Lebanon’s car sector: the downward shift

By Paul Cochrane
The Daily Star

BEIRUT: Going by overall figures of new cars sold, the automotive sector is doing surprisingly well in the current economic environment, up 4.33 percent in the first eight months of the year on 2012, and in comparative terms, above the GDP forecast of 1.6 percent for 2013. Furthermore, the figures are up on last year’s August results, which grew by 7.6 percent on 2011, and the 2.1 percent growth reported in the same period in 2010. But the sector is far from being in good health and bucking the downward trend in much of the rest of the economy.
Lump new car sales with the larger used car market, which accounts for around 60 percent of total sales, and overall sales are down 7 percent on last year, according to the Automobile Importers Association.
Yet while a drop in second-hand car sales is a boon to dealerships – and an environmental plus when it comes to the country’s carbon emissions, with fewer fuel-inefficient clunkers on the roads – the market has gone through a radical change in recent years that can be summed up in one word: downsizing.
“The market has shifted over the past five years, from the C segment to the smaller A and B segments,” said Nabil Bazerji, managing director of G.A Bazerji & Sons, distributor of Suzuki, Lancia and Maserati. “Before people bought a used BMW 3 Series, now it is a Kia Picanto as maintenance and fuel costs are lower.”
Prior to 2009, the lion’s share of car sales, at some 65 percent, were in the $22,000 to $90,000 price range. In the used car market, around 70 percent of sales were BMW and Mercedes, reflecting the widespread desire to own a luxury German car, even if several years old with 100,000 km on the clock.
However, the economic realities of inflation, higher fuel costs and lower purchasing power has led to 91 percent of the 24,008 new units sold until August being small cars, with price tags of around $10,000 to $12,000. Luxury car sales now account for just 2 percent of the market.
This trend is not likely to change any time soon.
“The A and B categories already dominate the market, and this trend will continue as consumers are increasingly seeking fuel efficient vehicles because purchasing power is shrinking,” said Farid Homsi, general manager of IMPEX, distributor for GM, Chevrolet and Cadillac.
The brands that have reported the strongest sales are Korean through their price competitive A and B segment models, up 9.52 percent on last year, with 11,181 units sold. Kia and Hyundai are into their fourth-consecutive year as the top two brands after knocking Nissan from the top spot. The Japanese brand is feeling the impact of the economic slowdown, with sales slumping 18.28 percent on last year despite an aggressive marketing campaign.
“The Europeans had their decade [as the top sellers], the Americans had theirs, as did the Japanese, now it is Korea’s turn,” said Rachid Rasamny, sales and marketing manager at Century Motor Co., distributor for Hyundai.
Cumulatively, the 28 European brands have dropped 2.13 percent on last year, the seven U.S. brands are down 5.26 percent, and the 10 Japanese brands just in the black, at 0.21 percent. There are exceptions, with Infiniti selling well, up 100 percent, Volvo up 51.2 percent, and Mitsubishi up 134.91 percent. Infiniti has introduced smaller engines, which is keeping sales strong, while Mitsubishi has introduced a compact model.
In the European non-luxury segment, it is the low-cost Dacia that is reporting the strongest sales through its Logan model, which sells for upward of $10,000. Among the American brands, only Ford is on the up, attributable to the brand having re-entered the market this past year.
As such figures show, sales are far from being evenly spread, and net profits are generally down across the board.
“The cake is getting smaller and there are more people who want to eat from it. I don’t see brands vanishing from the market but definitely some brands are having a tough time,” Homsi said.
Complicating the balancing of dealerships’ books is that the average return on a sale is 7 percent, which is equivalent to $700 on a category A model, making the automotive business a volume game with smaller margins.
“To compensate we need to sell bigger volumes but the problem is that not all of us can, and with three brands dominating sales, it is dangerous for the industry,” Bazerji said.
Kia, Hyundai and Nissan account for 59.89 percent of sales, while the two Korean players have 46.5 percent market share, at 26.75 percent and 19.7 percent respectively. In the A segment, the Koreans also dominate, with the Hyundai i10 accounting for 40 percent of sales and the Kia Picanto 50 percent, according to Rasamny.
Other distributors are scrambling for what is left. For Chevrolet, the fifth biggest brand by sales in the country, sales are down by 19.41 percent on last year, while 60 percent of sales are in Category A (the Spark) and B (Aveo and Sonic) segments.
“It is true that you have three market leaders today, but competition for fourth to seventh ranking is getting stronger,” Homsi said.
Such competition is focused around the longer-established brands selling more compact vehicles at typically higher prices than the current top three by emphasizing quality, safety and after sales to a squeezed middle class.
“Customer service experience is the key factor that sets the dealer apart from competition. Statistics show that 46 percent of satisfied customers will definitely repurchase a vehicle of the same brand,” Homsi said.
Yet while the sector has been shaken up by a downward shift and the rise of the Korean brands, the situation in the market is not so different from others around the world that are still in the grips of recession and austerity measures.
“It is comparable to the U.S. manufacturers downsizing in the wake of the 2008 financial crisis; they understood that cars that are five meters long with V-8 engines are not for daily use,” Bazerji said.
In Europe, car registration is near a 20 year low, but just as Lebanese are opting for smaller models, Europeans, who have long favored compact models, are also downsizing from the C segment by buying small SUV crossovers, with sales up 88 percent over the past year, according to industry publication I.H.S. Automotive.
“We have clients that come into the showroom who own V-6 or V-8 engine cars but want to downsize to four cylinders. They are not low income earners, but realize they are spending way too much on fuel,” Rasamny said.
With the demand for smaller cars in vogue globally, this has prompted manufacturers to focus on the compact segments by introducing more choice, with Hyundai, for example, to introduce the Grand i10.
“The size is between the i10 and i20, so the A and B segment, and caters to a price segment that we didn’t offer before, at around $12,000 to $17,000,” Rasamny said.
To adapt to the ongoing downward shift in the overall market, some leading dealerships have acquired the import licenses for up-and-coming Chinese brands. Rymco, which has the Nissan dealership, has a 50 percent stake in Chery; NATCO, which has the Kia brand, launched BYD in the market this year; and last June, Rasamny Automotive Industries, which has the Hyundai dealership, launched Geely.
“Dealers had to do this strategically, and to get another brand is not much cost, just another showroom, as the whole back office is already there,” Rasamny said.
The Chinese brands are spicing up competition even further in the sector, with sales up 66.31 percent on last year, and rising nearly a percentage point to 2 percent of the market. Chery had growth of 138.1 percent and Geely, which bought out Volvo in 2010, was up 88.11 percent.
The rise in sales of newcomer Chinese brands further reflects the low purchasing power in the country, with their offerings the cheapest on the road and strong results in the small categories, with 58 percent of Geely’s sales in the A segment.
“People even need help in the $10,000 range as they have limited income,” said Imad Ghorra, general manager at Geely. “Many deals are not done as clients can’t pay the down-payment of $1,000 to $1,500. That shows the income of clients here, so even if the car is 20 percent cheaper than other brands, every dollar counts.”
Holding back the potential of the Chinese brands is that banks are not yet extending loan facilities, a factor that bolstered the overall sector when loans became more readily available, with sales surging from 19,100 in 2004 to reach a benchmark of 35,400 in 2008.
If the banks do extend financing, it may usher in a decade of strong Chinese brand sales, and even more competition for the rest of the sector.
“The future is for more Chinese cars, and we will be among the top players in Lebanon some time in the next few years. I can foresee Geely sales really flying,” Ghorra said. – with internationalnewsservices.com

Heat on for Qatar

Qatar is turning itself from a Gulf desert backwater into a cutting-edge 21st century state with a football World Cup to host in 2022. How are its systems coping under the pressure? 

By Paul Cochrane for Accountancy Futures

www.accaglobal.com/futuresjournal
with www.internationalnewsservices.com

Qatar is a country in a hurry. Under its 22-year plan, the Qatar National Vision 2030, the country is planning to diversify away from its reliance on hydrocarbons to become a knowledge-based, sustainable economy. That vision commits the government to spending US$93bn on education, healthcare and infrastructure, not to mention its hosting of the planet’s most watched sports event, the World Cup, in 2022. Altogether, the state is investing US$200bn over the next decade in capital projects.

‘The infrastructure has to be of a globally recognised standard, not just for the World Cup,’ says Mark Lawrie, partner and head of consulting at Deloitte in Doha. ‘Roads, the metro, stadiums, schools and hospitals are all being built concurrently, which is pretty much unprecedented. It is a huge logistical challenge to bring everything into such a small country in such a short time.’

The fear of scoring an own goal is very real, given that the main financier of development is the state. Major developments are being backed by public or semi-public entities, including such developments as the US$20bn residential, retail and entertainment hub Lusail City and the US$14bn Pearl-Qatar artificial island project.

Project management is a clear concern, especially given the ticking clock of the World Cup. Qatar will not want delays and spiralling budgets, as was the case with the Doha Asian Games in 2006, and Hamad International Airport, which was slated to open in April 2013 (at a cost of US$17.5bn – back in 2006, the allocated budget was US$2.5bn) but is now slated to open in “early 2014.”

Muhannad Abu Ghazaleh, accounting director and acting executive director of finance at Al Jazeera Media Group, says: ‘There’s a need to avoid some of the issues faced in the Asian Games, when it became open budget and extra cost was paid. You can’t look at finance and auditing alone, but also at supply services – contracting process, payments, follow-up. Early planning is critical.’

Suggesting that some of the mega-projects under way may cost far more than anticipated, Bank of America Merrill Lynch reported in April that Qatar was seeking permission from international football association FIFA to reduce the number of World Cup stadiums from 12 to eight or nine.

Given Qatar is a small country (its two million people live in a 160km-long thumb-shaped peninsula), managing and governing these projects is a ‘massive challenge’, says Ewald Müller, director of financial analysis at the Qatar Financial Centre Regulatory Authority.

‘The next nine years and beyond the fall-out after the World Cup are going to be a big challenge for the profession, and that goes over into procurement. For me, transparency is key, and the profession needs to step up. The ratings agencies, Moody’s, have made noises about that.’

While Doha arguably has the funds – especially if energy prices remain high – a Moody’s report in April highlighted the issues faced by the country’s banks: a still developing corporate governance and risk management culture; lack of transparency surrounding local conglomerates; questionable commercial rationale for many of the government-related projects financed by the banks; rapid credit expansion; and the moral hazard that past government interventions have created.

That Qatar is playing catch-up is noted by the accounting profession. ‘Qatar started very late compared to neighbouring Gulf countries,’ says Dr Helmi Hammami, head of the accounting department at Qatar University, ‘we are lagging behind. There is movement behind the scenes, from education to streamlining the set of laws governing the profession – who should be certified, who should be an accountant in Qatar. That said, the profession needs a lot of improvement and the market needs a tremendous number of accountants. We need reporting. You can forget about an investor coming to a country where they don’t have a sound accounting profession; we cannot ignore this.’

Indicative of the newness of the profession is that the number of students studying accounting at the university has doubled over the past five years, and that only in 2011 was a master’s degree introduced. Hammami says: ‘In terms of curriculum, we’ve improved a lot. We used GAAP up to 2010, then we shifted towards International Financial Reporting Standards.’ But with just 60 to 70 Qatar University students graduating a year, and only half of that number being Qatari nationals, there are not enough graduates to meet demand or bolster the state’s drive to increase the number of Qatari employees.

It’s a challenge. Qataris number fewer than 300,000, while the overall population has gone from under 800,000 in 2002 to 1.9 million in 2013, according to the Qatar Statistics Authority. Some 94.1% of workers in the country are not Qataris, while 74.8% are unskilled or semi-skilled workers.

‘The Big Four are struggling to get Qataris,’ says Hammami. ‘It is a major issue here as graduates go to state-linked companies or banks, with big salaries. We are working to develop a strategy with the Big Four to show students the advantages of being in a major accounting firm.’

It is not just Qatari graduates who are avoiding the Big Four. So are local companies when it comes to choosing an accountancy and auditing firm. Rabih El Sous, a senior manager at KPMG Qatar, says: ‘There are many local accounting firms in Qatar, but from what I have observed compared with Dubai, Oman and Kuwait is that Qataris appreciate working with local firms rather than the Big Four. This, interestingly, puts pressure on the Big Four to behave differently, to be closer to clients.’

In the meantime, outsourcing financial services may resolve problems down the line. ‘Sometimes the speed of getting a talent on board, security clearance etc, is not as fast as in other countries, so having strong outsourcing for accounting could fulfil a need in the market,’ says Abu Ghazaleh. 

Only bad choices left for US in Syria

Global Times

http://www.globaltimes.cn/content/807486.shtml#.UiBhZNfDhyw

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

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
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

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.

A Game of Thrones in the Gulf

Dissident Voice

http://dissidentvoice.org/2013/07/a-game-of-thrones-in-the-gulf/

There has been a lot of leadership change in the Middle East and North Africa (MENA) of late, from the ousting of Tunisia’s Bin Ali, Egypt’s Hosni Mubarak and Yemen’s Ali Saleh, to the overthrow of Libya’s Muammar Qaddafi and the ongoing attempt to unseat Syria’s Bashar Assad. We can now add to that list Egypt’s Mohamed Morsi, ousted in a military junta last week.

These ousted dynastic wannabes were not royalty, however, albeit they acted like pharaohs. Royal dynastic change has been more limited of late – just Saudi Arabia and Kuwait in the past several years.

Who succeeds is, of course, an important question in the MENA’s monarchical countries – the Gulf Cooperation Council (GCC), Jordan and Morocco – with royal intrigue the fodder for many a historical drama series.

In Saudi Arabia, who is next in line when King Abdullah and the last of the “Sudairi Seven” passes away? (Crown Prince Sultan is 88, and the youngest of the seven, Prince Ahmad, was born in 1941). Who will take over from the childless Sultan Qaboos in Oman? (Born in 1940). What impact is the so-called Arab Spring having on these successions, if at all?

Such questions are rarely publicly discussed, certainly in the kingdoms, sheikdoms and sultanates. But the news in early June that the Qatari leadership was set for change had Gulf watchers all atwitter, even though the outcome was known unlike elsewhere in the GCC.

Speculation ran rife for weeks that Crown Prince Tamim, 33, was either to replace his sick father, Sheikh Hamad bin Khalifia Al Thani, 61, or take over the job of Prime Minister Sheikh Hamad bin Jassim. On June 25, the Qatari Diwan went public on Al Jazeera, announcing the transfer of power to Crown Prince Tamim. While the Qatari public had no say in the transfer, everybody in the country was entitled to a day off to celebrate the choice of “the right man for the right job.”

The peaceful transfer is one of the region’s few cases where a monarch seemingly stood down freely, not dying on the throne or ousted in a palace coup – as happened with the outgoing Emir, who orchestrated a coup in 1995 against his father, who in turn had carried out a coup against his cousin.
However, there is speculation that Sheikh Tamim’s appointment, albeit that he was groomed for it, was a coup of sorts, with the ailing Emir considered to take too independent a line in the GCC, especially towards the region’s political behemoth Saudi Arabia, while his son is seen as being more pro-Saudi.

Sheikh Hamad had being trying to undermine Riyadh’s regional influence through Qatar’s aggressive foreign policy over the past decade – from mediating in Lebanon and Sudan, to involvement in overthrowing Gaddafi and funding, to the tune of some $3 billion according to the Financial Times, the rebels in Syria. Sheikh Hamad could have stuck around, sick or not, and allowed the Crown Prince to have been the de facto ruler, as happened in Saudi Arabia, with the late King Fahed, who was incapacitated by a stroke, letting the Crown Prince run the show.

What is somewhat ironic about Qatar’s transfer amid so many challenges and changes to MENA leadership is that Sheikh Hamad, in what is essentially his abdication speech, spoke of the next generation: “The time has come to open a new page in the journey of our nation that would have a new generation carry the responsibilities…with their innovative ideas.”

In much of the MENA that next generation is challenging and overturning the older order. Further irony is that Qatar’s current foreign policy has been supporting the overthrow of leaders like Mubarak, Gaddafi and Assad for not being accountable to their peoples.

To borrow from the Emir, an “innovative idea” would be – to use real politik – to introduce a constitutional monarchy, which, for the longevity of ruling Gulf families, would be in their interest, politically and economically.

However, we know that such a possibility, like democracy, is not very likely to happen. Qatar, like the rest of the GCC – bar Saudi Arabia and with Bahrain the exception – has a small population that generally enjoys a high standard of living. As President Barack Obama put it in an “open mic” slip at a fundraiser in 2011, Qataris high per capita income would “dampen a lot of conflict.”

Furthermore, any dissidence is crushed. Bahrain is a case in point, with the protests that kicked off in 2011 – and bubbling to the surface ever since – cracked down on by the GCC’s Peninsula Shield force, which was a motley crew of Saudi, Kuwaiti, Emirati and Qatari forces, along with hired Pakistani mercenaries.

Indeed, the prime reason for the establishment of the GCC in 1981 came following a proposal by Riyadh for an internal security pact among the Gulf monarchies after the armed uprising in Mecca in late 1979 and the start of the Iran-Iraq war. In-palace coups are one thing, but challenging a monarchy is viewed as a collective threat.

Challenges are there though, seen lately in protests in Saudi Arabia and Oman, and a lot of action in Kuwait’s parliament. The uprisings in the MENA are having an affect. Tensions under the surface are apparent, even if the dynasties try to hide them, with news surfacing over the past fortnight of attempted coups in Saudi Arabia and the UAE.

Back in April, former deputy Defense Minister Prince Khaled bin Sultan bin Abdul Aziz was placed under house arrest for involvement in an attempted coup with military officers and the prince and former governor of Saudi’s Eastern Province Mohammed bin Fahad bin Abdul Aziz. In the UAE, courts last week convicted and jailed 94 Emiratis – including Sheikh Sultan bin Kayed Al-Qassimi, a member of the ruling family of the small Emirate of Ras al-Khaimah, human rights lawyer Mohammed al-Roken, and academics – for an attempted coup. What exactly transpired is not clear, as reporters were not allowed to cover the court proceedings.

Qataris have also been speaking out. Last year, Qataris for Reform was published in Beirut, calling for, among other things, “revision to the 2004 constitution, implementing a democratic system, and electing a constituent assembly according to democratic elections.”

If change is likely to happen in the GCC, it will most likely come through coups from within by members of the Gulf elite – as the cases in Saudi Arabia and the UAE highlight. With the exception of Bahrain, and possibly Saudi Arabia given its size and internal discontent, mass uprisings are not likely, even if millions of migrant workers took part.

Despite all the change afoot in the MENA, it looks like we will be watching a Gulf version of the Game of Thrones for some time  to come, while the very real torture and sexual depravity going on in the Gulf that the HBO series so revels in, is all off-camera.

Turning points ahead in Syria, but which side will come out on top?

Global Times - Op-Ed

http://www.globaltimes.cn/content/789844.shtml#.UcCP2c5Du8Y

Depending on which side you are on, the Syrian conflict has taken a turn for the better or for the worse following the Syrian Army's retaking of the rebel-held city of Qusayr earlier this month after a two-week-long offensive.

The siege, aided by Lebanon's Hezbollah, marks an upswing for the embattled regime of Syrian President Bashar al-Assad, being the first decisive victory over a rebel-held city since the conflict began in the spring of 2011.

The tide appears to be turning in Assad's favor, while the rebels and their supporters have faced a serious setback. Decisive battles are now afoot that will change how the conflict plays out.

Qusayr, in western Syria, was strategically important to the Free Syria Army (FSA) due to its proximity to the Lebanese border and as a conduit for smuggling weapons.

With the fall of Qusayr, and the Syrian Army having retaken control of the Damascus to Aleppo highway, the government armed forces are moving north on the city of Homs and the rebel-controlled areas of the country's second largest city, Aleppo.

If the rebels lose these two cities, their options will be limited to try and hold the Northeast, largely restricted to guerrilla tactics to wear the Syrian Army down and prompt more desertions, as it did before when the uprising spread throughout the country.

As General Salim Idriss, chief of staff of the FSA's Supreme Military Council, put it to the press, "the best way for us to fight this regime is by guerrilla warfare or hit and run tactics without holding on to territory." By Idriss' own admission, the FSA has been weakened and is in serious need of more than light weapons to take on the Syrian Army and air force if it is to succeed.

The anti-Assad camp does not want the rebels to lose their footing. The US has announced it will provide military aid "different in scope and scale to what we have provided before," but other NATO allies have been less forthcoming.

Indeed, the hesitancy about supplying the rebels with heavy weaponry is that they could fall into the wrong hands, primarily radical Islamist groups such as the Al-Nusra Front, which has become infamous for a commander cutting out the heart of a dead Syrian soldier on videotape, as well as for its summary executions.

Furthermore, NATO countries are reluctant to go into Syria to enforce a no-fly zone on behalf of the rebels given the lack of public will for further foreign intervention, and that an air campaign has to factor in that Syria has Russian-supplied surface-to-air missiles.

Nonetheless, a turning point is looming for the anti-Assad factions as to whether to multilaterally heavily arm the rebels and resort to aerial intervention or not.

The US-Russia-sponsored peace talks have been largely scuttled due to the opposition not wanting to turn up as it is not in the best bargaining position.

For the FSA and its backers, a turn in fortunes is needed militarily to be able to push for more concessions at the diplomatic table.

On the international stage, a setback for the rebels in Syria is a blow in the West's campaign against Syria's ally Iran, and by extension to countering Russia and China.

The alleged use of chemical weapons by the Syrian Army is being pushed as the proverbial "smoking gun" to rally support for major international intervention.

The weapons of mass destruction argument worked before when beating the drums for war on Iraq, and when public opinion in the West was not initially amenable to intervention in Libya, and recently in France's intervention in Mali, military actions were nevertheless condoned.

If the Syrian rebels get extensive backing and air cover as a result of the loss of Homs and Aleppo, then a different phase starts in the conflict. As it does if the rebels are not supported and pushed further on the defensive. Regardless, a rumbling conflict will likely rage for years, whether between what remains of the rebels and the Assad regime, or between rival rebel factions.

The violence that continues in Iraq, where more than 1,000 people were killed last month, should remind us how long this could linger.

The Far East Comes Near

China dips its toe in the Middle East's troubled waters

Commentary - Executive magazine

That China is a rising global power is a given, although whether the People’s Republic will eventually usurp the United States as world hegemon is hotly debated. But as a saying goes in the Far East that reflects the region’s burgeoning confidence: “Europe was yesterday’s power, today it is the US, and tomorrow it will be Asia.”

With China the world’s second largest economy and forecast to overtake the US by 2025 if not earlier, Beijing undoubtedly has the biggest say among the ascendant Asian states. Yet when it comes to a political role in the Middle East, the Far East has traditionally acted as a bystander — an exception being Japan’s involvement in the 1990 Gulf War, albeit a non-military one, by providing $12 billion to the US war chest — but this has started to change in recent years.

An inkling of what’s afoot was a surprise diplomatic move by Beijing when Israeli Prime Minister Benjamin Netanyahu and Palestinian Prime Minister Mahmoud Abbas made visits — separately, of course — to China in early May. Beijing announced a “four point peace plan” to Abbas, and the Chinese Foreign Affairs Ministry proposed hosting a future Israel-Palestine peace summit.

While both offers were politely rebuffed, the move was a notable development in China’s foreign policy, which has focused more directly on the Pacific Rim and its immediate sphere of influence than projecting political clout elsewhere on the planet. As analysts continuously, and rather obviously, emphasize, China’s foreign policy outside its backyard has been driven by securing commodities — as if China is unique in that respect and the US or other countries are not focused on energy in our “carbon era”.

In this regard, it is worth noting that around half of China’s oil imports are currently sourced from the Middle East and North Africa (MENA), and that is set to rise to 80 percent by 2020, according to the International Energy Agency (IEA). Trade — primarily energy from the MENA and goods from China — is slated to grow and diversify, with Beijing and the Arab states setting a target to bolster trade from a projected $222 billion this year to $300 billion in 2014.

To ensure a steady flow of energy from the MENA region, peace and stability are clear priorities for Beijing. That is likely one reason for its proposal to mediate in the Arab-Israeli conflict, and China could play a role as a largely independent actor without the historic baggage of the US or Europe.

Indeed, if China plays a canny game, it could push the Israelis — potentially via trade, as China is Israel’s top trading partner in Asia, with bilateral trade close to $10 billion in 2012 — to make serious concessions for a viable Palestinian state and in doing so garner support among the far more populous Arab and Muslim public that the US lacks due to its unflinching support for the Jewish state.

There is a long way to go though before China will become a heavyweight player in MENA politics. Indeed, it has been happy to “free load” along with the rest of the world on the back of the US’ military presence in the Gulf that keeps the Strait of Hormuz open for oil tankers. As pointed out in these pages last year, the US spent an estimated $6.8 trillion between 1976 and 2008 projecting military force in the Persian Gulf, so when taking into consideration the 6.2 billion barrels a year that pass through the Strait, the US is essentially footing a bill of $79 a barrel to keep itself and everyone else in Gulf oil.

China is in no position to incur such costs or replace the US as the “global policeman” — it only has one aircraft carrier — but Beijing is showing that it is willing to dip its toe in the Middle East’s troubled waters and in one of the world’s most intractable conflicts. It is indicative of increased Chinese involvement in the MENA’s geopolitics in the years to come.
 

Russia consistent in goal of bringing Assad to Syrian peace table

Global Times
http://www.globaltimes.cn/content/786404.shtml#.Ua2vfM5Du5k

Recently Russia came under fire for allegedly providing Syria with more missiles, considered a "game changer" in Damascus' ability to ward off the specter of foreign intervention. A Russia-US peace summit has been proposed to end the conflict in Syria, which has caused a reported 94,000 deaths.

Taken at face value, it would seem that Moscow is playing a duplicitous role, backing the Syrian regime on one hand and pushing for peace on the other. Yet Russia has been acting consistently in its foreign policy on the Syria crisis.

The latest outcry over Moscow's bullish support for the Syrian government stemmed from a New York Times article that claimed Russia had provided Yakhont cruise missiles and S-300 surface-to-air missiles. The article was duly pounced upon by the press as further evidence of Russia being an accomplice to the murderous Syrian regime.

But did Moscow provide missiles this time or not? Russia's response was essentially "so what if we did?".

"I don't understand why mass media are trying to make a sensation out of the fact. We do not conceal that we supply weapons to Syria according to signed contracts," said Russian Foreign Minister Sergey Lavrov.

Why is Russia taking such a seemingly belligerent stance on the Syria crisis? The Kremlin is not keen on a repeat of NATO's intervention in Libya, which cost Moscow business and undercut its domestic and international standing by allowing the overthrow of the Libyan regime.

Moscow may also view any intervention in Syria as a precursor for a US-led attack on Iran. At another level, Moscow looks at the regime as the lesser evil compared to the multi-factional rebels. It wants to prevent Syria being taken over by Islamic radicals and the country turning into an "Afghanistan on the Mediterranean."

Moscow's fear of an "Islamist spring" and the rise of Islamic politics in the Middle East is that it could cause ferment in its own backyard, the Caucasus, where Russia has had a fraught history.

The church is also playing an increasing role in Russian politics and foreign policy, with Moscow willing to play the part of the defender of Christianity that secular Europe and the US cannot overtly do.

Moscow also has interests in Syria. The two countries have ties dating back to the Soviet era. Yet Moscow's relationship with Damascus is not an alliance, it is one of a client. Syria has nothing to really offer Russia in natural resources, and it is not a financially beneficial relationship either.

Indeed, in 2005, Moscow had to write off $10 billion of Syria's $13 billion Soviet-era debt to sell more weapons.

While the naval base at Tartous is frequently cited as a major factor in Russia's pro-Syria stance, the facility is of limited significance, hosting some 50 staff and modest docking capabilities, a far cry from, say, the US naval base in Bahrain with over 5,000 personnel.

But Syria's geostrategic positioning next to Turkey, Iraq, Jordan, Lebanon and Israel is of clear importance, as is its 6,300 kilometers of oil and gas pipelines.

As for the Russia-US planned talks, to be held in Geneva, this is consistent with Moscow's end goal of a transitional government that involves the Bashar al-Assad regime's Baath party and the opposition.

Russia's role in the talks is crucial in bringing the Assad regime to the table. The struggle will be to bring in all the opposition forces.

To do so, the talks should involve more actors that are crucial in the conflict, namely Turkey and Iran, as well as the primary financial backers of the rebels, Qatar and Saudi Arabia.

If the peace talks are successful, the Kremlin would have achieved its foreign policy objectives of preventing foreign intervention and an Islamist Syria, as well as retaining a regional foothold.