As a major importer of oil from both Saudi Arabia and Iran, and with expanding economic interests in the Middle East, China has a stake in maintaining stability in the volatile region. The Cipher Brief’s Bennett Seftel sat down with Simon Henderson, Director of the Gulf and Energy Policy Program at the Washington Institute for Near East Policy to discuss growing economic ties between China and its partners in the Middle East as well as how these relations could affect China’s role in the region.
TCB: In what sectors are Saudi-China economic cooperation most prominent? Where are they developing?
Simon Henderson: Saudi Arabia is the world’s largest oil exporter and China is the world’s second largest economy after the United States. Additionally, China’s largest supplier of oil is Saudi Arabia. It therefore makes complete economic sense for the two countries to expand and deepen their relationship. In jargon terms, the two countries are working on the value chain – developing refineries and petrochemical industries to convert crude oil into more valuable products. But agreements being signed suggest a wider economic agenda, including renewable energy and even space exploration.
Military cooperation has been a relatively small but important part of the relationship ever since Beijing supplied missiles capable of reaching Tehran from the kingdom in the late 1980s. One recent agreement was for the delivery of Chinese-made military drones, capable of both reconnaissance and ground attack.
Although many in the U.S. and other western countries view the oil exports of Saudi Arabia and other Gulf countries as being crucial for energy security, most oil from the Persian Gulf, exiting through the strategic Strait of Hormuz, goes towards Asia. Japan, South Korea, and India, along with China, are important markets. The significance of Gulf exports is that any disruption will impact on price, and because crude oil is an easily transportable product, the effect would be worldwide.
TCB: How significant was the signing of $65 billion worth of deals between Saudi and China back in March? What does this say about economic cooperation between the two moving forward?
Henderson: The $65 billion mentioned in reports was clearly a headline figure, designed to signify the importance of the King Salman’s visit to China. The Saudi monarch was also visiting Malaysia, Indonesia, and Japan during his three-week tour, but it seems that both the Chinese and the Saudi side wanted to demonstrate that China was the most important part of the trip. There were also “downstream” deals signed in Malaysia and Indonesia for the construction of oil refineries. Saudi Arabia’s giant state-owned oil company, Saudi Aramco, is anxious to expand its global gross refining capacity. Its target is 10 to 12 million barrels of oil a day – that’s more than the kingdom’s actual crude exports.
Economic cooperation is likely to expand in the future, though Riyadh should be worried at the slowing of Chinese economic growth, which some speculate may change the Asian giant into a low growth economy like Japan. Equally, Riyadh should be paying attention to India, the population of which is overtaking China and where a huge expansion of demand for oil and oil products is expected as an increasing number of Indian families are able to afford cars.
TCB: How could increased economic activity between Saudi and China affect China’s role in the Middle East? What are China’s objectives in the Middle East?
Henderson: Just what are China’s objectives in the Middle East? That’s the big question. In economic terms, the Middle East is important to China for energy – both oil and natural gas. The region is also part of China’s strategy of “one belt, one road” linking China with Asia and Europe via land and sea links, although China affects not to have political interests in the Middle East. Chinese President Xi Jinping told King Salman in March that China was a reliable and stable oil export market. He also said, “For a long time, China and Islamic countries have respected each other and had win-win cooperation, and have created a model of the peaceful coexistence of different cultures.”
According to the Chinese Foreign Ministry, Salman told Xi that he hoped Beijing could play an even greater role in Middle East affairs. “Saudi Arabia is willing to work hard with China to promote global and regional peace, security and prosperity,” he said. This remark should not be written off as a mere platitude. At the time, Riyadh was very concerned about support from the United States. Although the Saudi-U.S. relationship seems to have recovered after the recent trip by U.S. President Donald Trump last month, the Kingdom probably still wants to spread its bets.
For its part, China’s view of the Middle East is not completely Saudi-centric. The week after King Salman’s visit, Israeli Prime Minister Binyamin Netanyahu arrived in Beijing with a large business delegation. Israel lacks oil but has technological skills that the Chinese admire.
TCB: Does China maintain economic ties with Iran? If so, how could this impact China-Saudi bilateral ties?
Henderson: Beijing also regards Iran as being an important partner, both in terms of oil supplies and because of its position on the land route to Europe. Saudi Arabia may be unhappy about this, but from Beijing’s perspective, too bad. China wants to split its Gulf oil purchases among that region’s producers instead of relying on just one. Equally, Iran is a significant market for Chinese goods, having more than three times the population of Saudi Arabia.
Beijing has a continuing, even growing concern, about Islamic radicalism in its Uighur population, which it probably attributes, at least in part, to the export of extremist interpretations of Islam from Saudi Arabia. China does NOT have similar concerns about Iran.
TCB: Despite the fact that the U.S. and Saudi Arabia signed upwards of $300 billion in deals during President Trump’s visit to the Kingdom, how concerned should the U.S. be with the increase in China-Saudi economic activity?
Henderson: Chinese exports of manufactured goods to Saudi Arabia compete, to an extent, with U.S. manufacturers. On the campaign trail, candidate Trump railed against Chinese trade behavior. The reality of office has led to a change in rhetoric, but President Trump probably still wants to deliver on his promise of more U.S. jobs. That was a part of his $300 billion plus headline for the deals coming out of his Riyadh visit. It included Saudi investment in U.S. infrastructure, a proposal which has still to be fleshed out.
The concern of the Trump Administration should be focused on China itself rather than the Chinese-Saudi relationship. China’s economic and political status in the world is a reality. China’s trade agreements with Saudi Arabia, or the U.S. agreements still have to be translated into actual deals. To focus too much attention on them at this time is to miss the larger story.
