Sitting on the eastern edge of Dubai, on the dusty Route 44 out of the city to Hatta, is a long row of hexagonal warehouses which, when viewed from above, form the shape of a dragon.

Unremarkable from a distance, particularly in a city full of skyscrapers hundreds of metres tall, it is only when driving past Dragon Mart that the scale of the development reveals itself. The mall runs along the highway for 1.2 kilometres and can take five to ten minutes to pass in heavy traffic.

Suppliers of oil to China, 2009
(Thousand barrels a day)
Saudi Arabia 839
Angola 644
Iran 463
Russia 306
Sudan 244
Oman 233
Iraq 143
Kuwait 142
Libya 127
Kazakhstan 120
Venezuela 105
Others 711
Source: Energy Information Administration

At 150,000 square metres, Dragon Mart is the largest single trading centre for Chinese goods outside the east Asian state’s mainland.

Around 4,000 businesses call the shopping centre home, as they have since it opened in December 2004 as part of a joint venture between the local developer Nakheel and China’s Chinamex Middle East Investment and Trade Promotion Centre.

Demand for trade between China and the Middle East

A far cry from the glitzy city centre malls that sell luxury items at elevated prices, it specialises in an array of cheap goods, from linoleum flooring, to TVs and MP3 players, which bear more than a passing resemblance to those being sold in Dubai Mall, a short trip back down Route 44.

Dragon Mart symbolises the quiet, yet spectacular way in which trade between China and the Middle East has rapidly grown over the past 10 years.

From shopping centres in Dubai to entire streets of souks in Damascus, Chinese goods are big business in the region.

Thanks to booming exports and growing domestic demand for consumer items, China has defied economic expectations over the past decade, recording double-digit economic growth throughout the 2000s, and weathering the financial crisis of 2008-09 with continued expansion of its gross domestic product.

As Chinese output has soared over the past decade, so too has its demand for oil. The Middle East has been more than happy to accommodate its interests, providing more than 50 per cent of China’s energy requirements in 2009.

Saudi Arabia is the country’s biggest oil supplier, exporting 839,000 barrels a day (b/d) to China in 2009.

Due to growing Middle Eastern demand for low-cost goods and soaring Chinese demand for oil, bilateral trade rose from $7.8bn in 2001 to $61.6bn in 2009 – the year that China overtook the US as the region’s leading trading partner.

Trade boom between China and the Middle East

“China’s role in [the Middle East] has grown dramatically over the past 10 years,” says Ben Simpendorfer, chief China economist at the UK’s Royal Bank of Scotland.

He attributes the trade boom to two things: the terrorist attacks in the US on 11 September 2001, and China’s joining of the World Trade Organisation in the same year.

As the US clamped down on visas for businessmen from the Middle East, and trade restrictions and red tape increased under the weight of huge security concerns, it became far easier to do business in China, which was making it easier to obtain visas.

The growth in trade has largely been informal, he adds, suiting regional and Chinese attitudes to doing business.

“So far, it has been a relationship of trade dominated by individuals, not corporations,” Simpendorfer says.

“China has been selling the kind of goods that the Middle East wants to buy – cheap consumer goods, like electronics. There is also the way the two sides trade – they rely very much on individuals, rather than Wal-Marts. The fact that the Chinese are willing to go over to the Middle East makes a difference as well.”

Dubai’s state carrier Emirates now operates more daily flights to China than it does to the US, largely as a result of the number of businessmen flying each way to do trade.

Meanwhile, Chinese demand for raw materials is set to soar over the next decade, with oil demand forecast to grow by 5-6 per cent during 2011-15, according to Cai Xiyou, vice-president at China Petroleum and Chemical Corporation (Sinopec).

In a November interview, Cai said the country’s oil demand would rise from 4.3 million b/d today to 5.7 million b/d in 2015 and 6.72 million b/d in 2020.

With the Middle East forecast to provide the lion’s share of future oil output and eager to find a home for its oil after the price shocks of 2008 and 2009, the region and China have strong mutual interests, as reflected in the growing diplomatic links.

Diplomatic ties between China and the Gulf

The Kuwait emir Sheikh Sabah al-Jaber al-Ahmad al-Sabah was one of the first regional leaders to visit China, in July 2004, when he was still prime minister, with a stated aim of improving trade and diplomatic ties.

China’s biggest trading partner in the Middle East is Saudi Arabia, and King Abdullah made the country the destination of one of his first trips as monarch, in 2006. Incredibly, it was the first Saudi state visit to the country since diplomatic relations were formally established in 1990.

In 2007, Sheikh Mohammad bin Rashid al-Maktoum, the ruler of Dubai, visited Beijing. He was followed by the Qatari prime minister Sheikh Hamad bin Jassim al-Thani in 2008.

Another Qatari, the GCC secretary general Abdurrahman bin Hamad al-Attiyah, has also been pushing for better ties between the region and China. He is currently trying to establish a free-trade agreement between the six member states and Beijing.

Dubai’s state carrier, Emirates, now operates more daily flights to China than it does to the US

Investments are also on the rise between China and the Middle East, with major regional oil companies, including Kuwait Petroleum Corporation and Saudi Aramco, planning multibillion-dollar refinery projects in the country. Meanwhile, China National Petroleum Corporation is developing the Rumaila oilfield in Iraq in partnership with the UK’s BP.

In 2006 and 2007, Al-Azizia Commercial Investment Company, an investment vehicle owned by Saudi Prince Alwaleed bin Talal bin Abdulaziz al-Saud bought strategic stakes in Chinese banks worth $2.3bn.

In 2010, the question for many regional and international analysts, economists, and diplomats is what the relationship between the Middle East and China will mean during the following decades, especially given China’s growing profile as an economic partner with developing African states.

“China is being seen more and more as a power player all over the world, but particularly in Africa,” says a former British diplomat who has worked extensively in the Middle East. “The region is so crucial to things like energy security for the West that they are very nervous about what might come next, but so far nothing has really come out of it.”

There is a new silk road. But the road is not clear, nor is it without bumps

John Sfakianakis, Banque Saudi Fransi

There have been suggestions that increasing economic ties could lead to greater political and military co-operation. Several regional states are keen to follow the Chinese model of economic growth, achieved by an authoritarian regime which does not kowtow to the US, currently the main external power in the region, he adds.

However, John Sfakianakis, chief economist and group general manager at Saudi Arabia’s Banque Saudi Fransi thinks that China will not play a larger role as a political partner in the region.

“The relationship with China is as a result of China’s impact on the global trade scene, in particular in the region, as an oil importer,” he says. “That doesn’t translate into politics or political power. The US will maintain its status quo and its dominant position in the region. That is also a Chinese decision. It isn’t interested in becoming a political player here.”

Strategic relations between China and the GCC

“[The relationship] will primarily be economic,” agrees Simpendorfer. “China recognises the downsides of the political situation in the Middle East, which is much more complicated than in Africa.”

Any political gamesmanship in the region will come from regional leaders using Chinese trade to wean themselves off a reliance on the US, rather than moves to cede ground to another foreign power. “The Middle East sees China more as a hedge against the influence of the West and the US in particular,” he adds.

Challenges also remain for Chinese and Middle Eastern companies and governments as they try to overcome differences in the way they work and approach new investments.

“The Middle East is spoilt for choice. It is comfortable investing in the US, Europe, Africa and Southeast Asia. China is a challenging environment for investors,” says Simpendorfer. “You will see the Middle Eastern investors moving in, but they will largely be catching up with the West in that respect. They will still be big investments and they will make big headlines, but it is still important not to blow things out of proportion.”

“There is a lot of business going on,” says Sfakianakis. “There is a new silk road. But the road is not clear, nor is it without bumps, or with paradise waiting at the end. The nature of the relationship is one of trade. They offer us cheap goods, we offer them a lot of oil, which is what they need to create growth.”