Elevating Sino-Arab cooperation

China, Gulf states must broaden economic exchanges to secure deeper, long-term partnership


The first China-Arab States Summit in December 2022 ushered in a new era for the all-round and in-depth development of China-Arab relations. Economic cooperation is the cornerstone and axis of China-Arab relations.

Over the past two decades, economic and trade cooperation between China and the Arab states has seen unprecedented, significant strides. Bilateral trade increased from $14.70 billion in 2001 to $330.24 billion in 2021 — jumping more than 2,200 percent. 

From 2004 to 2020, Chinese companies’ foreign direct investment in Arab states increased from $180 million to $2.83 billion, while China’s FDI stock went from $760 million to $21.29 billion — an increase of 1,600 percent and 2,700 percent, respectively.

Bilateral economic relations are growing far beyond the energy and trade sectors and expanding into the financial, investment, technology and cultural sectors, thus becoming increasingly comprehensive and diversified.

But China-Arab economic collaboration is still at the medium-low level and in its infancy, with huge room for quantity growth and quality improvement. China needs crude oil and natural gas from the Arab states, and the Arab states need manufactured goods from China — this has been the basic feature of bilateral economic relations, hardly changing in 30 years. 

This relationship is reflected in the “80 percent phenomenon”, where China often invests substantially in a single sector to the point it is a barrier to the further development of bilateral economic ties. Take the following examples: 

In the area of two-way investment, from 2005 to 2022, China’s foreign direct investment stock in the Arab states hit $50.4 billion — 83 percent ($42.1 billion) of which was invested in the energy sector. Furthermore, China’s centrally administered State-owned enterprises dominate such investment, with a proportion much higher than 80 percent. 

In bilateral trade, 80 percent of Chinese exports to the Arab states were consumer and capital goods, while 80 percent of Chinese imports from the Arab countries were mineral fuel and mineral oil. 

With regard to project contracting, from 2005 to 2022, the contract value of Chinese companies’ foreign contracted projects in the Arab states was $180.2 billion — 81 percent ($147.5 billion) of which was in traditional areas including energy, mineral resources, transport and real estate. 

On a country-by-country basis, oil-producing Gulf Cooperation Council members accounted for around 86.8 percent of China-Arab trade — this is a de facto trade relationship between China and the oil-producing GCC members. 

Things are similar in areas such as investment and project contracting, with no substantial changes over the past five years. For instance, in the years from 2018 to 2022, the energy sector accounted for 87 percent of Chinese FDI in the Arab countries, while the energy, mineral resources, property and transport sectors jointly accounted for 82.6 percent of the contract value of China’s foreign contracted projects in the Arab countries.

Trade between China and the Gulf Cooperation Council, or GCC, states exceeded that between the US and GCC countries as early as 2008 and overtook European Union-GCC trade in 2020, making China the largest trading partner of the GCC. 

In contrast, two-way investment is less in quantity and poorer in quality. US’ FDI stock in Middle Eastern countries topped $75 billion from 2010 to 2019, three times more than China’s FDI stock in the region ($20.5 billion). Compared with China-Arab trade, two-way investment is quite small and concentrated in the energy sector, hampering the transformation and upgrading of bilateral economic ties.

According to data from the American Enterprise Institute, in 2019, China’s FDI stock in the Middle East stood at $66.1 billion, accounting for just 5 percent of the total FDI stock in the Middle East. The low two-way investment indicates that bilateral economic cooperation is still in its infancy and both sides have yet to get deeply integrated into each other’s industry chains. 

The “80 percent phenomenon” indicates that Chinese companies have a long way to go to catch up with their US and European peers.

China-Arab economic cooperation centering on trade, energy and infrastructure construction has made historic achievements, but the cooperation model lacks sustainability. 

The two sides should promote their economic relations to shift from a trade-dominated engagement to a model that features exchanges in various fields including investments, finance and technologies. This will help take the partnership from the mid-low end of the industry chain toward the mid-high end, broaden investing entities from large SOEs to more companies including small- and medium-sized private firms, and help diversify the cooperation that is currently focused on energy resources to a large extent. Only by doing so can China and the Arab countries break the “80 percent” barriers on bilateral economic ties as soon as possible.

The author is the director of the Institute of Middle East Studies at the China Institutes of Contemporary International Relations. The author contributed this article to China Watch, a think tank powered by China Daily. 

The views do not necessarily reflect those of China Daily.