China is Not the Middle East’s High Roller

(Bloomberg Opinion) -- The emerging narrative of China's rise in the Middle East as a counter to American power and influence rests on the skewed portrayal of a few very large investments, mainly involving state entities, and a few large contracts to build infrastructure—mostly centered in the states of the Gulf Cooperation Council. In a public-relations success most Middle Eastern leaders would envy, Beijing has claimed the mantle of a great power in the region without a commitment to wider economic development or security.

The GCC, meanwhile, has been looking eastward, seeing in China a promising export destination for hydrocarbons, and a middle-class consumer base for a full cycle of energy-based products, from plastics to refined liquids. (This is also true of India.)

This is a bilateral interdependence, driven as much from the GCC as it is from China—a diversification strategy and a bid for market-share. Proclamations of great strategic alliances are, as yet, unfounded.

When it comes to foreign direct investment, aid, capital expenditure and job creation, China is often characterized as the angel investor of choice in the Middle East. It is often erroneously labeled as the region's most important source of FDI. Certainly, China is a major source of FDI in a few places, especially in the GCC. When Chinese investment does arrive, it usually targets the energy sector and large government contracts. Investment surges and then declines; in fact, globally, China's 2019 outgoing investment was the weakest since 2011.

China's agenda in the Middle East is about China, not about sharing a development ideology, institution-building or improving access to capital. Private investment that flows from the U.S., Britain and Europe to the Middle East is consistent over time and a stronger force for job-creation and regional economic development. This is ironic, given the popular perception of Western private investors as seekers of narrow self-interest.

When compared with American and European efforts, China spends less and creates fewer jobs in most of the Middle East, North Africa and West Asia. Indeed, the GCC states have higher capital expenditure and create more employment across the Middle East and North Africa than China—and that's not counting counting remittance flows, aid, financial intervention such as central-bank deposits, and in-kind oil and gas transfers.

China is more active as a regional investor and contractor where private capital doesn't want to go—places like Iran, Syria and, to a degree, Turkey. One notable exception is the United Arab Emirates, where Chinese investment and contracts have surged since 2015. This skews the data and inflates China's reputation as a regional investor and source of capital.

The view that China is  the largest investor in the Arab region overlooks the fact that Beijing has invested inconsistently over time, and picks and chooses its engagement in the broader region, from Morocco to Pakistan. The assertion also fails to mention that the GCC is a major source of FDI in that same geography, and also in the Horn of Africa.

For example, Oman has a $3.55 billion outstanding loan from Chinese banks, and the industrial park at Duqm port has received some investment (but not the $10 billion pledged) by Chinese-owned Wanfang. But the other GCC states invest more and create more jobs in the sultanate. The same is true in Egypt, where China has been an inconsistent investor and job creator. Between 2014 and 2020, the GCC states created more jobs with more capital expenditure. Combined American and European private capital expenditure and job creation in Egypt outweigh China's impact in the same period.

For all the hype around Beijing's supposed advantage of state capitalism, through which all its FDI activity in the region counts towards a national political goal, China has not yet proven to be a good investor or a desirable development partner for the Middle East—and certainly not a great power.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Karen E. Young is a resident scholar at the American Enterprise Institute.

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