Beijing moves centre stage in Gulf investment: some analysts look for ulterior motives in China's growing interest in the Gulf region but in reality it is opportunity, commerce and profit that are the forces binding together these new best friends.

Author:Ford, Neil
Position:Business/CHINA - Cover story

CHINA HAS NOT HISTORICALLY BEEN considered one of the Middle East's main trading partners. Previously self sufficient in crude oil, Chinese firms largely overlooked the region as the country enjoyed a sustained economic boom that has stretched from 1980 until the present. Yet growing hydrocarbon consumption and the desire to seek out new markets for its manufactured goods has seen China become more involved economically in the region and a new business relationship is now on the verge of taking off.

According to figures from the international organisation Ernst & Young, Western Europe and North America still account for most investment in the Middle East but the situation is changing. Trade between China and predominately Arab countries reached a record $222.4bn last year, 14% up on the previous year. Chinese imports were worth $131.1bn, mainly in the form of hydrocarbons, while Chinese exports to the region were valued at $91.3bn. Consultants McKinsey and Company predicts that bilateral trade between the two regions will reach $350bn-$500bn by 2020. Most investment is made by large Chinese companies interested in huge projects rather than small businessmen, so investment levels vary greatly from year to year. However, the trend is clearly upwards, as trade between the UAE and China has increased by an average of 35% a year over the past decade, despite a number of annual falls over that period. Bilateral trade reached $35bn last year, mainly in the form of hydrocarbon exports to China, although Chinese companies invested $3.3bn in energy projects in the UAE and a further $4.9bn in the recovering real estate sector.

Unsurprisingly, surveys suggest that Saudi Arabia, the UAE and Qatar are regarded as the most attractive markets in the region. They are stable and offer the hydrocarbons that China needs. Guy El Khoury, an analyst at Middle Eastern energy consultants Carboun, said: "Energy has clearly topped the Chinese investments abroad, with the Middle East naturally accounting for a substantial share of that. So far, China's interest in the Middle East has focused on conventional fuels like oil and gas."

Beijing cannot afford to stay out of the region. It has strongly promoted diplomatic relations and 'power plant diplomacy' with countries in Africa and Latin America that supply much of its raw materials requirements. By funding power plants and other badly needed infrastructure, it puts Chinese companies in a strong position when negotiating for contracts. Middle Eastern oil producers can generally finance their own...

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