China will expand energy, economic partnerships — not security — in Middle East

Al-Monitor Pro Members

Howard J. Shatz 

Senior Economist, RAND Corporation 

June 30, 2022

China has focused on economic engagement in the Middle East, attempting to maintain good relations with every country in the region. Although it has established a special focus on Iran, at least on paper, it has declined to become embroiled in the region’s many interstate disputes. 

With the United States focused on security issues in Asia and Russia embroiled in its war on Ukraine, China may have the opportunity to create stronger security relationships. It may engage in more arms sales, exercises and other military interactions, but China’s main security interests focus on its immediate neighborhood.   

China’s most serious challenge is the reform of its economy — something at which it has so far not succeeded. Despite the many messages about the Belt and Road Initiative, one of its main motivations, if not the main motivation, has been to strengthen China’s own economy. Rather than an investment effort, as often portrayed, it is largely a lending and contracting effort meant to stimulate China’s industrial base and employ Chinese labor. This focus on lending and construction can be seen clearly in the Middle East. 

It also needs to maintain the ability to import hydrocarbons, with about 90% of its oil consumption in 2020 imported and Saudi Arabia and Russia the leading source countries. 

Rather than losing focus by increasing security activities — and potentially alienating some of the countries with which it does business, China is likely to continue to maintain an emphasis on economic activities in the region and avoid becoming embroiled in regional disputes. 

Data in this executive brief are from the Fall 2021 version of the American Enterprise Institute – Heritage Foundation China Global Investment Tracker, dated Feb. 21, 2022, which includes transaction-level investment and contracting data for BRI activity from 2013 through 2021. 

• Most Chinese financing activity in the Middle East related to the Belt and Road Initiative from 2013 through 2021 is contracting rather than investing, with contracting amounting to $122 billion and investments totaling $33 billion. 
• Investments in 11 countries are concentrated in the economically advanced countries of Israel (31%), UAE (22%), and Turkey (11%). 
• But capitalizing on the opening of the Iraq oil sector and China’s need for reliable oil supply, investments in Iraq are also 11% of the investment total. 
• At $17.1 billion, energy investments account for more than 50% of total investments. 
• Contracts in 15 countries are more evenly distributed than investments, although four countries capture the largest share: Saudi Arabia (20%), UAE (17%), Egypt (13%), and Iraq (10%). 
• As with investments, energy captures the largest share of contracts, at 41%, followed by construction (when projects are identifiable, generally of industrial facilities) and property development, at 19%, and then transport projects, at 18%. 
• Despite their long-term agreement, Iran has proved an uninteresting country for China: Investment has totaled $950 million, less than 3% of China’s investment in the Middle East, and contracting activity has totaled $11 billion, only 9% of China’s contracting in the region.