Analysis |

China's Financial Belt Is Tightening Its Hold Around the Middle East

Egypt, Saudi Arabia, Iraq and Israel are just four of the countries benefiting from the open checkbook of the Chinese government. But that largesse comes at a price

A photo of Dr. Zvi Bar'el.
Zvi Bar'el
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The Iconic Tower skyscraper under construction at Egypt's New Administrative Capital megaproject, east of Cairo.
The Iconic Tower skyscraper under construction at Egypt's New Administrative Capital megaproject, east of Cairo. Credit: KHALED DESOUKI - AFP
A photo of Dr. Zvi Bar'el.
Zvi Bar'el

Africa’s highest tower, all 385 meters (1,263 feet) of it, is climbing skyward next to Cairo of all places.

In the new administrative capital, which is President Abdel-Fattah al-Sissi’s flagship project some 45 kilometers (28 miles) east of Cairo, thousands of workers and hundreds of companies are completing work on the city, which is expected to have a population of more than 5 million. Some 20 office and residential towers, including the abovementioned Iconic Tower, will house the 29 government ministries and hundreds more offices of commercial firms and legations.

The cost of the commercial center is estimated at around $3 billion, most of which (about 85 percent) is coming from the Chinese government.

Egypt, which in recent years has become a lodestone for foreign investors – such as Russia, which is building a nuclear plant on the Mediterranean, or the Siemens company, which has won contracts to build an electrified railway system at a cost of $23 billion – is also a rapidly developing hub of Chinese investments.

The new administrative capital is not the only project in which China is involved. Beijing has invested some $7 billion in industrial projects along the expanded Suez Canal – another of the large-scale projects Sissi has initiated but is not yet operational – and in infrastructure.

China also built the fiberglass factory that accorded Egypt the title of “World’s largest fiberglass producer.” The Chinese company Hutchison, which was in the running for the management of Haifa Port but failed after U.S. pressure on Israel, is managing the port of Alexandria and planning to build a huge container terminal nearby.

The Grand Renaissance Dam during construction on the Nile River in Ethiopia two years ago.Credit: TIKSA NEGERI/ REUTERS

It’s estimated that since 2016, China has pumped between $16 billion and $20 billion into Egypt in the form of investments, loans and other aid as part of its Belt and Road Initiative – which was launched in 2013 and is aimed at connecting China to Asia, the Middle East and Europe.

At the same time, China is investing billions in Ethiopia and helping it build the Grand Ethiopian Renaissance Dam on the Nile – a project that has become a bone of contention between Cairo and Addis Ababa, and which Egypt calls an existential threat. However, Egypt, which needs to create around a million new jobs a year, can’t come to China with complaints having asked it, unsuccessfully, to press Ethiopia to reach a deal over filling the dam’s lake.

Longtime ally

Egypt is not the only country in the Middle East enjoying China’s policy of economic expansion. Saudi Arabia is a longtime economic ally: last year, it marked 30 years of diplomatic relations between the two countries. In 2019, China and Saudi Arabia signed some 30 economic cooperation agreements worth some $28 billion.

China is Saudi Arabia’s most important trading partner – annual trade between them stands at close to $80 billion. China recently signed an agreement to build a renewable energy project as part of the vision of Saudi Crown Prince Mohammed bin Salman to achieve zero carbon emissions by 2060, and the Saudis just submitted a request for a direct trading license on the Shanghai Stock Exchange.

At the same time, China, which did not attend the Glasgow climate conference but had previously pledged to be carbon neutral by 2060, will have to increase its use of petroleum in order to reduce the use of coal – the major cause of pollution in China – in order to produce electricity. It’s mainly Saudi Arabia that will benefit from the Chinese move in the decades ahead.

The extensive economic ties between China and Saudi Arabia are not stopping China from investing also in Iran, Riyadh’s foe. A 25-year cooperation agreement with Tehran worth $400 billion that was signed last year ensures China a preferential place in Iran. Indeed, Tehran views China and Russia as a necessary alternative to ties with the West even if a new nuclear deal is signed.

China is also not ignoring Iraq, North Africa, the Gulf states and, of course, Israel.

The view from the "Iconic Tower" skyscraper showing construction work at the "business and finance district" of Egypt's New Administrative Capital, this August.Credit: KHALED DESOUKI - AFP

On the face of it, the expansion of China’s economic clout in the region is not exacting a political-diplomatic price. China is not involved in regional hostilities such as the Israeli-Palestinian conflict, the civil war in Syria and the power struggles in Iraq. However, the sheer dependence of many countries on ties with China is creating diplomatic dependence on Beijing and presenting these countries with a dilemma: On the one hand, the United States is demanding that they scale back relations with China, and on the other they need China to advance their economic status.

That conundrum is playing neatly into China’s hands in the face of the policy set by U.S. President Joe Biden, who has placed China at the heart of his foreign policy. Thus, for example, the Asia-Middle East quartet that Biden is trying to form against China – consisting of Israel, India, the United Arab Emirates and the United States – is already exposing the difficulty he faces. Israel is indeed heeding Washington’s demands in the sphere of technological and military cooperation with China, but it does not view China as a rival state.

On the contrary: Israel is striving to expand trade with the Asian superpower. In his 2017 visit to China, then-Prime Minister Benjamin Netanyahu told his hosts that “Israel is your perfect junior partner … this is a marriage made in heaven.” And this at a time when China has forged a strategic cooperation alliance with Egypt, Iran, Saudi Arabia, the UAE, Qatar and Turkey.

Israel refrained from signing a joint declaration from Western states earlier this year calling on China to implement international law and expressing concern at the human rights situation in the country, particularly the suppression and persecution of the Uighurs in western China. Like Israel, the UAE also does not see China as a threat or rival that obligates it to fall into line with U.S. policy.

Iranian Foreign Minister Mohammad Javad Zarif, right, and his Chinese counterpart, Wang Yi, posing for photos at the start of their meeting in Tehran last March.Credit: Ebrahim Noroozi,AP

Abu Dhabi and Riyadh have for some time been recalculating their course in the face of U.S. policy in the Middle East, and are trying to keep all options open.

India is a particularly complicated story. Although it considers China a competitor-rival that threatens New Delhi’s own aspirations to be a world power, this rivalry requires India’s recruitment of Iran, an ally of China. An example of this imbroglio can be seen in the Chabahar Port, southern Iran, where India invested hundreds of millions of dollars so it would serve for the transport of goods to Central Asia and the Middle East, and as a route bypassing Pakistan.

About 70 kilometers east of this port, China invested in the construction of a large port in Gwadar, Pakistan, as part of its Belt and Road Initiative. This is meant to be used to transport goods to and from the Middle East. The competition between these ports has already led to a strengthening of ties between India and Iran, in total contradiction to the intentions of the United States and Israel.

Another country eyeing a window of opportunity here is Saudi Arabia, which invested in the Pakistani-Chinese port and at the same time promised India it would invest tens of billions of dollars in the construction of refineries and infrastructure.

It will be interesting to see how Biden will maneuver between the contradictory interests of the Middle Eastern countries and Asia, and his aspiration to tighten the noose around China – especially in light of the increasingly clear U.S. urge to leave the Middle East.

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