How the Gulf row is blocking China’s new Silk Road

Rift between Qatar and its neighbours could disrupt key projects in Beijing’s sprawling trade initiative

PUBLISHED : Monday, 05 June, 2017, 10:01pm
UPDATED : Tuesday, 06 June, 2017, 11:56am

A worsening rift between several Gulf Arab nations along China’s modern Silk Road trade route will make it harder for China to manage its ties in the region, according to analysts.

Bahrain, Egypt, Saudi Arabia, Yemen and the United Arab Emirates all cut diplomatic ties with Qatar on Monday, citing Doha’s alleged links to terrorism.

The nations also said they planned to cut air and sea traffic, while Saudi Arabia announced it would shut its land border with Qatar, cutting the gas-rich nation off from the rest of the Arabian peninsula.

Qatar denies that it funds extremist groups.

The nations are involved in Xi Jinping’s ambitious “Belt and Road Initiative”, which stretches across 65 countries and encompasses Asia, Africa and Europe.

The Arab peninsula is the top source of oil for China, the world’s biggest oil importer. Global prices rose in early trading on Monday.

Pang Zhongying, a senior fellow at the Ocean University of China in Qingdao, Shandong province, said the spat among the Middle East nations would make it more complicated to manage ties with the region.

“China has a huge economic interest in the Middle East,” he said. “With the belt and road and other initiatives it is using to expand geopolitical influence in the region, China may need to think about adjusting its “non-interference” diplomatic motto.”

Zhu Bin, an analyst at Southwest Securities, said: “These countries’ cutting of their diplomatic relationships with Qatar marks the beginning of a new round of chaos, even conflicts and war, in the Middle East.”

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China’s trade with the Middle East

Saudi Arabia is China’s top trade partner in the region, and China is now Saudi Arabia’s largest oil customer.

In 2015, Saudi Arabian exports to China totalled US$5.61 billion and its imports were worth US$23.97 billion. Last year, total trade topped US$42 billion.

The figures for Qatar in 2015 were exports of US$5.24 billion and US$3.7 billion in imports.

But for most of the countries involved in the new rift, China is an important source of imports rather than a major export partner.

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China’s major projects in the Middle East

The region is seen as a critical partner along the new Silk Road, partly due to its strategic position between Asia and Europe. The area is also significant for its energy resources, and Chinese firms are winning contracts in infrastructure projects across the Middle East.

In June 2015, ICBC became the first Chinese bank with a retail presence in Saudi Arabia when it opened a branch in Riyadh. A month earlier, China established a yuan clearing centre in Qatar - the first in the Middle East.

Earlier this year, China and Saudi Arabia signed a memorandum of understanding on investment cooperation valued at US$65 billion, including joint efforts in energy and finance. China has also signed a partnership with Saudi Arabia for the manufacture of CH-4 unmanned drones.

Last year, China’s Cosco Shipping Ports invested US$400 million in building a container terminal in Abu Dhabi, the capital of the United Arab Emirates.

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The region has been receptive to the plan.

Last month, Saudi Energy Minister Khalid Al-Falih praised the initiative at Beijing’s new Silk Road summit, saying “the potential offered by this unique initiative is immense and promising”.

The United Arab Emirates was interested in reaping the benefits from the road, Dubai International Financial Centre’s governor Essa Kazim told The Financial Times last month.

Last year, Qatar became a key partner to promote the initiative, pledging to play an active role.

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How China mediates conflict in the Middle East

China has traditionally stayed out of political issues in the Middle East, preferring not to pick sides to maintain good relations with all its trade partners.

But that may be changing as its links with the region strengthen. In April 2015, a Chinese frigate helped evacuate 225 foreign nationals from Yemen - the first time China’s military has helped other countries evacuate their people from a danger zone.

Last year, Beijing appointed its first special envoy for the Syrian crisis, seen as a move to get more involved in Middle Eastern diplomacy. In China’s first - and vague - Arab policy paper issued at the start of last year, it reiterated its commitment to peace and stability in the region.