4 bn), Energy ($100 mn) | $2.4 bn | 2006-2011 |
| Iraq | Energy ($6.6 bn) | $6.6 bn | 2007-2012 |
| Syria | Energy ($3.8 bn) | $3.8 bn | 2005-2010 |
| Total | $82.15 bn | ||
| Major Chinese Investment Worldwide | |||
| Country | Sectors | Amount | |
| Australia | Metals ($29.7 bn), Transportation ($550 mn), Real Estate ($1.6 bn), Agriculture ($1.5 bn) Finance ($330 mn), Energy ($24.4 bn), Other ($180 mn) | $58.2 bn | |
| USA | Metals ($1.3 bn), Technology ($3 bn), Transportation ($2.5 bn), Real Estate ($5.8 bn), Agriculture ($4.8 bn), Finance ($20.3 bn), Energy ($15.5 bn), Other ($4.8 bn) | $57.6 bn | |
| Canada | Metals ($3.3 bn), Energy ($33.1 bn) | $37.6 bn | |
| Britain | Metals (800 mn), Transportation ($1.4 bn), Real Estate ($3.3 bn), Agriculture ($3.4 bn), Finance ($4 bn), Energy ($4.9 bn) | $17.8 bn | |
| Chinese Investment in Africa | |||
| Country | Sectors | Amount | Year(s) |
| Angola | Transportation ($350 mn), Real Estate ($5.1 bn), Energy ($2.1 bn) | $8.1 bn | 2005-2013 |
| Mauritania | Transportation ($770 mn), Agriculture ($300 mn) | $1.1 bn | |
| South Africa | Metals ($2.7 bn), Finance ($5.9 bn) | $8.7 bn | |
| Zambia | Metals ($1.5 bn), Transportation ($280 mn), Real Estate ($420 mn), Agriculture ($150 mn), Energy ($1.9 bn) | $4.3 bn | |
| DRC | Metals ($6.2 bn), Energy ($660 mn), Other ($100 mn) | $6.9 bn | |
| Chad | Transportation ($6.6 bn), Energy ($200 mn) | $6.8 bn | |
| Equatorial Guinea | Real Estate ($240 mn), Energy ($650 mn) | $890 mn | |
| Ghana | Metals ($1.5 bn), Transportation ($150 mn), Real Estate ($360 mn), Agriculture ($530 mn), Energy ($2.5 bn) | $4.7 bn | |
| Niger | Metals ($190 mn), Energy ($5 bn) | $5.2 bn | |
| Gabon | Transportation ($890 mn), Energy ($400 mn) | $1.4 bn | |
| Liberia | Metals ($110 mn) | $100 mn | |
| Botswana | Energy ($1.1 bn) | $1.1 bn | |
| Madagascar | Energy ($290 mn) | $290 mn | |
| Congo | Transportation ($2.1 bn), Real Estate ($140 mn), Agriculture ($120 mn), Energy ($380 mn) | $2.8 bn | |
| Togo | Transportation ($380 mn), Energy ($370 mn) | $750 mn | |
| Sierra Leone | Metals ($1.8 bn), Transportation ($3 bn) | $4.7 bn | |
| Guinea | Metals ($7.3 bn), Energy ($530 mn) | $7.8 bn | |
| Uganda | Metals ($100 mn), Transportation ($350 mn), Energy ($3.1 bn) | $3.6 bn | |
| Mosambique | Real Estate ($740 mn), Agriculture ($250 mn), Energy ($4.2 bn) | $5.2 bn | |
| Sudan | Transportation ($1.5 bn), Agriculture ($600 mn), Energy ($400 mn) | $2.5 bn | |
| South Sudan | Energy ($1.4 bn), Other ($210 mn) | $1.6 bn | |
| Mauritius | Transportation ($300 mn), Real Estate ($750 mn), Energy ($110 mn) | $1.2 bn | |
| Zimbabwe | Metals ($400 mn), Transportation ($200 mn), Real Estate ($100 mn), Agriculture ($200 mn), Other ($200 mn) | $1.1 bn | |
| Nigeria | Technology ($1.7 bn), Transport ($5.1 bn), Real Estate ($1.2 bn), Energy ($8.6 bn) | $18.5 bn | |
| Djibouti | Transportation ($700 mn) | $700 mn | |
| Ethiopia | Technology ($2.4 bn), Transport ($2.5 bn), Real Estate ($270 mn), Agriculture ($650 mn), Energy ($4.8 bn) | $10.2 bn | |
| Cameroon | Metals ($660 mn), Transport ($1.6 bn), Agriculture ($870 mn), Energy ($1.5 bn) | $4.6 bn | |
| Africa total | $115.1 bn | ||
| Chinese investment worldwide | |||
| World total | $688.1 bn | 100.00% | |
| MENA | 82.15 bn | 11.90% | |
| MENA (Excluding Israel and Turkey) | $74.05 bn | 10.76% | |
| Arab World (excluding Iran, Turkey and Israel) | $55.45 bn | 8.00% | |
| Africa | $115.1 bn | 16.72% | |
| Australia | $58.2 bn | 8.40% | |
| USA | $57.6 bn | 8.30% | |
| Other | $428.25 bn | 62.20% | |
| Source: Data compiled by The Heritage Foundation, reprinted with permission |
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