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How the Red Dragon came to rule the world: A tale of Chinese investments

The paradigmatic shift of U.S. foreign policy away from the Middle East exemplifies a new world order that has come to dominate the international political sphere. Old regimes are changing, previously central players are taking an active step back from the spotlight of international relations, and new powers are defending their place at the table. And amid all this seemingly chaotic process, China is trying to carve its own place among other leading actors. But how have Chinese foreign policy priorities been translated into policies when it comes to different regions of the world? 

Over the past years, China has focused on forming ties with individual countries, rather than setting a general foreign policy for any given region, a fact that sets China apart from other nations. One particular region that has come to dominate China’s interests has been the Middle East and North Africa (MENA) region, which holds a crucial role in international politics as any action in the region has significant ripple effects worldwide. China’s strategic approach in the region has been determined by the capabilities, necessities and the potential of the region which, in MENA, can be considered endless.

China’s partners in the MENA aren’t limited to the oil kings, namely Saudi Arabia and the United Arab Emirates, but also include states like Israel, Egypt and Iran. Given the peculiar combination of regional players, and the very diverse interests that are at play, when it comes to Chinese investments, the  country-by-country approach that is adopted optimizes their potential.

The Saudis are the most important and largest trading partners in West Asia, and Beijing is the Kingdom’s largest trading partner worldwide. Many would question the extent to which this strategic interaction is anything more than a consensual symbiosis on the energy market – and the international arena in general. But upon closer examination, one can see that their ties run deeper than simple superficial relations. Chinese construction firms have acquired a dominant role in the Kingdom’s economy and have helped the Saudis develop better infrastructure, while Riyadh has been particularly interested in developing oil refineries and petrochemical production facilities in China, the performance of which is optimized when Saudi grades of crude oil are used. As the speed of the transition to alternative and greener sources of energy accelerates, Riyadh is seeking to turn China into its safety net against decline in Western demand for oil.

The Chinese partnership with Iran comes as a diametrically opposed regional alliance. Perhaps leaving geopolitics aside, China’s attention turned to the Islamic Republic as a way to make use of its petroleum potential – which is similar to the Saudi model. As one of the biggest energy producers, and one with which the US isn’t very satisfied, Iran can help China formulate trade routes that cannot be disrupted by the US. Iran is out of tune with the rest of the MENA states – its agenda and the policies it pursues suggest an incoherence with the rest of the region – which is exactly what China wishes to use in order to insulate itself from American influence in the region, however minimal this has become.

China’s great game in the Middle East, therefore, isn’t a single regional strategy, but a wide portfolio of investments. The potential that the oil reserves have is an eye-catching deal that the Chinese cannot walk away from, hence why 47% of Chinese investments in the region are directed at oil. The geographical position of the region is an asset and a factor that makes China place primary attention there. The CCP’s ‘China’s Arab Policy Paper’ published in 2016 showcases the devotion to the region and the systematic efforts to secure its growing energy interests. Even though this relationship is a fledgling one, the potential for both partners is immense.

When it comes to Africa, the image changes. Africa has become the fastest urbanizing region of the world, according to McKinsey’s “Lions on the Move II” 2016 report. Rural and internal migrants are moving into cities at a rate that has even surpassed that of China and India. As the continent finds itself caught up in the wave of the Fourth Industrial Revolution, the challenges that emerge clash with the opportunities that this process is offering. China has answered the continent’s call for investment in infrastructure and new technologies. A large number of the region’s infrastructure initiatives are being supported by Chinese companies and/or funding. Even before the Belt and Road initiative was formally set in motion in 2013, Chinese companies played a central role in Africa’s urban development sphere. Soon after the Chinese Communist Party consolidated its power, it started making political commitments to one country at a time. These included building railroads, hospitals, universities and stadiums throughout the continent. And even though the former colonial titans were shifting their attention from the region, the plethora of natural resources – including minerals, forests, wildlife, arable land, water and oil –  was not lost on China. .

Today, China is Africa’s most important trading partner, with the trade between the African continent and Beijing topping $200bn per year. Over 10’000 Chinese-owned firms are currently operating in the African continent, according to McKinsey, with more than $300bn invested. Africa is an even greater trading partner than Asia when it comes to overseas construction contracts since, in 2019, China announced an even more fortified and greatly enhanced Belt and Road Africa infrastructure development fund and aid package.

China’s role is a central one – without Beijing, the African states would have to collectively spend $130-170bn per year to cover their infrastructure needs, which is reduced by almost 60% when China is added to the equation. China is well-positioned to cover the continent’s infrastructure gap, caused by rapid urbanization through technical and financial support that only it has been willing to offer.

Some may perceive this foreign policy orientation as worrisome. Chasing dreams of better economic prospects and development for many African states means burying themselves under layers and layers of infrastructure-induced debt. In Ethiopia, the Addis Ababa-Djibouti railway led Ethiopia to devote almost ¼ of its total budget in 2016 to cover the costs of this project, while in Kenya, the highway from Mombasa to Nairobi cost the country 6% of its 2018 GDP, even though 80% of the project was financed by China.

Africa isn’t a single, frictionless, economic unit similar to China, and it shouldn’t be treated as such. It isn’t a single market, and the heterogeneity that characterizes African states is something that decision makers should always take into consideration. The rate at which Africa will be able to match the pace of Chinese investments and the degree to which they will be harmonized into the different domestic settings is a delicate process. When it comes to investments, things aren’t black or white – adaptation and incorporation comes in phases. Africa is characterized by an institutional, ethnic and political heterogeneity which makes the adoption of any policy coming from the outside harder. China’s policies are formulated as an ideal: for the interested and involved companies, the process is relatively easy, but for the individual African nations, the organization of their domestic system, the optimization of their financial structures and the coordination of the private with the public sphere isn’t quite as easy. Despite the improvements that have taken place in the region, and despite their surprising speed, the policies from abroad have to be incorporated in a manner that is consistent with the domestic sphere and which allows the individual countries to remain in control of their domestic policy determination mechanisms.

What’s Next?

Beijing is walking a fine line when it comes to extending its political and financial influence. Even though this was carried out relatively indirectly in the past, now the spotlight has fallen on the invasive foreign policy tactics employed by the Chinese government. In its effort to challenge the West and rise up to the great power status that was previously reserved only for the US, China has incorporated a variety of tools and systematic mechanisms to achieve this. Investments in the MENA region and the African continent suggest that finance is the preferred way for the Chinese – which has worked even better than diplomacy and has allowed them to outline an individualistic and highly successful behavior in the international sphere.

And while the Red Dragon of the East attempts to carve a place of its own in these two regions that are central for international stability, the countries that China forms ties with also have to design tools that will help them secure their political, financial and military independence. The foreign direct investments flowing in from China surely make a change – they stimulate growth and development, which are two elements that these regions are in dire need of. However, the ephemeral successes and surprising growth rates shouldn’t be used as the factors that will enhance China’s invasive behavior in the determination of their domestic politics.

The securing of regional stability in both the African continent and the MENA carries a myriad of issues. Both regions are central in the formulation of a decisive – and sometimes aggressive – foreign policy, that makes the West regard China as a real threat to their security, political and economic interests. Perhaps what China is doing, however, is nothing other than attempting to redefine the status quo and reset previously established regional imbalances. The outcomes of these processes will be felt slowly, but surely not without impacts.

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Originally written for Tra I Leoni at https://traileoni.it/2021/11/how-the-red-dragon-came-to-rule-the-world-a-tale-of-chinese-investments/

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Last modified: November 27, 2021