Trade routes

07 July 2006
The mountain trails and ocean routes of the Silk Road once stretched from Hangzhou to the tin mines of Cornwall. For
several hundred years, the Middle East was an integral part of this vast trade network, and Arab countries dine out on the experience to this day. Governments, tour guides and property developers still advertise the Gulf as a gateway to the Orient, a place 'where East meets West'.

China is spreading its net once again. Five years after former president Xiang Jemin announced a new policy of 'zuo chuqu' or going outside a small but growing army of Chinese companies has appeared on the shores of the Gulf. But this time, they are not just passing through. The GCC is now a thriving industrial centre in its own right, and the newcomers are determined to make a killing. Chinese contractors are pulling in nine-figure building contracts in Qatar and the UAE. Chinese oil firms are heading upstream into Saudi Arabia and Iran. Bilateral trade is warming up, as are political relations. When President Hu Jintao visited Washington in April, his visit was downgraded from 'state' to 'official' and formal dinner was replaced by lunch. When he flew the following day to Riyadh, Hu and King Abdullah greeted each other as equals, with all the pomp and protocol that entails.

For their part, Gulf states look on the People's Republic as a potentially massive market for their own goods and services. Many companies hope that a partnership forged in the Middle East could lead to greater things. 'Our joint venture had potential difficulties,' says a leading European contractor. 'But we hope that this new equation in the Gulf will put us in an advantageous position for future contracts in China.'

If this sounds cynical, then many Chinese businesses also see their partnerships in a strategic light. 'One of the reasons these
companies are here is that the central government is encouraging capable enterprises to go overseas and take part in international competitions to learn from their partners,' says a Gulf-based Chinese diplomat. 'The aim is to bring these international standards back to China, for the long-term benefit of the Chinese economy.' Closer cultural ties are helping to clear a path for future business deals. Back in the 1980s, Saudi Aramco was one of the first companies to sponsor Arab students studying in Beijing. Within a few years, China is expected to overtake the US as the main destination for Saudis doing graduate courses overseas.

But it is more than a relationship of
convenience. One tie now binds Riyadh to Beijing, and that is oil. 'We provide a large and long-term market for Saudi crude,' says Shicheng Wang, chief executive officer of Al-Khobar-based Sino Saudi Gas (SSGL). 'They need us, as much as we need them.' At present, state-owned Sinopec imports
122 million tonnes a year of Arabian crude, and Middle East exports account for more a half of the country's oil needs (see Oil, page 6).

Until recently, most of China's oil deals were struck in countries with few Western competitors. This was partly by default,
partly by design. 'As a relatively late entrant to the highly competitive oil market, China had to pursue more risky and marginal resources that were neglected by others,' Jin Liangxiang, a research fellow at the Shanghai Institute for International Studies, said in a recent study. 'The policy was guided by keeping a close balance between politics and oil, rather than confrontation with international players.'

By contrast, China's move into Saudi Arabia is driven by necessity. With most of the kingdom's exports of sweet crude accounted for by Western markets, what remains for export to Asia is too sour for Chinese refineries. As a result, says Liangxiang, 'the government has turned the impediment into its advantage and engaged the Saudis both politically and economically. Both B

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