Friday, August 30, 2013

Only bad choices left for US in Syria

Global Times
By Paul Cochrane

Over the past week the call for military intervention has grown stronger following the alleged use of chemical weapons by the Syrian government. Given all the bluster by US President Barack Obama and British Prime Minister David Cameron, and the military buildup in the Eastern Mediterranean, some form of military intervention is probable, as is upping weapon supplies to the rebels, which Western intelligence agencies have long been covertly doing.

If missile strikes are not happening, it is because the US and its allies are waiting for UN weapons inspectors to leave without, or hopefully, with, evidence linking the Syrian army to chemical weapons usage, or else calls to hold off intervention has gained strength.

A year ago, Obama said that if chemical weapons were used by Damascus, a red line would have been crossed and action would result. The first alleged chemical weapons scare back in April did not result in any action, yet this time appears different.

It was the deaths of an estimated 500 to 1,300 people in an August 21 attack that prompted the "need for action," not the 100,000 plus killed, the 1.9 million Syrian refugees, or the plight of an estimated 4 million Syrians living at the subsistence level on bread and sugary tea.

The rationale for military intervention, even if limited, is the same as Libya in 2011: to bolster the rebels and unseat the regime of Bashar al-Assad by targeting strategic military positions. It is a cliché to say that Syria is not Libya, and vice versa, but comparisons are being made and the differences should be noted.

Libya has a small population and is geostrategically relatively isolated, with broad swathes of desert between the cities and its neighbors. Syria however has over 20 million people, and is smack-bang in the middle of the Middle East, bordering Turkey, Iraq, Lebanon, Jordan and Israel. Damascus is less than two hours drive from Beirut and Amman, and the Israeli border is equally close.

Bombing Syria could be likened to dropping a large rock in a swimming pool to soak one person and getting everyone else drenched as well. That is the danger of military intervention, not just the "what ifs" about a post-Assad Syria.

Muammar Gaddafi's Libya had no friends in the Middle East and different neighbors. Damascus though has Iran on its side and support in Lebanon, specifically Hezbollah, while Russia stands with Syria at a global level.

Yet limited strikes may very well not result in major fall out and work as a warning to Assad. After all, the US just needs to point to Afghanistan and Iraq to show it is willing and able to destroy a country if need be.

But if the attacks mortally wound the regime or are not limited, until that is the case, Iran may not brush off such a blow.

Neither would Iranian ally Hezbollah, which left the side lines this year to enter the conflict with the Syrian army, and has hooked its future to the survival of the Syrian regime.

The situation in Lebanon will also likely heat up further, with two large bomb attacks in Beirut and Tripoli in the past fortnight that were blamed on the Syrian conflict.

Yet what kind of warning are such limited strikes to Damascus? Would the international community then continue to wring its hands over the conflict, as it has since it started over two years ago, and hope the crisis simmers down? Or resort to further military intervention?

A post-conflict Syria with Assad still in power is not to the US' and its allies' liking, but neither is an Islamist Syria. There seem to be few options on the table other than the military one that will wreak death and destruction, and still see the conflict rage on.

The author is a freelance journalist based in Beirut, Lebanon

Illustration by Liu Rui/GT

Thursday, August 22, 2013

China still easing into Middle Eastern investments

 Executive Special Report - China-Middle East

 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

$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%
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%
$115.1 bn 16.72%
$58.2 bn 8.40%
$57.6 bn 8.30%
$428.25 bn 62.20%

Source: Data compiled by The Heritage Foundation, reprinted with permission

UAE: China's gateway to the Middle East

  • Executive Special Report


    The United Arab Emirates is positioning itself as China’s gateway to the Middle East and Africa (MEA). The action is focused on Dubai, where there are an estimated 200,000 Chinese residents.  
    The Dubai International Finance Center (DIFC) has been trying to market itself as a hub for Chinese corporations — public and private alike — to base their MEA headquarters in the emirate, and it has had moderate success. “Dubai is two-thirds of the way to Africa from China, so given Dubai’s stability and that many Chinese firms’ international expansion is in its early days, it makes sense for most Chinese banks to bank for Africa out of Dubai,” said Ben Simpfendorfer, managing director of Hong Kong-based consultancy firm Silk Road Associates.
    The DIFC has attracted a handful of financial institutions — ICBC, Bank of China, Agricultural Bank of China and the China Construction Bank — that essentially operate as trade facilitators. The DIFC is however working to address this shortcoming through its “New Silk Road” conferences, held since 2010, aimed at bolstering investment and financial ties between the two regions. But there is a long way to go. 
    “Talking to people at DIFC, that area remains weak, as it is confined to state-related entities. An area with potential growth there,” said Ghanem Nuseibeh, founder of Cornerstone Global Associates. “Chinese banks’ presence is growing, and certainly from what I hear with those dealing with the banks, the staff and operations are growing, but primarily servicing Chinese firms.”
    Away from finance, Chinese are flocking to Dubai. The year 2012 saw a 28 percent increase in tourists, and retail outlets hired Mandarin speakers to tap into demand for luxury products that are more expensive in mainland China. “The number of Chinese flying through Dubai is growing. It is a popular place for a vacation, and up to a third of the sales staff at Dubai International Airport are Chinese speakers,” said Simpfendorfer.  
    China’s mercantile side is largely confined to Dragon Mart, the largest concentration of retailers of Chinese products outside of China with just under 1,200 stores. The mall, with has an exterior shaped like a Chinese dragon, is considered a model of sorts that could be replicated elsewhere as an outlet for Chinese goods and traders. However, while the management claims up to 99 percent of retail is space is Chinese, a $272 million expansion currently under way that will double the mall’s size to 335,000 square meters is to be evenly split between international and Chinese retailers. And curiously, it is not a Chinese state linked firm behind Dragon Mart but Nakheel Properties, and the contractors — Kele and United Engineering Construction — are all Emirates based.

China and America's battle over the Middle East

 Executive magazine - Special Report

           China's first aircraft carrier, the Liaoning, is not yet in active service

The consequences of China’s economic interests in the Middle East and North Africa involve a layer of investments on political and security levels. One such cost is in securing the safety of energy transports and another is in the provision of defense forces around the region with military hardware. An assessment of these investments reinforces the view that China is not yet playing a large role in the Middle East as either a naval policing force or supplier of arms, especially not when compared to the United States. 
There is a lot of talk as to whether this is an Asian century: that China is destined to knock the US off its pedestal at the top of the global order. When it comes to the Middle East and North Africa, will Beijing’s involvement in the region move beyond ensuring energy security? 

Greater Chinese involvement in the region beyond economics is in MENA interest, but politically it is more to Beijing’s advantage to have stronger economic ties as a booster for political connections. With political pundits suggesting the US is rolling back its MENA presence as it “pivots toward Asia,” this, some opine, has cracked open the door for China to get a foot in.  
“Until recently the Chinese thought MENA was the Americans’ [turf], who would use force and protect energy supplies; [the Chinese government is] a practical government that could live with the US’ effective leverage over oil supplies as long as it was getting the oil,” said Derek Scissors, an Asia Economist at the Heritage Foundation. “But if the US cannot ensure oil gets to the rest of the world, it is a problem for China.”

Straits and horizons

Currently, MENA accounts for around 50 percent of China’s energy imports, and the region is only set to become more crucial to Asian economies, with the International Energy Agency predicting that over the next decade more than 90 percent of the MENA region’s oil and gas trade will be heading to Asia. This requires stability in MENA, and that the Strait of Hormuz remains open for oil tankers. The US has been the dominant player in ensuring that this oil continues to flow, and has paid a lot to do so, with the costs of projecting military force in the Gulf estimated at $6.8 trillion between 1976 and 2007, according to research by Princeton University’s energy policy department.
“What if the US is only willing to spend $1 trillion and not $2 trillion; is that enough? Who will step in? If there is long-term partial US disengagement from the region, China needs to do something to offset that risk, and they are not making decisions for now, but for a world that will be radically different in 2020 than in 2013,” said Scissors.

China’s People’s Liberation Army Navy (PLAN) still has only limited military capacity. China is not yet up to the task, with two aircraft carriers yet to be seaworthy, and its long-range naval capabilities limited. 

More importantly, any attempt by China to assume a greater role in policing the international sea lanes could be met with suspicion and international resistance. Indeed, China has only recently been involved navally in the region, with the PLAN over the last four years deploying nearly 10,000 personnel on warships off the East African coast as part of multinational anti-piracy operations. Unilateral moves would likely not be so welcome, but if China were to seek expansion of its naval presence, it would be a different story. “An increased PLAN presence in MENA could be seen as a military intrusion in what is seen as Western territory. I don’t think many Western countries would like them roaming the Gulf, the Mediterranean and the Red Sea,” said Ghanem Nuseibeh, founder of Cornerstone Global Associates.

In the regional defense markets, China is a minor player and does not measure up to the arms-for-oil alliances that have cemented ties between the West and MENA countries. In terms of arms sales, China had a 4 percent stake between 2004-2007, dropping to 1 percent between 2008-2011, according to statistics released by the US Congressional Research Service. The US on the other hand accounted for 78.9 percent of all arms agreements with the Middle East between 2008-2011, at almost $92 billion.

A changing world

Yet in a fluctuating global order, anything is possible down the line. “If you asked people 15 years ago if China would be building power plants around the world, people would’ve said no. In 10 years time China may be selling drones. So you don’t extrapolate from the past. Maybe there will be a Chinese presence in MENA that is not currently anticipated,” said Scissors.

The drop in Arab willingness to sign weapons contracts with China shows that Beijing’s credibility is dwindling as a result of attempts to stay neutral in MENA politics “It is hard for Beijing to stay neutral. In Syria, they’re trying to do nothing, but in the MENA region people feel China is pro-Assad, which is hurting China’s image among the majority of Arabs that support the rebels. If Beijing doesn’t veto US sanctions on Syria, then Iran and Russia are mad at China. This is what happens when you become a global economic power — it is hard to stay in the middle,” said Jacob Zenn, an analyst of African and Eurasian affairs at the Jamestown Foundation.

This resonates with the view that China faces fundamental limits with regard to ascending to top dog in the geopolitical order. As US elder diplomat Henry Kissinger said in a debate two years ago, “I have enormous difficulty imagining a world dominated by China and I indeed believe that the concept that some country will dominate the world is in itself a misunderstanding of the world in which we now live.”

An indicator of the current state of play in how Arab governments see the Chinese question was given in a recent speech by Yahya bin Abdul-Kareem al-Zaid, Saudi Arabia’s ambassador to China: “To understand China’s relations with Gulf states, one must understand Sino-American relations.” 
“I think that statement is important, as the US is very cautious about remaining the number one power in the Gulf, and there is a clear goal on Iran,” said Zenn. “If China starts to upset that strategy or hegemony in the Gulf, then this will ultimately affect US-Chinese relations.” 

Scissors concurred. “I assume what the ambassador said is that the Chinese will not do anything to upset the US when it comes to Saudi Arabia, but we will see what happens, as maybe that is the old world.”

The future of China’s involvement in the region may – like in the past few decades – be decided in the halls of power in Washington as part of a greater game, as the US and Beijing vie for global supremacy.

Online Arabic Gaming, Made in China

Executive magazine

Falafel Games is behind one of the most popular online games in Arabic, Knights of Glory, with around half a million members. On its website, the firm states its aim is to “design and produce the best games of the Middle East, from the Middle East, for the Middle East.” Yet while its core market is the Middle East and North Africa (MENA), the management is from Lebanon and Syria, strategic partners are Beirut-based venture capital firm Middle East Venture Partners (MEVP) and the Dubai-based MBC Group, Falafel Games is based in Hangzhou, a city of four million people some 40 minutes train ride west of Shanghai.

Located on the top floor of an office block in the city center, it would seem a surprising choice of location for a company that needs employees to speak and write Arabic to interact with customers.

The Lure of the Far East

So why did Lebanese Vincent Ghossoub, the Co-founder and chief executive, Syrian and co-founder Radwan Kasmiya, who was behind Arabic video games Quraish and Tahat Al Hasar (Under Siege), set up shop in China in 2010 rather than opt for say the Dubai Media City, the programming hub of Bangalore, or anywhere else on the planet for that matter?

The short answer is that Ghossoub, after graduating from the American University of Beirut, initially went to Shanghai in 2007 to do a MBA and study Chinese, liked the place and wanted to stay.

“To give a more objective reason, the business we do can only be done in China or Europe. It is not about programming cheaply — if you want that you go to India — but we need art, story boards and pretty high-end programming,” said Ghossoub. “In fact, 75 percent of global production of online games within our category is done in China.”

Falafel Games has a total of 22 staff, with three working remotely in Syria. In Hangzhou, in addition to Ghossoub and Kasmiya, there are three Syrians involved in customer care and Arabic language content of the game. The company also has one Chinese employee that speaks Arabic, and is soon to employ a second, while the rest of the Chinese staff are involved with the artistic and programming side of the game. “Hangzhou is pretty convenient to find Chinese Arabic speakers as it is near Yi Wu, a major trade center that attracts Arab traders, where there are a lot of Arabic speakers,” said Ghossoub.

When it comes to attracting Arabs to work for the company, Yi Wu again was a resource pool, while Hangzhou itself has its own appeal, renowned as a tourist destination for its West Lake and parks. “It is not difficult to find Arabs and a nice place to live — a quiet life, you don't need to spend much, and one of the most beautiful cities in the country; there is even a mosque,” said Ghossoub. In terms of attracting programmers, Hangzhou has one of the country's best information technology (IT) universities, and is a less competitive IT hub than Beijing or Shanghai.

Salary wise, Chinese and Syrian expatriate staff salaries are similar, “although the lower end of the Chinese is lower than Syrian expats and the higher end of Chinese salaries is higher than Syrian expats,” said Ghossoub. He added that the company would not easily have brought together a similar team in the MENA, “which actually makes our savings almost infinite.”

Compared to Syria, operating in China is three times more expensive, but two times less than in Dubai. And when it comes to staff travel costs, it was around 7 percent of overall staff costs in 2012, and for executives on business trips less than five percent of the marketing budget.

Working with Chinese companies is also straightforward and efficient. “The Chinese have great work ethics, and leaders of companies are workaholics, and want profits, so easy to work with and good service,” said Ghossoub.

Setting up the business in China was fairly straightforward, and no local partner was required. “The bureaucracy here is, if I have to compare it to the MENA, somewhere in the middle: worse than half the MENA and better than the other half. It's not trendy to say that, but the little errands needed to set up and run a company are done through clear procedures and no corruption,” he said.

With the core business online, physical proximity to the MENA is not a necessity, but promoting the game from China can be challenging. “As far as collaborating with the ecosystem, and getting marketing at an industry influential level, it's not that easy, as we can't sit down and have coffee with media people or collaborators as we are at the end of the world. We have overcome those issues at conferences and events, and catch up on all the coffees we miss. But I only need to take with me a memory stick, and don't have to take a big bag of samples to show anyone,” said Ghossoub.