The National
China, in 2016, released a strategy blueprint for building its economic and financial relations with the Middle East, titled “China’s Arab Policy Paper”.
But to forging the links between the two geographies is nothing new: a long history since 200 BCE is witness to the strong ties and engagement of the Middle East with China along the old Silk Road trading routes.
The Chinese blueprint proposes the establishment of a “1+2+3” cooperation framework. One is to build on energy cooperation as the core while infrastructure construction and trade and investment facilitation are the two wings of the policy. Three is the breakthroughs in high and new tech fields of nuclear energy, space satellite and new energy that China intends to achieve in the Middle East.
China’s “Belt and Road” (B&R) initiative is an embodiment of this vision: it is China’s modern strategy of revitalising the Silk Road with investments in infrastructure, roads, high-speed rail, ports and airports, to transform economic geography from China to Europe, encompassing parts of the Middle East.
China has created an imposing array of international financial institutions –the Asian Infrastructure Investment Bank (AIIB) along with the China Development Bank, the China Export-Import Bank and others – to fund its ambitions. The countries and businesses on the New Silk Road are bracing for the B&R to shift growth and economic diversification to a new phase.
How can the Middle East and GCC countries benefit and participate in the B&R?
New Avenues for banking cooperation
Since 2014, the Arab countries have signed more than $50 billion in contracts with China. More recently, China has listed Egypt as one of the top five destinations for mergers and acquisitions activity under the B&R initiative.
The UAE , specifically Abu Dhabi Ports, in its capacity as a regional trading hub, has signed a partnership with Cosco, China’s largest shipping company, to build new terminals to support the expected increased flow of trade along the B&R maritime routes.
Approximately 60 per cent of China-UAE trade is re-exported to Africa or Europe, which will support B&R’s purpose, while making the country — and particularly Dubai — an important component of China’s trade strategy in the Middle East, Africa and beyond.
The strong presence of Chinese banks in the GCC provides the financial underpinning for deeper and wider linkages. Banks in the GCC should use their financial muscle make use of this opportunity to provide co-financing with Chinese banks for trade, investment and economic activity in the B&R countries.
This would open wide opportunities for GCC infrastructure, logistics, services and real estate development companies that are internationally competitive.
The GCC banking sector has to expand and pivot East over the coming decades accompanying the shift of economic geography. The shift should be supported by cooperation between central banks, banking and financial sector regulators and supervisors. We should develop Shanghai I regulatory framework rather than a Basel IV.