Key Takeaways:
China and the GCC are expanding trade, especially in renewable energy and tech. An FTA is likely, though U.S. pressure may limit AI cooperation.
Financial deregulation in Saudi Arabia, the UAE, and China is driving more investment opportunities between their markets, aiding long-term diversification.
China’s role in GCC oil and gas is growing, with Chinese firms now involved in production, engineering, and joint ventures with state-owned energy companies.
China’s defence opportunities in the GCC are restricted due to the strong U.S.-GCC security partnership, a situation unlikely to change before 2030.
Overview:
Chinese Premier Li Qiang held bilateral talks with UAE President Sheikh Mohammed bin Zayed Al Nahyan on the 12th of September in Abu Dhabi. Talks in Abu Dhabi came on the back of Li Qiang’s visit to Saudi Arabia, where he spoke with the Saudi Crown Prince Mohammed bin Salman, earlier on Wednesday. Meetings between China and the GCC continue to gain momentum as GCC capitals diversify economic output, as part of their national diversification and rebranding exercises, and China seeks to supply the physical and financial capital needed to achieve this.
Although no tangible agreements or commitments came from the talks, it is a key indicator of China’s growing desire and gradual success in expanded relations with the GCC.
Looking Forward:
KSG assesses that trade between China and the GCC will continue to grow in renewable energy and technology particularly between now and 2024, and that these talks represent attempts to bring an FTA between China and the GCC closer. KSG assesses that any FTA will be built around facilitating the energy and tech sectors to mutual advantage. KSG assesses that tech co-operation will likely see some limitations given U.S. pressure on GCC AI firms to curtail business with China. GCC states have proven effective balancers between rivalling great powers, and will likely manage both sides to their own economic advantage in the coming 5 years.
KSG assesses that an FTA would prove to be of equal benefit to both China and the GCC. The economic diversification of GCC states in renewable energy is complemented by China’s consumption of energy and comparative advantage in lithium batteries necessary for solar energy output. China’s lithium battery exports to the GCC grew 26% (2021-2022), followed by a 99% increase in the first three-quarters of 2023.
KSG evaluates that financial markets will present an opportunity for greater economic integration between China and the GCC. Macroeconomic trends in the world’s economic growth, despite the war in Ukraine and Covid 19, show that GCC and Chinese financial markets are outperforming other financial markets. Financial deregulation by KSA, the UAE, and China via Hong Kong will allow greater future access to financial markets by GGC and Chinese firms looking for investment opportunities in either market. KSG notes that deregulation will further sustain GCC diversification over the long-term.
KSG assesses that political cooperation between China and the GCC will continue to grow, however, economic relations matter more for Beijing than political cooperation because of Chinese ideological and strategic concerns. Beijing continues to pursue non-alignment in foreign policy, using the Belt and Road Initiative and a (potential) FTA, as a means of balancing all interests including Iran in the MENA.
KSG assesses that political cooperation between China and the GCC will not replace US-GCC security ties despite the reputational damage of American foreign policy in Gaza and Afghanistan. China does not offer any security assurances to these states at present (unlike US security guarantees that secure key maritime choke points for GCC states such as the Strait of Hormuz and Gulf of Aden). KSG assesses that China is in no position to match what the US can offer in terms of maritime security in the next decade.
KSG assesses that China and the GCC will continue to broaden their trading relationship to higher-value stages of oil and gas production because of mutual common interest; China is the world’s largest energy consumer and the GCC has a plentiful supply of hydrocarbons. Chinese firms will continue to leverage their relationship with GCC hydrocarbon state-owned producers, such as Aramco, to trade in engineering technology and project construction. Chinese banks, state-owned companies, and the private sector will likely play a substantial role in joint-ventures with GCC energy firms in the oil and gas sector. Most notably, China has already (and continues to) moved away from simply buying these countries' oil and gas, but has become a crucial stakeholder in production itself.
KSG conducted an assessment of Chinese ability to compete for defence contracts in the GCC. The assessment concluded that opportunities will be limited because of the American-GCC partnership and Chinese defence priorities elsewhere. This is unlikely to change before 2030.