For decades, China’s economy has been the engine of global growth. Now, with this machine slowing down and Chinese leaders expressing uncharacteristic concern, the international community is left to wonder: How will China’s malaise affect the rest of us?
In theory, China’s decreased economic activities, including consumption, should translate into reduced demand for foreign raw materials and products. This will be bad news for resource-rich countries and export-oriented economies alike.
Given the reliance on energy exports by oil-producing states, it might seem inevitable that China’s economic slowdown would eventually translate into bad news for the Middle East. And yet the complex and diversified relationship between China and the region make this conclusion too simplistic. Several reasons stand out.
First, reduced economic activity doesn’t immediately or always translate into slowdowns in energy imports. At 3%, China’s economic growth in 2022 was the lowest since the country’s reform and opening period began in 1979. But China’s crude-oil imports last year – 508 million tons – were down only 0.9% from the previous year.
Moreover, among the 48 countries that exported oil to China in 2022, Saudi Arabia was the largest (topping even Russia, which increased exports to China after the invasion of Ukraine). China’s crude-oil imports from Saudi – 87.5 million tons – were roughly the same as the year before.
Based on data collected by China’s customs agency, Chinese oil imports from Saudi Arabia and the United Arab Emirates increased by 5% and 9% respectively between January and July this year compared with the same period in 2022. While oil imports from Saudi Arabia decreased by 12.4% in July compared with June, the overall Chinese demand for Middle Eastern oil remains strong.
This trajectory is likely to continue as China reduces coal consumption to meet its climate-change goals.
Seeking foreign investment
Second, with fewer resources available from its own sources, China will be more eager to attract foreign investment to keep its economy moving. This is particularly true in China’s downstream energy investments.
For instance, in March, Saudi Aramco announced two major investments in China. A new US$10 billion facility in Panjin will have the capacity to refine 300,000 barrels a day and produce 1.65 million tons of petrochemicals annually.
Another project, between Aramco and Zhejiang province, will enable the Saudi oil major to acquire a 9% stake in Zhejiang Petrochemical, an integrated refinery and petrochemical complex in the city of Zhoushan that churns out 800,000 barrels of product daily.
The move reinforces Aramco’s commitment to positioning itself as China’s main energy partner, and underscores China’s desire to introduce foreign investment to boost its domestic supply.
It’s no secret that China’s flagging economy, caused in part by declines in consumer spending during the Covid-19 pandemic, has hurt China’s Belt and Road Initiative. But BRI spending trends vary by region and by country.
While construction spending and investments dropped by 44% and 65% respectively between 2021 and 2022 in sub-Saharan Africa and West Asia, Arab and Middle Eastern countries actually saw a major expansion in China’s economic engagement, growing by 21% during the same period.
These figures suggest that countries in the Middle East could weather China’s economic slowdown and even expand their share of China’s overseas spending.
China will be looking to engage in specific sectors and to do so largely based on the health of bilateral relations. With ties between the United States and China strained, and as Western governments warn against doing business with Chinese investors, Middle Eastern states emerge as favored partners.
For now, Sino-Middle East trade is relatively narrow, focusing almost exclusively on energy. But as such countries as Saudi Arabia and the UAE attempt to diversify their economies and transition from a reliance on oil, there will be new areas of synergy with China, including on infrastructure development, new energy resources, and digital and information technologies.
After decades of focusing only on oil, China and the Middle East’s biggest economies are rediscovering each other in their search for political alignment and economic opportunity.
For China and its Middle Eastern partners, long-term trends will defy temporary economic constraints. Although China’s economic slowdown will bring many global challenges, in the Middle East, at least the convergence of interests should make the pain easier to bear.
This article was provided by Syndication Bureau, which holds copyright.
Yun Sun is director of the China program and co-director of the East Asia program at the Stimson Center in Washington.