Oil-rich gulf monarchies are leveraging their wealth to deepen ties with China amid anxiety about the future of their longstanding security partnership with the US.
Seven months after President Xi Jinping participated in the first China-Gulf summit in Riyadh, economic exchanges between the world’s second largest economy and nations like Saudi Arabia and the United Arab Emirates have been accelerating — moving well beyond crude purchases where Beijing has been dominant for years.
One of the deals that could benefit from closer ties in the coming months is Chinese-owned seed giant Syngenta Group’s planned $9 billion Shanghai IPO. The state-backed company’s advisers have been having discussions with Middle Eastern sovereign funds including the Abu Dhabi Investment Authority and Saudi Arabia’s Public Investment Fund about becoming cornerstone investors, people with knowledge of the matter have said.
The value of acquisitions and investments by Gulf companies in China has climbed more than 1,000% year-on-year to $5.3 billion, according to data compiled by Bloomberg. This year is on the cusp of becoming the busiest ever by number of such deals, the data show.
Abu Dhabi’s $280 billion sovereign wealth fund, Mubadala Investment Co., is ramping up operations in China to hunt for investments, people familiar with the matter said. Dubai has seen a 24% surge in Chinese companies setting up in its commodities free zone after roadshows in the Asian country. Officials in Riyadh describe China as an indispensable partner for Vision 2030 — Crown Prince Mohammed bin Salman’s multi-trillion-dollar economic and social transformation plan. A string of Chinese firms have won contracts for the futuristic city NEOM.
The relationship is also extending outside the economic front. At the December summit, Xi offered to mediate in talks between Iran and Saudi Arabia, leading to a landmark agreement in March restoring ties between the arch-rivals signed in Beijing.
Some in Washington are already raising concerns that China’s growing influence in the Middle East could challenge American interests in the long run. While the US remains the dominant military partner of Gulf states, US Central Command chief General Michael E. Kurilla, warned in recent congressional testimony of concerted Chinese efforts to undermine this, pointing to a jump in Beijing’s trade and military sales to the region.
Dissatisfaction with the decades-old US security umbrella had been brewing for at least 15 years in the Middle East, exacerbated by what Gulf states viewed as unpredictable US policies toward the region, said Hasan Alhasan, a Bahrain-based research fellow at the International Institute for Strategic Studies, who meets regularly with senior Gulf officials.
“Now they’re realigning their foreign policies to serve their economic agendas,” said Alhasan. “They’re going to prioritize relations that are going to serve their national economic visions.”
Gulf officials say their moves toward China aren’t aimed at replacing Washington with Beijing as their principal partner. But they also say they want a wider set of global alliances.
“I don’t ascribe to this zero-sum game,” Saudi Foreign Minister Faisal bin Farhan said in a June press conference with US Secretary of State Antony Blinken when he visited Saudi Arabia. “I think we are all capable of having multiple partnerships and multiple engagements, and the US does the same in many instances.”
China supports that approach. At a July conference at Beijing’s Tsinghua University, China’s former envoy to the Middle East, Wu Sike, urged the region to “pursue true multilateralism.”
“China and other countries can learn from each other, support each other and move toward win-win cooperation,” he said.
Last month, thousands of entrepreneurs and government officials from China arrived in Riyadh for the largest ever Arab-Chinese business gathering. The Saudi government said MOUs worth more than $10 billion were signed. Among them was a $5.6 billion deal inked by the Saudis to develop cars with Chinese electric vehicle maker Human Horizons.
Meanwhile, in Abu Dhabi, the artificial intelligence firm G42, chaired by National Security Adviser Sheikh Tahnoon bin Zayed Al Nahyan, has identified China as a top market to deploy capital abroad, according to people with direct knowledge of the matter. A G42 spokesperson declined to comment.
“We continue to look for promising opportunities across Asia, in markets that align with our long-term strategy,” a spokesman at Mubadala said.
Reinvigorating Relations
Having alternative partners makes the Gulf powers less dependent on the US. In recent months, Saudi Arabia, the UAE and other producers in OPEC have repeatedly defied pressure to open the taps as the US sought to prevent oil prices from fueling inflation.
Washington is making its own efforts to reinvigorate relations in the Gulf. In recent months, senior US officials have shuttled to the city of Jeddah to meet the crown prince to revive a bid to secure a peace pact with Israel, building upon the Abraham Accords.
Publicly, US officials say they welcome Chinese mediation in the Middle East.
“With regard to China, we’ve also been very clear we’re not asking anyone to choose between the United States and China,” Blinken said in June. “We are simply trying to demonstrate the benefits of our partnership and the affirmative agenda that we bring in what we’re trying to do.”
Trade, primarily in oil, remains the key to the relationship between China and the Gulf. Two-way commercial flows between Saudi Arabia and China ballooned to $117 billion last year from just $834 million three decades ago. UAE-China bilateral trade has grown almost a hundredfold to $107 billion in 2022 from $1.15 billion in 1992, according to data compiled by Bloomberg.
The UAE said in a statement that it expects “trade with China to continue to increase, as is the case with other key economic partners.”
Energy Deal
Energy ties are deepening further. In the latest major deal, Saudi Arabia inked a $3.6 billion contract to buy 10% of China’s Rongsheng Petrochemical Co.
“There are so many things we want to do with them and so many things they want to do with us,” Saudi Energy Minister Prince Abdulaziz bin Salman said at the forum about China.
Patrick Tsang, who runs a family office and co-founded the Hong Kong Ambassadors Club in March, said he’s busy facilitating meetings between Chinese tech titans and Gulf wealth funds.
“For Chinese executives, it’s a herd mentality,” Tsang said. “Once President Xi goes somewhere, everyone else follows. It’s very politically driven.”
Washington remains the chief security backer of the Gulf states, including through military bases, and the US is the biggest source of foreign direct investment for countries like Saudi Arabia. Yet the US has been reluctant to give Saudi Arabia and the UAE the security guarantees and advanced weaponry, including F-35 fighter jets, that they demanded to protect against attacks from Iranian-backed militant groups.
In his comments to Congress, USCENTCOM chief Kurilla said Chinese military sales in the region have risen by 80% during the past decade compared with a 30% decline in US sales. He warned of a “race between integration with our partners and Chinese penetration into the region.”
Suspended Talks
In 2021, the UAE suspended talks on a $23 billion deal to purchase F-35 jets and other weaponry after rejecting US conditions including a demand to remove Huawei Technologies Co. from its telecommunications network. The UAE later agreed to buy Chinese L15 light attack and combat training jets.
In May, the UAE said it had stopped taking part in US-led maritime patrols in the Gulf, which had been plagued by Iran’s seizure of oil tankers in prior weeks.
The UAE was upset at the US delay in bolstering military aid after the January 2022 Houthi missile strike on Abu Dhabi, western diplomats and UAE officials say. The less engaged the US is, the more space there will be for China, said one UAE official, asking not to be named because of the sensitivity of the matter.
A senior Saudi official said his country sees the need to cool down tensions with other countries in the region and find other partners to work with because it doesn’t see the US as a reliable security partner. Government spokespeople in Saudi Arabia didn’t immediately respond to requests for comment.
For now, Gulf states have no real alternative to the US, according to Galia Lavi, an expert on China-Middle East ties at the Institute for National Security Studies in Tel Aviv. “China doesn’t give any security guarantees at all, so it’s better to have some from the US rather than none from China.”
Still, Chinese interests in the region “keep getting bigger,” she said.
In the Middle East, China now sees the tide turning in its direction, said Victor Gao, vice-president of the Center for China and Globalization, a Beijing think-tank. “China has this flexibility of positions and China always wants to see ‘What do you want?’.”
--With assistance from Matthew Martin, Samy Adghirni and Fareed Sahloul.
Author: Sam Dagher, Henry Meyer and Ben Bartenstein