Constructing One Belt and One Road and Enhancing the China-GCC Cooperation

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1 Constructing One Belt and One Road and Enhancing the China-GCC Cooperation WU Sike 1 (Ministry of Foreign Affairs, People s Republic of China) Abstract: China and the Middle East are located in the east and west side of Asia, and have long friendly relations. The construction of One Belt and One Road joined by China and GCC (Gulf Cooperation Council) will lead the mutual strategic cooperation relationship in the future, and it will be the main stream of China and the GCC relations under the new situation, and will enhance the mutual cooperation in economy, trade, energy, infrastructure and high technology to a higher stage, thus giving vitality and dynamics into China and GCC relations. Key Words: One Belt and One Road Initiative; the GCC; China and the GCC Cooperation China and the Gulf region are at the easternmost and westernmost parts of Asia, respectively, but the ancient Silk Road linked the two sides together, and generated a long history of friendly exchanges. In the new century, China-Arab relations based on mutual respect, and win-win cooperation have advanced by leaps and bounds. The two sides have been through severe tests such as the vicissitudes 1 WU Sike, China s former Special Envoy to the Middle East, the academic committee member of Middle East Studies Institute, Shanghai International Studies University. 1

2 Journal of Middle Eastern and Islamic Studies (in Asia) Vol.9, No. 2, 2015 of international relations, financial crisis and political turmoil in some Arab countries, and have become strategic partners to each other. I. The Economic and Trade Cooperation between China and the GCC Countries Gulf Cooperation Council for the Arab States is the main political and economic organization of the Gulf region, referred as the Gulf Cooperation Council or GCC. The GCC was established in May 1981 and headquartered in Riyadh, Saudi Arabia. The Member States include the UAE, Oman, Bahrain, Qatar, Kuwait and Saudi Arabia. GCC countries have proven oil reserves of about 29.4% of the world s total oil reserves. 1 (See specific data in Table 1) Currently, among the world s top ten oil-producing countries, three of them are GCC countries. With the exception of Bahrain, the other five countries of the GCC s proven oil reserves are ranked in the world top 30. According to the Petroleum Intelligence Weekly, ARAMCO of Saudi Arabia has become the world s largest oil company in recent years. According to the analysis of the international rating agency Moody, in 2015, the GCC countries will increase their refining capacity by 43%, reaching 520 million barrels/day. Table 1: the GCC countries oil reserves (Unit: million tons) (BP, 2014: June) States 2013 Percentage of the world total Saudi Arabia % UAE % Oman % Kuwait % Bahrain According to BP data. 2

3 Qatar % Total % The traditional markets of GCC oil exporting are mainly Western countries. Currently, the Western countries, especially the United States, are vigorously promoting the diversification of oil import, and the development of alternative energy sources, such as large-scale exploitation of shale gas, resulting in a relatively lower demand for GCC oil. GCC countries need to put more efforts into expanding new markets; therefore, they have an urgent need to deepen energy cooperation with China. China and Saudi Arabia, Oman, Yemen, Qatar, the United Arab Emirates and other countries have signed a long-term crude oil import contracts. Moreover, FTA talks between China and the GCC that both sides are pushing forward will benefit the GCC countries in finding stable oil export market to ensure the GCC the oil security (Liu, Z. & Zhu, W., 2014: ). The GCC and China are highly complementary in economy, and have a long history of trade exchanges and other economic cooperation. Their pragmatic cooperation has achieved remarkable achievement. The GCC countries mainly export oil and gas products to China, while China s major exports to the GCC countries are electro-mechanics, textile and other products. Saudi Arabia is the largest trading partner of China in West Asia, and it is also the largest major crude oil supplier to China. In recent years, China s economic development is very rapid, and its oil consumption will continue to increase. The GCC oil exports to China will have a very important strategic significance. China s stable trade and economic cooperation with the GCC will build a new platform of energy diplomacy for China and the GCC countries, which is conducive for China to get a more stable energy supply in order to ensure oil security. Economic and trade relations between China and the GCC member states are of rapid development. Bilateral trade volume is 3

4 Journal of Middle Eastern and Islamic Studies (in Asia) Vol.9, No. 2, 2015 increasingly accounting for larger proportion of the total foreign trade volume of each side. From 1999 to 2004, the annual average growth rate of bilateral trade volume between China and the GCC member states was over 40% (Chinese Embassy in Saudi Arabia, 2005: April 25). From 2004 to 2008, the GCC was the eighth largest trading partner of China for five consecutive years. In 2011, trade volume between China and the GCC six countries were $133.8 billion, accounting for 68.3% of total China-Arab trade (Cheng, C., 2012: August 2). In 2012, trade between China and the GCC six countries were $155 billion, accounting for nearly 70% of the total Arab trade (Bai, C. & Zuo, J. & Tang, Y., 2013: September 17). Table 2 China s exports to the GCC countries (Unit: USD million) 1 States Saudi 1,082, ,745 1,036,644 1,484,971 1,845,685 Arabia UAE 2,364,369 1,863,180 2,123,534 2,681,285 2,957,561 Oman 79,452 74,750 94,450 99, ,168 Kuwait 65,508 47,527 79,950 88, ,290 Bahrain 175, , , , ,025 Qatar 107,416 87,211 85, , ,512 Table 3 China s imports from the GCC countries (Unit: USD million) 2 States Saudi 4,184,617 3,254,839 4,319,549 6,431,724 5,491,662 Arabia UAE 2,825,694 2,122,688 2,568,689 3,511,922 1,081,664 Oman 1,242, ,873 1,072,372 1,587,466 1,695,245 1 According to the data from National Bureau of Statistics and Customs information network. 2 According to the data from National Bureau of Statistics and Customs information network. 4

5 Kuwai 78,639 68, , ,585 34,837 t Bahrai 679, , ,695 1,130,362 1,045,291 n Qatar 238, , , , ,486 Capital cooperation between China and the GCC countries mainly includes mutual investment, project contracting, labor cooperation and design consulting. In recent years, bilateral cooperation in capital has become more closely, and continued to show good momentum of development. GCC s direct investment in China is increasing every year. In 2008, GCC s direct investment in China amounted to $ million; in 2010, GCC s direct investment in China amounted to $ million; affected by the change of the situation in the Middle East, in 2011, the amount of GCC s direct investment in China dropped to $96.32 million. China s direct investment in the GCC is also growing. From 2003 to 2010, China s direct investment in the GCC rose from $10.66 million to $1.675 billion--in just seven years, it increased by about 156 times than before. Moreover, China s stock of direct investment in GCC grew very rapidly as well, with the growth rate of more than 50%. In 2011, China s direct investment in the GCC amounted to $ billion. Over the years, the GCC countries have accumulated huge petrodollars by oil trade, and actively carried out projects to attract foreign investment. It also has increased the intensity of foreign direct investment. In order to reduce excessive dependence on the international oil market and realize the rapid economic diversification, the GCC countries have implemented economic diversification strategy to gradually increase the proportion of non-oil industry. They welcome Chinese enterprises to invest there, thus have provided favorable conditions for China s capital flow into the GCC countries. China also has created favorable environment for the GCC countries 5

6 Journal of Middle Eastern and Islamic Studies (in Asia) Vol.9, No. 2, 2015 to expand investment in China by developing a series of preferential policies to attract foreign investment, implementing more optimized structural adjustment in the investment field, and launching a massive oil exploration projects (Liu, Z. & Zhu, W., 2014: ). The project contracting and labor service cooperation between China and the GCC countries have also been making great progress. In recent years, in order to promote the diversification of the economic structure, the GCC countries have carried out a large number of projects in transportation, communications, infrastructure, special economic zones and other development projects. At the same time, China is vigorously implementing the going-out strategy, with a strong capacity and advanced contract experience, which makes the bilateral project investment volume continue to rise. Labor cooperation is another highlight in bilateral economic and trade cooperation. The GCC countries generally lack personnel and skilled labor in technique and management, while there are abundant human resources in China, which results in a huge potential for the two sides in the field of labor cooperation. In 2011, the turnover of contracted projects completed by China in the GCC countries amounted to $ billion. Up to now, Chinese companies have signed project contracts valued total of $71.3 billion, covering many areas in housing construction, roads, bridges, ports, power plants and telecommunications (Zhang, L. & Yang, J., 2013: September 16). In 2013, bilateral trade volume between China and the GCC reached $177 billion. Chinese companies signed new labor contracts with the GCC countries amounting to $10 billion, FDI flows amounted to $850 million, and the actual utilization of the GCC capital amounted to $120 million. In 2013, total direct investment from China to the GCC reached $4 billion (Chinese Economic and Commercial Consulate in Kuwait, 2014: September 28). GCC actual investment in China totaled $2.7 billion. The GCC has become China s largest source of crude oil imports, and China has become the largest trading partner of the GCC countries. Bilateral cooperation in finance, aviation, new energy, 6

7 tourism and other fields also shows rapid growth momentum, and great potential. II. The Development of China s Relations with the GCC Countries Faced with a large change in the situation of the Middle East, the Gulf States have changed to relatively low-key foreign policy in the past. With strong economic strength and a relatively stable political situation, they utilize the opportunities due to civil strife and weaken the position of regional powers, for instance Egypt is actively enhancing their position in Arab League and the Middle East position. They also use the active participation of the Western powers in overthrowing the enemy of the Gaddafi regime in Libya, and try to support the Syrian armed oppositionists. They intend to overthrow the Bashar regime, and eventually weaken the powerful neighbor Iran, in order to safeguard its own security. Leading religious extremism, which may pose a threat to its own security, to foreign countries is an important strategy for the Gulf States. Different parties have different views on policy evaluation of the Gulf countries on the current affairs, but they recognize that the policy do enhance Gulf countries role in the region. Certainly, in the face of great change in the Arab world, the Gulf countries are also subject to impact to a certain extent. Therefore, they also recognized the need for carrying out some reforms, while stressing the reform and modernization should be adapted to the special nature of the Gulf, and do this step by step. China has always pursued the principle of respect for sovereignty and non-interference in other countries internal affairs, actively maintaining stability in the region and upholding the fundamental interests of the peoples in the region. As a result, its relations with countries in the region continue to grow steadily. Political Report of the Eighteenth National Congress of the CPC pointed that strengthening relations with other developing countries is an 7

8 Journal of Middle Eastern and Islamic Studies (in Asia) Vol.9, No. 2, 2015 important strategy, and reiterated that China stands for peaceful settlement of international disputes and hot issues, and opposes to force or threat of force, is against subvert legitimate authority of another country, and against all forms of terrorism (Hu, J., 2012). China s diplomacy in West Asia and North Africa is a lively practice of the key idea of this report. Because of the importance of the GCC countries in the geopolitics, energy and other areas, especially its safe haven role since the big changes in West Asia and North Africa, China has attached great importance to relations with the GCC and its member states. In early 2012, then Chinese Premier Wen Jiabao made successful visits to three countries--saudi Arabia, the UAE and Qatar. The visits enhanced the strategic partnership between China and Saudi Arabia. China and the United Arab Emirates also announced a strategic partnership. With respect to Qatar, the two leaders decided to strengthen contacts and enhance strategic mutual trust and cooperation. The strategic dialogue mechanism with the GCC has also been strengthened, which strongly promoted the development of a strategic partnership between China and the Gulf countries. China and the GCC countries are sharing dual responsibility of the world economic recovery and promoting sustainable development, with a good foundation and broad prospects in cooperation to jointly promote cooperation in sustainable development and mutual benefit terms. China attaches importance to developing relations with the GCC. Chinese Foreign Ministers and the GCC foreign ministers meet regularly during the annual United Nations General Assembly to establish a strategic dialogue mechanism. In early 2012, Chinese Premier visited the GCC and three Gulf states, and signed a series of cooperation documents to enhance the partnership. After the 7/5 event in Xinjiang, the Gulf States explicitly supported the Chinese government s basic stance, and expressed understanding and support for the work done to maintain social stability in China. In areas of cooperation and cultural exchanges, cooperation in energy, environmental protection, etc., the two parties have good prospects. In 8

9 recent years, the two sides continue to carry out in-depth exchanges on regional hot issues and sustainable development, and to promote the formation of new ideas, new ways and new mechanisms for a deeper mutually beneficial cooperation. GCC countries and China are having increasingly close economic cooperation and becoming mutually important trade partners to each other. The two sides are highly complementary in many areas, especially new growth potential in new energy development and technological innovation. According to the latest report released by the Gulf Investment Organization, in 2012, the GCC countries achieved economic growth of 5.8% on average. According to the current price level, its GDP will be close to $1.6 trillion (Ministry of Commerce of China, 2012: July 15). The Arab wealth funds have become an important globally economic power, which should not be overlooked. According to Morgan Stanley Research Institutions, the sovereign wealth funds of the GCC countries totaled up to $2.5 trillion. According to Abu Dhabi Investment Authority s annual report, the current GCC investment rates in Europe and America are up to 35% to 50%, the Europe alone up to 25% to 35% to GCC countries, and Asian countries up to 10%to 20%, while the emerging market countries only 15% to 20% (Zhang, Y., 2012: July 24). Both developed and developing countries are trying to establish a free trade zone with the GCC countries to attract investment and finance from GCC funds and to strengthen trade and economic cooperation with the GCC countries. Affected by the European debt and the US debt crisis and the financial crisis, the financial markets of developed countries are in bleak prospects. Arab countries including the GCC countries have started to adjust investment strategies. China as the representative of the emerging markets has become the new point of interest of GCC sovereign wealth funds. 9

10 Journal of Middle Eastern and Islamic Studies (in Asia) Vol.9, No. 2, 2015 III. One Belt and One Road to Add Vitality and Deepen Cooperation between China and the GCC In 2013, Chinese President Xi Jinping proposed the strategic concepts of the Silk Road economic belt and 21st Century Maritime Silk Road, which offered new prospects for an overall improvement of the cooperation and development between China and the GCC, and created new opportunities for mutual benefit and enhanced win-win cooperation between the two sides. These concepts are qualified the title of the new engine of the new era. One Belt and One Road initiative also received extensive attention and positive response from the Gulf States. In Early June 2014, a Gulf foreign minister fondly said that China s strategic vision to revive the Silk Road had inspired the Arabs, and bilateral cooperation in this area would have good prospects. In January 2014, the President Xi Jinping met with the delegation of the GCC. He said that since the establishment of relations between China and the GCC, bilateral relations had achieved sustainable and healthy development. The two sides are of high politically mutual trust, having economic and trade cooperation as well as real cultural exchanges, and are close brothers, good friends and good partners. China will continue to develop long-term friendly relations with the GCC. The two sides should strengthen the planning and design, highlight the focus of cooperation, and enrich cooperation content. China is willing to make joint efforts with the GCC to promote the Silk Road Economic Belt and 21st Century Maritime Silk Road construction (Li, W., 2014: January 18). When Prince Salman, Saudi Arabian Crown Prince and Prime Minister of Kuwait visited China, to build One Belt and One Road is an important topic for both sides, and they had responded positively to this. In Early June 2014, the Sixth Ministerial Conference of the Sino-Arab Cooperation Forum was held in Beijing. Xi Jinping proposed the principle of the jointly build and share and cooperation to build One Belt and One Road, and 10

11 proposed a Sino-Arab Cooperation pattern. 1 is to deepen cooperation in the oil and gas fields of the whole industry chain, with energy cooperation as the main focus, to maintain security of energy transport corridors, and to build mutually beneficial, safe, reliable, long-term friendly cooperative strategic relations between China and Arab. 2 is to strengthen China-Arab cooperation on major development projects as well as the iconic livelihood projects, with the infrastructure, trade and investment facilitation as the wings, to establish relevant institutional arrangements for the promotion of bilateral trade and investment. 3 is with nuclear energy, space satellites, and new energy--the three high-tech fields--as a breakthrough in efforts to enhance the level of a pragmatic cooperation. In terms of high-tech areas of cooperation, the President Xi proposed the cooperative ideas of three centers, namely, to explore the establishment of Sino-Arab technology transfer centers, to build Arab training centers for the peaceful use of nuclear energy, and to locate Chinese Beidou satellite navigation system project in Arab (Du, S. & Jiao, X., 2014: June 6). Clearly, in the cooperation proposed by Chinese President Xi Jinping, the Gulf has an important position, and the two sides have great potential for cooperation. Cooperation to build One Belt and One Road is the main focus of cooperation between China and the Gulf countries under the new situation. The two sides will promote cooperation in the fields of trade, energy, infrastructure, and other high-tech to a new level. China is willing to build up the future development of China and the Gulf countries, as well as China s advantage in industrial capacity and the comparative advantage of Arab countries. When improving the layout of China s opening up, China also would like to bring Gulf countries with more stable energy gains, better infrastructure conditions, and more advanced science and technology in order to achieve common development and prosperity. Joint establishment of the One Belt and One Road will lead to the future development of bilateral strategic partnership, adding 11

12 Journal of Middle Eastern and Islamic Studies (in Asia) Vol.9, No. 2, 2015 momentum to improve bilateral relations. Partnering to build the One Belt and One Road, the two sides should begin with consultation. Through seminars and other interactive exchanges, all parties can understand what One Belt and One Road is, why, and how to carry it out, which is, to clear connotation of this strategy, goals and path, in order to further enhance mutual understanding and trust. In this regard, we should choose the right focus of cooperation in order to develop the program gradually. One Belt and One Road strategic concept covers a wide range of areas such as trade, investment, infrastructure, interoperability, finance, and regional economic integration. The various fields are closely associated with each other and are mutually reinforcing. Those areas may include: 1) to further promote trade and investment facilitation, expand the scale of bilateral trade and investment, and increase trade and investment level, so that the potential for bilateral cooperation in trade and investment in the field can be fully released and create conditions for more cooperation areas; 2) the current investment cooperation level between China and the Gulf countries are still low, which does not match the economic strength of the two sides. To strengthen two-way investment cooperation could be the future direction and focus areas on pragmatic cooperation; 3) Both sides should strengthen cooperation in the development of oil and gas resources, and extend cooperation to the downstream industries; 4) the two sides can make full use of the unique advantages of the Gulf region, and further coordinate the planning of interconnection infrastructure facilities from land, sea, and air; 5) the two sides can work together to improve the level of regional economic integration. The One Belt and One Road strategy is in line with the philosophy of GCC economic integration process. The Chinese side would like to see further development of the GCC integration process, and also hope to promote China - GCC FTA talks as soon as possible to make progress towards early goods trade agreement negotiations, and to 12

13 create conditions to start negotiations on trade in services, economic and technological cooperation, investment and other areas. GCC countries have strong economic strength and a relatively mature market, in the face of international economic recovery and restructuring, they also have ambitious development plan. The Gulf will be the focus area of One Belt and One Road and enjoy big strategic advance, and they will also be the first in the region to achieve results. History has proven that China and the Gulf as well as the whole Arab world are a community of common interests and a common destiny; common interest is an inexhaustible power to promote cooperation between China and the Gulf States. For the international community, the concept of the Silk Road is universal, not mutually exclusive. As the President Xi Jinping said in November 2014 at the G20 summit in Brisbane, Running alone is fast, but running together will last (Xi, J., 2014: November 16). To strengthen the cooperation among all parties and to create the community of common interests, are in line with interests of all parties. The establishment of the Asia Infrastructure Investment Bank, Silk Road Fund and the BRICS Development Bank, which China advocated, will provide strong financial support for the development and construction of Asia. Building One Belt and One Road is an open and inclusive process of cooperation, and there is no exclusivity. China is also open minded to welcome Europe, the United States and the international community s participation and cooperation, working on One Belt and One Road together to develop and expand areas of cooperation from points to areas as well as from the line to the field, and gradually form a regional great cooperation and achieve policies are well-communicated, paths are unified, free trade flows, currency is freely circulated, and the people are connected. We are in an era of economic globalization. The fate of the human is linked together. Partnering for establishment of One Belt and One Road is a trend of the times, and is an innovative international 13

14 Journal of Middle Eastern and Islamic Studies (in Asia) Vol.9, No. 2, 2015 cooperation model. China will work with the Gulf countries and communicate with the rest of the world or any countries intended to participate in this partnership to find common interests and to realize joint planning, win-win cooperation, and sustainable development. References Bai, C. & Zuo, J. & Tang, Y. (2013: September 17). China-GCC Countries Economic Cooperation Forum Was Held, Retrieved October 1, 2014 from xinhuanet.com/ /17/c_ htm. BP (2014: June). BP Statistical Review of World Energy, Retrieved September 1, 2014 from tistical-review-2014/bp-statistical-review-of-world-energy-2014-full-report.pdf. Cheng, C. (2012: August 2). Zhang Yansheng: Three steps for China and the GCC development cooperation, China Industrial and Economic News. Chinese Economic and Commercial Consulate in Kuwait (2014: September 28). GCC Hopes to Develop A Strong Partnership with China, December 28, 2014 from Chinese Embassy in Saudi Arabia (2005: April 25). China and the Gulf Cooperation Council Held the First Round of FTA Negotiations, Retrieved May 1, 2014 from cn/pub/chn/pds/wjdt/zwbd/t htm. Du, S. & Jiao, X. (2014: June 6). Xi Jinping attended the opening ceremony of the sixth Ministerial Conference of the Sino-Arab Cooperation Forum and delivered an important speech, People s Daily. Hu, J. (2012). Firmly March on the Path of Socialism with Chinese Characteristics and Strive to Complete the Building of A Moderately Prosperous Society in All Respects: Report to the Eighteenth National Congress of the Communist Party of China on November 8, 2012, Beijing: People s Publishing House. Li, W. (2014: January 18). Xi Jinping meets with GCC delegation, People s Daily. Liu, Z. & Zhu, W. (2014). Reports on Middle East Development: The Middle East in Transformation and Turmoil, Beijing: Current Affairs Press. 14

15 Ministry of Commerce of China (2012: July 15). GCC Countries Expect 5.8% Economic Growth; The Three Pillars to Ensure Economic Viability, Retrieved May 1, 2014 from html. Xi, J. (2014: November 16). Promoting innovation and development to achieve joint growth: A speech at the first panel of the ninth meeting of the G20 summit, People s Daily. Zhang, L. & Yang, J. (2013: September 16). China and the GCC Countries Seek to Promote Pragmatic Cooperation and Win-win Outcomes, Retrieved September 30, 2014 from 8.htm. Zhang, Y. (2012: July 24). Three-step of China-GCC Development Cooperation, Retrieved May 2, 2014 from 24/c_6453.htm. 15