China’s Middle East Relations

China’s Middle East Relations

The China-Pakistan Economic Corridor (CPEC) is by far one of the most ambitious and expensive components of China’s Belt and Road Initiative (BRI). The economic corridor, a mix of transportation and energy infrastructure projects at an estimated cost of $60 billion, has been implemented with full dedication and support from the Chinese government since it was officially launched in 2015. In recent years, CPEC has received more international attention and scrutiny than the BRI projects in any other country and for a good reason — if it is completed as envisioned, it can have significant consequences for China’s geopolitical and economic interests. Aside from its transformative impact on Pakistan, which has received extensive media coverage already, the global significance of CPEC is rooted in the construction of highways, railroads, and pipelines that will connect Pakistan’s Gwadar port (on the Arabian Sea) with the city of Kashgar in western China. This transportation corridor will substantially increase the capacity for bilateral trade and investment between China and the Middle East. The latter has recently emerged as China’s largest source of oil and natural gas imports. CPEC can also enhance China’s naval presence in the Indian Ocean and the Persian Gulf if and when China decides to project military power in this region.

So how CPEC will affect China’s economic and geopolitical relations with the Middle Eastern countries, particularly the Gulf Cooperation Council members (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) and Iran. China is already the largest trade partner and a major buyer of oil and natural gas for most of these countries, which are also important investment partners for China because of their sizable oil revenues and financial capital. CPEC has three important components: facilitating industrial and infrastructure development in Pakistan; developing a modern transportation and telecommunication network that promotes connectivity between western China and coastal seaports of Pakistan; and allowing China to develop a deep-water port and special economic zone in the Gwadar region with a 40-year lease. All three of these components will have implications for the Middle Eastern countries. The Middle East region is the largest supplier of crude oil and natural gas to China. At present these resources are transported mainly by sea routes to eastern China, where most of its industrial activities are located. Once the CPEC railways and pipelines are constructed, it will be economical to transport commodities, such as oil and natural gas, to the Gwadar port and, from there to western China. The project is also compatible with the Chinese government’s Western China Development Strategy, which calls for relocating some energy-intensive industrial activities from the densely populated eastern regions to the western provinces (near Pakistan). The cost of transporting these energy products to China’s western regions through CPEC will be smaller than using the current sea route through the Indian Ocean to the east coast of China, followed by a ground transfer (by pipe and railway) to the western regions. In the first phase of CPEC (2015-2020) the Karakoram highway renovation project in northern Pakistan was completed and since November 2016 it has become possible to transport goods by truck from Kashgar to Gwadar. This was no easy engineering task in light of the very challenging mountainous terrain in northern Pakistan. This highway is now actively used for bilateral trade and will undergo further expansion and modernization in the second (2020-25) and third (2025-30) phases of CPEC’s long-term plan. The CPEC railway and pipelines are currently in the planning stage but their construction is also scheduled for the second phase and they are expected to play an important role in China-Middle East energy trade. To the extent that CPEC will create a new channel for the flow of goods and eventually people in both directions between the Middle East and China, it will increase their economic and geopolitical interdependence. By facilitating this China-Middle East connectivity, CPEC will strengthen China’s position relative to other industrial nations in the Middle Eastern economies. China is involved in several infrastructure projects in the Gwadar deep-water seaport and has signed a long-term lease for management of this port. This extensive and long-term involvement will enable China to use Gwadar as a supply and maintenance facility for its naval assets. Furthermore, the connectivity of Gwadar to the CPEC network will enhance China’s capability to transport both military hardware and military personnel to Gwadar through Pakistan if needed. Consequently, access to Gwadar port and CPEC-related ground transportation will allow China to substantially enhance its military capabilities in the Indian Ocean, the Arabian Sea, and the Persian Gulf. If China seeks Pakistan’s approval to use Gwadar to support its naval presence in the Arabian Sea, it is unlikely that this request will be rejected. Military relations between China and Pakistan date back to the early 1960s and remain strong, as both countries view India as a regional rival. In recent years China has emerged as the main supplier of military hardware to Pakistan and the two countries have cooperated in development of several weapon systems, such as the JF-17 Thunder fighter jet. So far there has been no formal announcement by the Chinese or the Pakistani government about establishment of a Chinese naval base in Gwadar but Pakistan’s military has increased its naval and ground force presence in Gwadar. According to a detailed 2018 investigative report in the Herald (a Pakistan-based newspaper), the Pakistani Navy (and to a lesser extent other branches of Pakistan’s armed forces,) have quietly but aggressively purchased several thousand of acres of land around Gwadar port since 2015. These land acquisitions and growing presence of armed forces around Gwadar offer strong support for the claim that the Pakistani military is developing a naval base near Gwadar. In the context of the close military partnership between China and Pakistan, and the strong commitment of China to the development of Gwadar port, it is highly probable that Pakistan’s naval assets near Gwadar will be either formally or informally available to China. Consequently, China’s ability to use the CPEC network and Gwadar for military purposes will enhance China’s naval capabilities in the Indian Ocean and the Arabian Sea. This enhanced capability will have a strong impact on China’s strategic and geopolitical relations in the Middle East. China has maintained a policy of nonintervention and neutrality with regard to multiple conflicts among its Middle East trade partners so far. These include the decades-old Iran-Saudi proxy war and the tensions between Qatar and Saudi Arabia since 2017. Despite its heavy dependence on Middle East oil, China has not challenged the U.S. military dominance and its special role as the main external power that provides stability and maritime security in the Persian Gulf. Instead of a direct naval presence in the Middle East to protect its economic interests, China has so far limited its military role to exporting arms to most Middle Eastern countries, including Iran and Saudi Arabia. This lack of direct military presence so far has been a result of China’s decision to project itself as an economic power rather than a military one, as well as a consequence of its limited military assets. The access to the CPEC transport network and Gwadar port, however, will significantly enhance China’s ability to project power in West Asia and Indian Ocean, if needed. The United States, Russia, and the regional powers will have to take these enhanced capacities into account as they formulate their Middle East policies. Among multiple CPEC infrastructure projects, China appears most committed to the Gwadar seaport. This strong commitment was demonstrated by China’s decision in 2015 to convert a $230 million loan for the development of Gwadar airport into a grant. Another $140 million loan for development of a 19 km expressway connecting Gwadar to Pakistan’s coastal highway was also converted to an interest-free loan. China has not shown this type of generosity for other CPEC projects. If developed according to the CPEC long-term plan, Gwadar will emerge as a major trade hub for China’s economic relations with the Middle East and North Africa. Under its 40-year lease China is involved in several projects for developing Gwadar into a modern commercial port and special economic zone. These projects include an international airport, an industrial zone, a water desalination plan, an oil terminal and petrochemical complex, a coal power generation plant, and other auxiliary facilities, all of which are currently under way. The coordinated China-Pakistan master plan for Gwadar relies heavily on public private partnership (PPP) for attraction of private and international investment for industrial and commercial activities in Gwadar. The Pakistani government has announced several investment and tax incentives for Gwadar economic zones for this purpose. As these major projects move forward, the Gwadar Seaport will make four important contributions to the China-Middle East economic relations.

China’s massive financial commitment to CPEC cannot be justified by its impact on China-Pakistan bilateral relations alone. The connectivity and transport capacity that CPEC will create between western China and the Arabian Sea can prove even more valuable to China than the direct gains in China-Pakistan relations. CPEC will significantly enhance China’s capacity to expand her economic and strategic relations with energy-rich Middle Eastern countries. CPEC will also allow China to connect the Arab countries to the Belt and Road network in Central Asia and Eurasia. Due to their rivalries with Iran, many of these countries were reluctant to use Iran’s transit routes for that purpose. While China is likely to continue its policy of neutrality and avoiding direct military intervention in the Middle East, development of CPEC will enhance its capacity to project military and naval power in the region if and when it decides to do so. This enhanced capacity will now be taken into account by Middle Eastern counties and external powers that are currently projecting power in the region. Despite many challenges and risks that have not been addressed in this article, Pakistan and China both seem committed to CPEC and as the second and third phases of this initiative become operational in the next 10 years, most Middle Eastern countries are likely to participate and take advantage of its transportation network.