Q&A: Why China has become the Middle East's favorite customer
China’s stake in the Middle East is growing. It buys more oil and sells more goods in the region than any other country, including the US. So why did Beijing vote in favor of Iran sanctions?
The Chinese government needs oil to fuel its modernization and markets to sell its "Made in China" brand. Regional stability is crucial to getting both.
"Particularly since the Iraq war, the Chinese are more and more willing to sort of question whether ... [US] policy itself isn't becoming, in some ways, a threat to stability in the region," says Flynt Leverett, senior fellow at the New America Foundation.
As a result, China has become more involved in the region, particularly in Iran, from which China gets 11 percent of its oil imports. Mr. Leverett sees China becoming more concerned with "what they see as excessive US unilateralism in the region." Thus its interest in funneling the US desire for Iran sanctions through the United Nations Security Council, which would place some constraints on the US. A few questions regarding China's regional aims:
What's China's economic role?
Chinese trade with the Middle East has roughly doubled in the past five years. This year, China replaced the US as the top exporter to the region.
Chinese exports to the Middle East, including Turkey, were worth $57 billion in 2009, up from $28 billion in 2005. Chinese imports from the region stood at $61 billion, up from $34 billion in 2005. China's global exports for the same period grew 58 percent – from $760 billion to $1.2 trillion.
This rise in trade with the Middle East is not just oil-related. "It is small- time traders with their own shops or street stalls who are traveling between the two regions to either buy goods or sell goods," says Ben Simpfendorfer, of the Royal Bank of Scotland in Hong Kong and author of "The New Silk Road."
In addition, he says he's seen a marked increase in Chinese construction companies winning contracts across the region. Chinese banks continue lending to finance projects, so Chinese companies are able to bring not only their own labor and materials, but their own credit. "They're providing construction services that are at cheap prices compared to their competitors. They bring often the Chinese banks along with them," says Mr. Simpfendorfer.
How much Mideast energy does China consume?
China is the largest importer of Middle Eastern oil, buying just over a tenth of the crude oil exported by Gulf states. It's also Iran's top customer, taking 23 percent of Tehran's oil.
Already, China has surpassed US oil purchases in the Middle East – importing 1.94 million barrels per day (b.p.d.), or 14 percent more than the US. At current rates, China will overtake the US in oil imports by 2030. Annual Chinese oil imports are predicted to increase by 0.5 million b.p.d. for the next five years.
What does this mean for the US?
Middle Eastern governments generally prefer working with China because it doesn't tell them what to do. While the US pushes reforms, China does business.
"When we do business with you, unlike the United States, we aren't going to tell you about how you're supposed to democratize or how you're supposed to treat women," says Leverett, paraphrasing China's pitch.
But the Chinese cannot compete with America militarily. "The US is consequential in terms of security; there's nothing the Chinese will do to secure these countries," says Jon Alterman, director of the Middle East program at the Center for Strategic and International Studies (CSIS).
Why did China vote for UN sanctions on Iran?
Beijing is genuinely worried that a nuclear-armed Iran will spark an arms race in the Middle East, encouraging other nations such as Turkey to follow suit. That could endanger the flow of oil from two of China's top sources of crude: Saudi Arabia and Iran, which account for 20 percent and 11 percent of its oil imports, respectively.
Neither did Beijing want to irritate Washington, given that its ties with the US are by far the most important element in its foreign policy. Voting against the sanctions would have damaged the image China wants to project as a responsible player on the global stage.
Still, Chinese diplomats ensured during the five months of negotiations that preceded the sanctions resolution that the measure would not restrict foreign investment in Iran's energy sector. Absent most Western oil companies, Chinese firms have become the Iranian oil industry's most important source of investment and technology, and Beijing is keen to protect its huge investments in Iran.
Will China forsake the US for Iran?
China is now Iran's largest trading partner, and bilateral trade has almost doubled in the past five years (from around $10 billion in 2005 to more than $20 billion in 2009).
Still, that's less than 10 percent of China's trade with the US. In 2009, China's exports to the US totaled $221 billion, while imports stood at $77 billion. "The Chinese would be crazy to trade the US relationship for an Iranian relationship. What they want is to have a relationship with both," says Mr. Alterman. "[China] can get 95 percent of what they want at 5 percent of the cost if they can ... have the US do all the heavy lifting on security issues in the Middle East ... and let China reap the benefits and integrate itself."
Staff writer Peter Ford contributed from Beijing.