China obtains more than half of its imported oil and natural gas from the Middle East, while oil-producing Persian Gulf states look for high-return investments in China for their petrodollars. Many analysts say the growing commercial connection between these two cash-rich regions is redefining geopolitics and the world economy.
Many economists say there are two major flows in global wealth today. One is to the Persian Gulf states where monetary surpluses from trade in oil have increased to as much as $800 billon a year. The other is to China, which has sustained an average annual economic growth rate of 9.5 percent for more than two decades. The trends have presented important commercial opportunities for businesses in China and the Middle East.
In 2006, trade between China and the Persian Gulf states, including the United Arab Emirates, Saudi Arabia, Kuwait, Qatar, Oman and Bahrain, totaled $135 billion. The Gulf States' investments in China are also expanding. Kuwait, for example, is setting up a five billion dollar oil refinery in Guangdong province, Saudi Arabia is building crude oil storage facilities on Hainan Island and Saudi Arabia's oil giant Aramco plans to work with China's petroleum corporation, Sinopec, to build several new oil refineries in China.
But some analysts say that such commercial partnerships cover a much broader spectrum of economic activities than oil.
Charles Freeman is President of the Washington-based Middle East Policy Council. He served as U.S. Ambassador to Saudi Arabia during the 1990s and is a veteran China-watcher. "It's not just petrochemical infrastructure, refineries and oil storage, but it's real-estate, it's venture capital funds, it's private equity. It's the whole range of investment activity, which attracts investors from the Persian Gulf to China," says Freeman.
Ambassador Freeman says economic ties between the Gulf States and China have a political component as well. "It's fair to say that after 9/11, many private investors in the Persian Gulf States have some concerns about investing in the United States, which was their traditional focus, because of anti-Muslim sentiment and some features of the USA Patriot Act that appeared to deprive them of due process," says Freeman. "They have therefore focused on China, which is the only other market of continental size that can absorb large amounts of money."
China, Iran and Israel
During the next five years, Middle Eastern economies are expected to spend as much as $500 billion on major infrastructure projects, education, health care and information technology. Chinese companies are involved in the construction boom, but they also want to develop a market in the region for their goods -- including high-end products like automobiles.
China has similar commercial ties with Iran. China imports some 15 percent of its natural gas and oil from Iran, and Chinese companies plan to play a major role in Iran's petrochemical and energy industries. And more than 100 Chinese firms are already building ports and airports in Iran. Close economic relations with Tehran have put Beijing at odds with U.S.-led efforts to impose tough U.N. sanctions against Iran. But Graham Hutchings, an expert with the international consulting firm Oxford Analytica, says China is tilting slightly toward the U.S. "The commercial ties, even its strategic ties with the U.S. are far too important," says Hutchings. "So it is able to tell Tehran that while it will do business with the government and Iranian corporations, it's not going to shed all its responsibilities, especially those coming from the United Nations."
China has another important Mideast partner in Israel. Israel became a key supplier of weapons and military technology to China after 1989, when the United States and the European Union curtailed their arms sales to the Communist state. Israel also provides agricultural and other technology to China.
Political scientist David Lampton at The Johns Hopkins University says Beijing is pursuing a policy of economic pragmatism. "The operative principle in Chinese foreign policy today is building an international environment that will provide the most nurturing cocoon as possible for China's internal development. It is a view that is driven by whatever is necessary to develop the internal economy and maintain stability in China," says Lampton. "China tries to develop constructive relations with any country or any international organization or any other society that can serve that purpose."
China and the West
Most analysts agree that China's growing economic ties with the Middle East are not a threat to the West. They say it is mostly because Beijing hasn't been a major supplier of military equipment or training to the Middle East and because it does not have a military presence in the region.
William Overholt, Director of the RAND Corporation's Center for Asia Pacific Policy, says Chinese leaders have learned from East Asia's economic success stories. "Japan did it with essentially no military for 50 years. South Korea was a mess as long as they were focusing on the military in the 1950s. A general took over in 1961 and he slashed the military budget and bet everything on economic growth," says Overholt. Now South Korea has an economy at least 22 times the size of North Korea's. China's reformist leaders looked at those examples and said, 'That's the way to become a successful country in the modern world -- not by the traditional way of grabbing your neighbor's territory."
While some experts worry about how China will use its power, others say the Asian giant likely will focus on internal development challenges for decades to come.
This story was first broadcast on the English news program, VOA News Now. For other Focus reports click here.
