China’s Path to Economic Dominance in the 21st Century runs directly through the Middle East, with Beijing banking on forging multibillion dollar partnerships with Iraq, Pakistan and even war-torn Syria to provide fuel in its quest to supplant the U.S. as the world’s top power.
Iraq’s unexpected announcement last fall that it intends to join Beijing’s massive Belt & Road Initiative, analysts say, is just one example of China’s rapidly growing economic footprint in the Middle East.
China views the region as fertile soil for investments in water systems, roads, bridges, electrical grids and other key pieces of infrastructure that have either never been fully developed or have been badly degraded by decades of war.
China has poured about $24 billion into Iraq since 2005, and the vast majority of that is in energy projects, according to the China Global Investment Tracker, a project of the American Enterprise Institute and The Heritage Foundation.
Across the Middle East and North Africa, China has invested roughly $200 billion over the past 15 years. That number is expected to grow exponentially over the next decade as the Belt & Road Strategy enters its next phase.
“Iraq has gone through war and civil strife and is grateful to China for its valuable support. Iraq is willing to work together in the ‘One Belt, One Road’ framework,” then-Iraqi Prime Minister Adel Abdul-Mahdi told Chinese President Xi Jinping on a State visit to Beijing in October.
Even with a massive U.S. military footprint in the country, Iraq’s biggest bilateral trading partner is China and is the second-largest supplier of China’s vast oil market.
China’s total overseas investment since 2005 stands at a whopping $2 trillion, with thousands of new projects in the works. President Xi’s Belt & Road Project, originally billed as a way to rebuild the ancient Silk Road trading network, now includes Countries across Africa, Asia, Europe and Latin America.
For the U.S., which is locked in a fierce struggle for influence in Iraq with neighbouring Iran, China’s economic clout carries serious geopolitical ramifications as the influx of money into countries such as Iraq strengthens those nations’ ties with Beijing.
Chinese investments also often come at the expense of American companies competing for the same business. Secretary of State Mike Pompeo and other top Trump administration officials in recent weeks have warned nations in the region to be wary of doing business with Beijing. They said Belt & Road recipients often wind up with crippling debts and that U.S. firms provide greater contract transparency, environmental protections, qualified labour and better work.
It seems unlikely that Middle Eastern countries will heed those warnings. Analysts say Iraq and its neighbours find partnerships with China more appealing and that it’s often easier and cheaper to get Chinese companies to work in dangerous, hostile areas.
In addition, China’s less-transparent approach to business could carry political benefits for host countries and Beijing typically does not demand political reforms as the price of making a deal.
“Especially in more risky business environments, this is where the Belt & Road thrives, because Western investors are often not willing to take the risk of operating in these places, or basically they’re doing their risk-reward calculus and they don’t see enough reward,” said Jonathan E. Hillman, Director of the Reconnecting Asia program at the Center for Strategic and International Studies.
The Chinese “will sign a deal and get going on it much faster, and they’re willing to build projects to fit political timelines,” he said. “They’re not operating by the same rule book U.S. companies would be. … The Chinese approach is more opaque, and it leaves the door open for money to change hands.”
Despite Mr. Abdul-Mahdi’s recent ouster, Iraqi officials continue to speak of a deepening trade relationship with China. The tie has been enhanced by tough U.S. sanctions on neighbouring Iran, which has turned heavily to Beijing after being virtually shut out of Western markets.
“China is our primary option as a strategic partner in the long run,” Iraqi Electricity Minister Luay al-Khateeb wrote recently.
In the U.S., China’s economic prowess and ambition are often viewed through the lens of competition and a two-nation race for superpower dominance over the next century. In the Middle East, South Asia and North Africa, the issue is seen much differently. Many foreign officials dismiss the idea that they are taking sides in a much broader U.S.- Chinese competition.
Instead, they argue that their countries are simply desperate for infrastructure investment and that China, unlike the U.S., has been more eager to do business with them in recent years.
In Pakistan, for example, China is making massive investments, at least $56 billion over the past 15 years in roads, railroads and a major new port on the Arabian Sea, figures show. The two nations also have mapped out the China-Pakistan Economic Corridor, a plan that lays out a host of major projects that Chinese firms will undertake through 2030.
The Initiative began in earnest in 2014.
“That was a time when, frankly, no one else was looking at Pakistan as an investment destination,” Pakistani Ambassador to the U.S. Asad M. Khan said in an interview last week. “So we as a nation are very grateful for what China put on the table.”
“We were experiencing power shortages in areas up to 18 hours because of the deficit between electricity supply and use,” he said. “Their investments have helped us to generate enough electricity that today those shortages are not there. For an average Pakistani in the street, the China-Pakistan Economic Corridor means more light.”
China’s willingness to invest across the region has extended even to Syria, which has been devastated by nearly a decade of civil war with a crumbling economy and infrastructure.
Syrian President Bashar Assad has been meeting with top Chinese officials about investment opportunities in his country that Western countries simply aren’t willing to make.
“In the past, we did not engage in discussions with our friends and at the forefront China on reconstruction because the security situation did not allow us to initiate this process on a large scale. Now, with the liberation of most areas, we have started discussions with a number of Chinese companies experienced in reconstruction,” Mr. Assad told Hong Kong based Phoenix Television in an interview in December.
Top American officials increasingly are making the public case to nations that doing business with Beijing comes with risks and that dealing with U.S. firms is the better course of action. In Kazakhstan last week, Mr. Pompeo said American companies offer benefits that China simply cannot.
“We fully support Kazakhstan’s freedom to choose to do business with whatever county, whichever country, it wants. But I am confident, I am confident that countries get the best outcomes when they partner with American companies,” Mr. Pompeo said.
“You get fair deals, you get job creation, you get transparency in contracts, you get companies that care about the environment, and you get an unsurpassed commitment to quality work. American companies are naturally incentivized to behave this way. It’s just simply how the American system works.”
Indeed, analysts say China’s Belt & Road Initiative has often resulted in deals that are more expensive than promised or result in lower-quality work. Sri Lanka, in one of the best-known cases, was forced to cede a majority stake in a key port to Chinese interests after the island nation could not meet the payments on a Belt & Road project.
“The Belt & Road is littered with examples of Chinese companies pressing their interests on a recipient country that didn’t have all the tools it needed to evaluate these proposals objectively,” Mr. Hillman said.
Many cash-hungry developing world nations, however, push back on those arguments. Pakistan’s Mr. Khan said that the amount of debt Pakistan has incurred by doing business with China is a “fraction of what we owe the rest of the world.”
He said it’s a mistake for the U.S. to pit itself against China in the global investment arena.
“We are not accepting Chinese money to the exclusion of everyone else,” he said. “I think it’s not very prudent or wise to basically make countries choose between one or the other.”