Crude motives

Barrels of laughs: Hu Jintao

We’ve been covering the national pavilions at the Shanghai Expo in recent weeks. And currently nothing demonstrates as much commitment – to Shanghai and China as a whole – as forking out $200 million on your Expo tent.

So Saudi Arabia grabbed headlines last month when it unveiled the most expensive foreign pavilion on show. The biggest one too – it needs to be to house the desert palm trees and Bedouin tents. But the main attraction is a 1,600-square-metre IMAX screen (about a quarter the size of a soccer pitch). For a finishing touch, the pavilion is shaped like a boat loaded with “dreams and friendship,” according to the Expo website.

The Saudi relationship with the Chinese dates back more than two thousand years to the Silk Road – which was in fact a series of different trade routes connecting the Middle Kingdom with the Middle East. The route eventually fell into disuse in the 17th century, when European sea powers switched most of their Asian trade onto the African Cape route instead.

In terms of Chinese ties with the Saudis today, it is less about silk and a lot more about steel. About 90 Chinese companies do business in Saudi Arabia currently, including 70 construction firms employing 20,000 Chinese staff, according to a study by John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh.

Metaphors can be resilient, and many are talking about a new Silk Road. China has overtaken the US as the largest exporter to the Middle East. Goods worth $60 billion arrived in the region last year – up from $4.6 billion a decade ago.

The Middle East’s exports back to China – mostly oil and petrochemicals – are also growing fast. About 35% of China’s crude imports now originate in the six states of the Gulf Cooperation Council (GCC).

Elsewhere in the region, Chinese firms like Haier are making inroads. The appliance maker has captured 20% of the market in Syria for washing machines and microwave ovens, for instance. Telecoms equipment maker Huawei has also grabbed a chunk of local telecommunications; and Chinese construction companies are building hydroelectric plants and other infrastructure in the region.

More recently, Industrial and Commercial Bank of China (ICBC), China’s largest bank by assets, announced plans to open more branches in the Middle East, the Wall Street Journal reports. Tian Zhiping, ICBC’s chief executive for the Middle East, said the bank will start a feasibility study on opening branches in Kuwait and Saudi Arabia later this year.

The announcement follows another report from the 21CN Business Herald that ICBC and authorities in Abu Dhabi have drafted plans to cooperate in investments in infrastructure projects and mineral resources in the Middle East.

In the other direction, Arab sovereign wealth funds have stepped up their investments in China as they seek to diversify away from the US and Europe. According to a recent report published by the Chinese Business News, several Middle Eastern sovereign wealth funds are holding talks with the Agricultural Bank of China about investing in its $20-30 billion initial public offering, which is expected to be completed in the middle of July. Cornerstone investors will have to stump up a minimum of $1 billion each.

Experts believe that the ties between the two regions can only grow stronger, with Xinhua reporting on the inaugural round of “strategic dialogue” meetings between Chinese representatives and the GCC in Beijing last week. “Over the last 10 years, trade and investment between the two regions quadrupled, and are expected to rise further over the next decade,” Alessandro Magnoli Bocchi, chief economist at the Kuwait China Investment Company, told the Financial Times. “Almost daily, the Gulf and Asia are intensifying their political relations and boosting their economies.”

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