Analiza CIM no. 4/2011
„China should make full use of international influence and comprehensive national strength to strengthen international cooperation with major oil production countries and exporting countries in field of politics, economy and trade, and diplomacy.” 
In the past twenty years the interests and the standing of the People’s Republic of China (PRC) in the Middle East have severely intensified. The diplomatic relations and arms sales to the states of the region, particularly the Gulf countries, have speeded up and China has become one of the key trade partners of the Middle East. The economic and political ties have caused that PRC’s impact on the regional politics constitute a serious counterbalance for the American engagement. This article aims to present the factors behind the Chinese Middle East policy and to analyze the PRC’s economic and political interests in the region, principally seen in its relations with Saudi Arabia and Iran.
China & the Middle East
Essentially, because of its isolationist policy, China had not developed interests in the Persian Gulf region until mid twentieth century. Nor was the Arab world in general present in Chinese awareness by that time. Simultaneously, the world wars consequently have pushed both Europe and the United States towards the political and military involvement in the Middle East. Throughout the 1940s the Chinese elite has come to realize that an active presence of the foreign powers in that neuralgic part of the world could threat China itself, although at that time it was entirely engaged with its domestic problems: survival and the nation’s strengthening. During the roaring 1950s and 1960s the PRC was adding fuel to the fire of anti-colonial sentiments in the Middle East, thereafter, in the 1970s, China tried to become a counterbalance for the USSR. Only the threshold of 1970/80s brought a remarkable shift in the Chinese attitude towards the Middle East. It was related to the broader political and economic opening of the PRC and in effect led to the increased presence of China in the Middle East, in particular in the Persian Gulf region.
The first diplomatic battle won by China in the Middle Eastern scene was its official establishment of bilateral relations with Egypt, Syria and North Yemen in 1956. Most of the Arab countries, however, have rejected the recognition of a new Chinese state throughout following 15 years (see Table 1). On the other hand, the government of the PRC rejected the Israeli initiative of mutual recognition on the basis of Israeli occupation of the Arab land. It thereby subscribed to the Chinese policy of supporting national liberation movements, in this case the Palestinian statehood’s aspirations. Furthermore, China distanced itself from American and Soviet policy in the region and backed the negotiations between the parties aiming at bringing the Arab-Israeli conflict to a halt. By this means the PRC wanted to win “trust and friendship of the Arab nations” what would allow it to escape from isolation imposed by interbloc rivalry and to create a common anti-imperialist front. Nonetheless it was not to happen until early 1970s, mostly due to the domestic situation in China. In the early phase of the Cultural Revolution (1966-1969) the Muslim minority living in Autonomous Region of Xinjiang became a subject to the government’s persecution and discrimination; in so doing the PRC received unfavourable opinions in the Arab world. The image was further worsened when China backed the Marxist regime in Aden and supported the Dhofari insurgency in Oman.
|Country name||Date of establishment|
|Egypt||30 May 1956|
|Syria||1 August 1956|
|Yemen Arab Republic (North Yemen)||24 September 1956|
|Iraq||25 August 1958|
|People’s Republic of Yemen (South Yemen)||31 January 1968|
|Kuwait||22 March 1971|
|Turkey||4 August 1971|
|Iran||16 August 1971|
|Lebanon||9 November 1971|
|Jordan||7 April 1977|
|Oman||25 May 1978|
|United Arab Emirates||1 November 1984|
|Quatar||9 July 1988|
|Bahrain||18 April 1989|
|Saudi Arabia||21 July 1990|
|Israel||24 January 1992|
Source: Based on data drawn from the Foreign Ministry of the People’s Republic of China,
<http://www.fmprc.gov.cn/eng/> (June 2010).
Along the reforms and political opening, the late 1970s brought the decline in ideological confrontation in the rhetoric of the Chinese decision makers. They thus shifted their attention towards trade promotion and economic cooperation. While remaining neutral during the events unfolding in the Middle East, such as the Iran-Iraq war, China step by step gained a reputation of a “supportive player”. Consequently, as the PRC wanted to enter the Middle Eastern markets monopolized by the American and European products, it had to pursue a very pragmatic policy towards the region. Hence China established commercial ties with Saudi Arabia without any preconditions, such as the termination of relations between Taiwan and the Saudi monarchy. Similarly, the pragmatism ruled Chinese relations with Iran which was granted a full support from Beijing no matter who held the power in Teheran – was it Shah or Khomeini. The only thing important was to intensify the economic relations between the two states.
As it has occurred, the hitherto weaknesses of China – lack of historical involvement in the Middle East and lack of colonial past – have gradually become the assets in Chinese foreign policy. Contrary to the Western powers having been active players in the Middle Eastern scene, the Chinese army has never occupied nor even constituted a threat for any territory in the region. China was therefore never perceived as an imperialist invader. What the PRC had also in common with the Arab states, particularly those of the Gulf, was the economic situation. They were all developing countries and at that time main exporters of the crude oil, thus all were facing similar development challenges.
A breakthrough in relations between China and the Middle East came in 1993 when the oil consumption within Chinese market exceeded the domestic production. In 1996 China became a net importer of the crude oil. Since the very beginning the Middle Eastern oil accounted for circa a half of the Chinese imports, hence developing proper relationship with the regional producers turned to be one of the top priorities within China’s foreign policy. What is more, the intensification of economic cooperation became a condition sine qua non to uphold rapid economic growth and to cover growing energy needs of China. According to the International Energy Agency’s estimates, the oil consumption in China will increase to 16,6 million barrels per day (bpd) by year 2030, 75 percent of which will come from import (12,5 million bpd, out of which over a half will originate in the Middle East).  The dependency on the Middle Eastern oil, and quite recently also on the Middle Eastern gas, fully explains the policy the PRC undertook towards the entire Asia. China seems to be more and more interested in protecting the sea routes linking the Persian Gulf and the Chinese ports via the Ormuz, Malakka and Taiwan Straits – the blockade of any of them would cause an energy crisis in the PRC. The manifestations of such policy are easily noticeable in the Indian Ocean basin: e.g. the port and navy base in Gwadar (Pakistan) at the Oman Bay, co-financed by Chinese government, the monitoring stations in Mergui (Myanmar), modernisation of the air force bases along the South China Sea or attempts to create army bases in Bangladesh. Another way to ensure the Chinese interests are respected is also a close cooperation with Saudi Arabia and Iran.
China & Saudi Arabia
The Saudi monarchy, mostly due to its rich oil fields, has got a special position in Chinese relations with the Gulf region. Both states share the will to liberalize their economies whereas maintaining their rather not democratic policies; they both wish to undermine the American global and regional hegemony, and to severely limit the US’s interference in their internal affairs. Too many times, one may say, the American administrations criticized Riyadh and Beijing for their human rights violations.
The Sino-Saudi cooperation dates back to the 1980s when the commercial ties in the military sector were initialized. In 1988 the PRC sold Saudi Arabia 36 intermediate-range ballistic missiles (CSS-2 “East Wind”) capable of transferring nuclear warheads. The Chinese have also built two missile bases near Riyadh and provided their own security personnel to operate them. The cooperation was accordingly formalized in 1990 when the diplomatic relations between China and Saudi Arabia were established – the monarchy was the last country of the region, excluding Israel, to do so. The bilateral relations consequently intensified and culminated in 1999 with the visit of then-Chinese president Jiang Zemin to Saudi Arabia. The Strategic Oil Cooperation Agreement was concurrently signed what inaugurated a strategic partnership and stimulated a positive investment climate between China and Saudi Arabia. The Saudis pledged to open their domestic oil and gas market to Chinese investment. In return, the PRC allowed the Saudi Aramco (Saudi Arabian Oil Company) to enter its downstream refining business. The agreement was not only an economic deal but also a way to overcome a major technical problem – the Saudi crude oil was at that time too heavy and too sour to be processed by Chinese refining industry. Hence, it was the Saudi’s interest to ensure that its crude can be refined properly in China – the only way to achieve this was to invest in the PRC’s petrochemical industry. At the same time, however, Saudi Arabia gained access to the fastest developing market in the world. The Agreement of 1999 further stipulated the education, broadcasting and TV cooperation. In its effect by 2002 Saudi Arabia has become the main oil supplier for the Chinese market and the leading trade partner of China in the Middle East – the total trade volume exceeded $5 billion at that time.
As Saudi Arabia is a long-standing ally of the United States, Beijing’s desire to strengthen its relations with Riyadh has always been somewhat limited. However, after the 9/11 attacks have caused the anti-Saudi backlash in American public opinion accompanied by some negative statements in Congress, the Saudi leaders decided to reconsider their attitude towards the main trading partner. Thereby Saudi Arabia pursued a policy aiming at a stronger strategic relationship with China. One of its dimensions was the PRC’s standing as the supplier of advanced weapons and related technology. In the first decade of 21st century the Saudis were interested in acquiring the Chinese ballistic missiles DF-15s and ready to play the “Chinese card” in case of further deterioration of Saudi-American relations. 
Nonetheless, the main area of Sino-Saudi relationship is constantly the economic cooperation as both sides regularly undertake steps aimed at speeding it up. To gain the Sinopec’s (China Petroleum & Chemical Corporation) favour, in 2004 the Saudi government contracted the company with a $300 million concession to explore and produce natural gas in Saudi Arabia. Sinopec was to be owner of 80 percent of a special purpose company; the remaining 20 percent share was the Aramco’s ownership. As some experts underline, in many ways it was only a symbolic and politically motivated deal – Sinopec had no serious experience in natural gas production so far. In 2010 Saudi Aramco granted the Chinese another $140 million contract to build energy infrastructure in Saudi Arabia. The PRC, on the other hand, willing to enhance the Saudi transfer of advanced technology and expertise, has allowed Saudi Arabia to achieve a dominant position as a supplier of petrochemical products for the massive Chinese textile industry.
A vocal move on behalf of the Saudi Arabia was the 2006 visit of King Abdullah to China – the very first trip of Saudi monarch to the PRC and Abdullah’s first trip outside the Middle East since ascending to the throne. As a consequence five major agreements were signed, among others about economic cooperation, trade and technical support, as well as exploitation and processing of oil, gas and other minerals. Accordingly, a taxation agreement was negotiated and Saudi Arabia pledged to provide China with a loan for improving infrastructure in the oil-rich province Xinjiang. Moreover, the Saudis offered Chinese companies investment opportunities in petrochemical, energy and transport (railway construction) sectors.
Saudi Arabia is relentlessly undertaking steps towards modernisation of Chinese refining industry so that the processing of Saudi heavy crude is possible. In 2001, after several years of negotiations, an agreement between Aramco and Sinopec was signed. It stipulated for a 25 percent Saudi share in expansion of the existing refinery in Fujian province and construction of a new ethylene factory – an investment worth a total of $3,5 billion. Furthermore, the PRC allowed Aramco to open and run 600 gas stations in Fujian and in return it was given a 30-year contract of 30 000 bpd of Saudi crude oil.
In the late 1990s other negotiations between Sinopec and Aramco have also begun – their subject was Saudi financial participation in construction of a new refinery in Qingdao. The refinery, under construction since 2005, is supposed to become the largest of its kind in China with a final capacity of 400 000 bpd and, what is the most significant, is designed to handle the heavy Saudi crude. The Arabs are to cover half of the costs of the $2 billion worth investment. After the successful cooperation of Aramco and American ExxonMobil in the construction of the refinery-petrochemical conglomerate in Quanzhou in Fujian province (eventually finished in 2009), in March 2010 Sinopec decided to perpetuate such alliance and build another refinery with a capacity of 240 000 bpd. Accordingly, the Sino-Saudi talks about expansion of the refinery in Maoming in Guangong province were taking place throughout the year 2010.
It is worth pointing out that even if mutual investments and contracts undoubtedly bring profits for both the Saudis and the Chinese, the Saudi government is concerned about the PRC’s policy to control the price of refined products. Whereas for the Chinese leaders it guarantees the domestic economic and political stability, the Saudi producers and retailers are anxious that they would be forced to absorb the world-wide increasing costs.
The export of Saudi oil to China exceeded 500 000 bpd in 2005 and came as high as 740 000 bpd in 2009 – it constituted over 20 percent of the total Chinese import (see Table 2). What is more, the Saudi Aramco committed itself to provide China with one million bpd of the crude in 2010 what was meant to surpass the Saudi supply for the Americans. The Aramco’s president described the deal “as among the most important energy relationships on the planet”. (According to the US Energy Information Administration it reached 893 000 bpd in 2010 – 18,6% of the Chinese import) Consequently, in March 2011 Aramco pledged to cooperate with PetroChina by the construction of the new refinery in Yunan and supply additional 200 000 bpd via the new Burma pipeline. At the moment China is the 5th largest export and the 2nd largest import partner of Saudi Arabia (the Saudis import mainly electronic equipment). At the same time, Saudi Arabia is the biggest trade partner of China in the North Africa and Middle East region.
* The Persian Gulf region consists of 8 countries: Bahrain, Iraq, Iran, Kuwait, Qatar, Oman, Saudi Arabia and the United Arab Emirates.
Source: Based on data drawn from: Steve A. Yetiv, Chunlong Lu, “China, Global Energy and the Middle East,
” The Middle East Journal, Vol. 61, No. 2 (Spring 2007), p. 204; U.S. Energy Information Administration, China Energy Data, Statistics and Analysis. <http://www.eia.doe.gov/emeu/cabs/China/Oil.html> (June 2010).
The Saudi profits coming from cooperation with China are obvious. Saudi Arabia gains a vast market for its crude oil, accesses the Chinese refinery and petrochemical industry and decreases its political and economic dependency on the United States. The PRC, on the other hand, takes advantage of the long-term oil-supply contracts, the intensified economic interdependency and investment-related large transfers of money and know-how. Furthermore, China gains access to several sectors of the upstream market in Saudi Arabia and, above all, enhances its energy security.
China & Iran
The official diplomatic relations between the PRC and Iran were established in August 1971, albeit they improved significantly only in the 1980s. It was mostly linked to the Iran-Iraq war (1980-1988) and vivid interactions between Beijing and Teheran at that time, in both diplomatic and military spheres. The arms sales were the cornerstone of Sino-Iranian cooperation and the element of a broader strategy China had adopted towards the Middle East – it ensured the constant flow of hard currency and influence over the events taking place in the region. During the Iran-Iraq war itself the Chinese contracts for arms supply to the region amounted to over $12 billion. In 1985 an agreement for the sale of missile technology between China and Iran was signed, a part of which was also the PRC’s participation in the designing and building the missiles. A year later, in 1986, Iran bought the Chinese anti-ship missiles Silkworm C-201; soon other contracts followed. Throughout the 1990s Iran tripled the number of missiles deployed on the coast and in 1995-1996 the Iranian military started to equip its naval vessels with Chinese cruise missiles. In 1992 China became the Teheran’s main supplier of conventional arms.
One should remember that Sino-Iranian military cooperation is extremely important for the PRC because of Iranian control of the Strait of Ormuz – the strategic point on sea routes between the Middle Eastern oil shafts and Chinese ports. At the same time, such cooperation is working against the American Iran’s containment policy. That is why the US administrations continuously try to challenge this arms relationship. For instance, in June 2006 the US sanctioned five Chinese companies for their support for Iranian ballistic missile programme, thereby increasing the number of China-based sanctioned parties to 38.
Since mid-1990s China and Iran have also cooperated closely in the area of economy, particularly they have pursued several projects in pipelines’ construction and the development of the refinery industry. In October 2004 the Sino-Iranian memorandum of understanding was signed, on the basis of which Teheran granted Sinopec a concession to develop Yadavaran field (the largest undeveloped oil field in Iran) three years later. The agreement worth $70 billion guaranteed China a supply of 10 million tons of Iranian natural gas annually throughout the period of 25 years and, after launching the Yadavaran exploitation, additional 150 000 bpd of the Iranian crude oil. Also in 2004 the Zhuhai Zhenrong Oil Company signed the 25-years contract (worth $20 billion) for the natural gas supply and the CNPC (Chinese National Petroleum Corporation) bought 49 percent share of the Masjed-e-Suleiman oil field. Concurrently, both sides consider building a new pipeline going from the Caspian oil and gas fields via Turkmenistan and Kazakhstan to the PRC. It would lighten the sea route going through the Strait of Malacca which poses a chief threat to the transport security of Chinese oil supplies.
The agreements for supply of the Iranian oil and gas are a great chance for China. Because of the plethora of American sanctions imposed over trade with Teheran, many of the global oil potentates are simply absent from Iranian market. At the same time, large amount of the hydrocarbons in Iran are still not exploited due to the lack of a proper technology and sufficient capital. Hence China can support Iran with the modernisation of its mining and petrochemical industries by providing money, technology and qualified labour force. In the future Iran may invest its capital in expanding the Chinese refineries whereas the PRC’s companies might in return help with development of the Iranian vast oil and gas fields. It seems to be a double win situation – Iran needs a market to sell its resources, China impatiently desires to absorb them.
The Chinese import of the Iranian oil has increased more than 90 times in the past 20 years, from 6 000 bpd in 1990 to 544 000 bpd in 2009, although it dropped down to 426 000 bpd in 2010. Iran is at the moment the third largest supplier of the crude oil for the PRC’s market (after Saudi Arabia and Angola), providing around 9 percent of the China’s import (see Table 2). Simultaneously, China is the second largest trade partner of Iran – the mutual trade value surpassed $30 billion in 2010 and is supposed to increase up to $50 billion within 5 years.
It is significant to note that China and Iran undertake economic cooperation outside the oil sector as well. The Chinese company Fiber Home Communication Technology won a contract to build a fiber optics network in Iran; at the same time, a Chinese TV-maker Hisense Electronic Company built its factory there. The PRC’s Chery Automobile Company signed a partnership agreement with the Iranian Sandbad Khodro Tus to run a plant with estimated production of 50 000 cars annually. Concurrently, in 2004 the Norinco (Chinese North Industries Company) signed a contract worth $680 million to develop the Teheran’s metro system. The Sino-Iranian relations in the area of security policy are becoming more intensive as well – in July 2005 Iran was granted an observer seat in the Shanghai Cooperation Organisation (SCO), the institution which aims to strengthen the security in the Central Asia region. In fact, Iran is an important asset for both Russia and China to counterbalance the American position in the Middle East and Central Asia. Iran, on the other hand, may gain a support needed to overcome US-imposed sanctions while becoming a permanent member in the SCO.
The Chinese position is similarly essential in the context of the Iranian nuclear program. As it was described in the Chinese Foreign Ministry Spokesman’s statement: “We stand for maintaining the rigor and effectiveness of the international nuclear non-proliferation regime and hope to solve the issue properly through negotiations”. The proliferation of nuclear weapons could destabilize the situation in the region which thereby could jeopardize the Chinese economy development. Yet, many times China has declared its opposition towards economic sanctions imposed on Iran, indicating that the NPT (Nuclear Non-Proliferation Treaty) signatories should have the right to use the nuclear technology peacefully while maintaining the non-proliferation principle. The PRC further underlined that the “Iranian problem” shall be solved by and within the International Atomic Energy Agency, not by unilateral steps undertaken by e.g. the United States. On the other hand, however, China encouraged Iran to accept the Security Council’s offer and stop its enriched uranium program what in effect could moderate the international community’s attitude towards Iran.
It seems that China has a plethora of economic and political premises to cooperate with Iran and to back it on the international forum, although the PRC’s Iranian policy is severely limited due to the Chinese-American economic ties. Above all Chinese economic growth is dependent on the American support within international financial institutions, access to the American market, technology and investments. The cooperation with the largest global economy is far more important for China than the Iranian crude. It is so because China is able to import hydrocarbons from other parts of the world, even with higher cost of their transport, but it simply cannot substitute the ties with the US economy. The Iran’s standing against other Gulf states, particularly Saudi Arabia, is quite problematic as well – they are all anxious of rapid economic growth and expanding nuclear program in Iran. Hence the Chinese, afraid of losing the Arab oil supplies, often decide to give up the Sino-Iranian projects.
To sum up, if China wants to ensure constant supply of the hydrocarbons for its growing domestic market, it surely will have to find an ally offering access to its raw materials on privileged conditions. Undoubtedly Iran is such a candidate – its economic and military potential turns out to be a dominant one in the Middle East. For sure China needs Iran to oppose the American influence in the region and Iran needs Chinese support to modernize its economy (oil industry, high technologies etc.). Teheran and Beijing are thus tied with several economic and geopolitical aims, reflection of which one may see in the intensified cooperation in the past twenty years. It does not mean that China is ready to go for broke and choose Iranian oil over the economic partnership with the United States notwithstanding.
The People’s Republic of China has initiated its presence in the Middle East relatively late – only in the 1980s. Nonetheless, China’s interests and position in the region have relentlessly increased ever since. The Chinese have effectively started the dialogue and maintained the cooperation with all states in the region, despite their mutual animosities. It is highly possible that due to the economic and geopolitical factors the PRC’s presence in the Middle East will continue to intensify in the nearest future.
The Chinese have developed close economic ties with the Gulf states, among all with Saudi Arabia and Iran – further economic growth of China is dependent on the crude oil supply from these states. The cooperation, however, brings also many measurable benefits, e.g. in form of the investments from Saudi oil potentates. Apart from the oil economy, the arms sales are also an important part of the PRC’s involvement in the regional politics – at the moment Iran holds the position of main client of the Chinese military industry which situates China opposite the United States in its conflict with Iran. Nevertheless the nowadays China’s presence in the Gulf region gives it remarkable geopolitical benefits and allows to balance the American influence in both regional and global dimensions, whether the Americans like it or not.