18 August 2009

The New Silk Road ~ China-Arab Trade

Title: The New Silk Road: How a Rising Arab World is Turning away from the West and Rediscovering China
Author: Ben Simpfendorfer
Publisher: Palgrave Macmillan

The old dichotomy between East and West has shaped the strategic balance of the world for years: it's the relationship between China and the US, or the US and the Middle East that grabs headlines. But we rarely hear about the relationship between the East and the East. Economist Ben Simpendorfer argues that the Arab world is turning away from the West and embracing China.

Chinese exports to the 22 members of the Arab League jumped to $62.3 billion last year from just $7.2 billion in 2001, the year China joined the World Trade Organization. The share in total Chinese exports rose to 4.4 percent from 2.7 percent.

Imports from the Arab world over the same period grew to $70.3 billion from $7.5 billion, doubling the share in total imports to 6.2 percent, according to official Chinese data.

With markets and the media riveted by China’s hunt for natural resources in Australia, Africa and Latin America, the Middle East story has perhaps been underplayed.

That’s the view of Ben Simpfendorfer, an economist in Hong Kong for Royal Bank of Scotland, who seeks to redress the balance in his new book, “The New Silk Road: How a Rising Arab World is Turning Away from the West and Rediscovering China.”

For Mr. Simpfendorfer, who speaks Arabic and Chinese, the world is witnessing nothing less than two historical powers simultaneously reclaiming their economic and cultural primacy in the world. “The stories often appear unrelated, but they are in fact part of a larger global rebalancing that represents the rise of the East after centuries of Western dominance,” he writes.

These are grand claims. Do they stack up? Xu Changwen, a researcher at the Chinese Ministry of Commerce, said a complementary trade structure had fueled the boom: China needs oil from the Middle East, which is an avid buyer of Chinese clothes and other consumer goods. Talks on a free-trade deal with the Gulf Cooperation Council underlined the scope to develop ties, but one should keep a sense of proportion, Mr. Xu said.

“Market demand from the United States and Europe is huge and will recover when the financial crisis is over, so it’s still too early to say anything like ‘The Middle East will replace the U.S. and Europe,”’ he said.

Trade will ebb and flow with the price of crude oil, Mr. Simpfendorfer acknowledges. Oil makes up 40 percent of their two-way trade. China imported more than a fifth of its crude last year from Saudi Arabia; Oman, Kuwait, the United Arab Emirates and Yemen were also among its 10 biggest suppliers. Yet even if oil traded at just $30 a barrel, Mr. Simpfendorfer believes Chinese-Arab relations would continue to flourish because of three deep currents.

The appeal to the Arab world of China’s economic model, with its emphasis on rapid growth and political stability. You will not hear Beijing demanding regime change.

The clout of Arab sovereign wealth funds, which have been diversifying their investments away from the United States since the terror attacks of Sept. 11, 2001.

The revival of a string of historic trade routes stretching from Africa through the Middle East and into Asia. Embracing the majority of the world’s Islamic population, this corridor is comfortable territory for Arab investors, Mr. Simpfendorfer argues.

Trade along the original Silk Road collapsed in the 1600s with the decline of China. New European sea powers switched most of their Asian trade to the African Cape route, delivering a knockout blow to the Arab economies.

In Damascus, one of the terminuses of the old Silk Road, there are plenty of Chinese shoes and such on sale in the souks, and inexpensive Chinese cars are making inroads into the Syrian market.

In Syria, Haier, the appliance maker, has captured 20 percent of the market for washing machines and microwave ovens; Huawei has grabbed a big chunk of the local telecommunications market; and Chinese construction companies are building hydroelectric plants and other infrastructure.

A survey by Global Sources, which matches buyers and sellers of Chinese goods, found that 52 percent of Middle Eastern buyers plan to increase their purchases from China in 2009, according to Bill Janeri, general manager of the company’s Dubai office.

Chinese exports to the United States and European Union slumped in the first quarter, but shipments to Saudi Arabia slipped a bit more than 1 percent, while those to Jordan shot up 32 percent.

Despite his optimism, Mr. Simpfendorfer injects a few notes of caution: politically, other parts of Asia have stronger Islamic ties with the Arab world than China does. And Beijing must ensure that its “Go Global” policy of encouraging local companies to venture abroad does not swamp Arab markets with imported goods, destroying jobs and goodwill.

He also acknowledges that ties are flourishing but have yet to be seriously tested. “It is still too early to judge the outcome,” he writes. “Tensions between the China growth model and Go Global are a useful reminder that relations between the Arab world and China are still delicately poised.”


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