CHINATOWN IN ARABIA
A peek into the new era of engagement heralded by China's growing interests in the Middle East.
Over the last decade, China has sought to safeguard and diversify crucial energy and commodities supplies needed to sustain its long-term economic growth cementing its relationship with the Middle East. From developing some of the world's biggest oil fields in Iraq to constructing a large-scale refinery at Saudi Arabia's Red Sea coast – Chinese companies are broadening their footprint across the region, channeling billions of dollars into sectors such as energy and commodities.
The energy needs of China and the Middle East region are closely intertwined. On an industry level, it paves the way for a new breed of Chinese energy companies – characterised no longer by low-cost and sub-standard quality and service offerings, but by considerably upgraded technological, human and financial capabilities that play a much greater role in a sector that in the past was almost exclusively dominated by Western firms, in particular international oil companies (IOCs).
On a political level, China's deepening engagement in the Middle East provides the world's second-largest economy with long-term access to strategic hydrocarbons and other raw materials, while at the same time opening up downstream opportunities for producing countries seeking to cement relationships with their customers and ensure long-term demand security. It is also strengthening bilateral relations between regional governments and China, thus adding a new strategic dimension to the region's political dynamics that may have greater weighting in the aftermath of the Arab Spring.
China's increasingly competitive posture in the region's energy sector was highlighted most recently by the April announcement that state-owned China National Petroleum Corporation (CNPC) had agreed a landmark deal with Abu Dhabi's government, granting it access to produce and export crude oil from several onshore and offshore fields in the emirate, the first of its kind for a Chinese company in the Gulf state. As China keeps growing, its dependence on energy imports from the West Asia region will continue. As a result, more Chinese investments are likely to be directed at opportunities in the Middle East energy sector, whether up-, mid- or downstream.
China's desire to ensure the security and reliability of its internationally-sourced energy and raw material supplies is understandable considering that China, which in September 2013 became the world's largest net importer of crude oil and other liquids, is projected by the Energy Information Administration to consume more than twice as much energy as the U.S. and more than three times as much as India by 2040. It is driven by a mix of steady economic growth and rapidly rising petroleum demand that outpaces production growth in the Asian country, whose population will rise to about 1.38 billion by 2015 from an estimated 1.34 billion in 2010. According to Edinburgh-based energy consultancy Wood Mackenzie, China's thirst for energy means that the country will have to spend as much as $500 billion per year by 2020 on crude oil imports alone.