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Diplomacy
OpinionChina Opinion
James David Spellman
James David Spellman

Opinion | China’s relations with the Middle East: gold mine or minefield ahead?

  • While Sino-Arab economic ties have deepened, China is nowhere near replacing the US in the region
  • Beijing is trying to balance its dependence on Middle East oil with increased arms sales to the region, a development that may prove significant

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Illustration: Stephen Case
James David Spellman

Flush with capital, investors throughout the Arab world are frantically investing in technology and infrastructure to replace oil as a locomotive of growth. China is among those swept up in the gold rush, jockeying for capital and access to markets as the world’s second-largest economy leverages its relations with Arab nations as a counterweight to the West.

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This scramble to broaden and deepen Sino-Arab economic ties involves the biggest players in the Gulf, including 10 of the region’s largest sovereign wealth funds whose combined assets total nearly US$4 trillion. Such funds invested more than US$2.3 billion in Greater China last year, compared with about US$100 million in 2022, according to Global SWF, a database tracking the world’s sovereign wealth funds. Together, China and members of the Gulf Cooperation Council generate more than one-fifth of global gross domestic product.
The spurt of investment follows Chinese President Xi Jinping’s visit to Riyadh in December 2022, when several agreements were signed with the Saudis. The optics affirmed both powers’ overlapping ambitions.

Mergers and acquisitions are a major path for investment. The Middle East’s outbound M&A activity in China grew in 2023, with at least 16 deals worth US$8.5 billion, a significant increase compared to a single US$300 million deal in 2022, data from London Stock Exchange Group shows. This is the highest-ever annual total for Middle Eastern M&A activity in China since records began in the 1980s. In the other direction, Chinese companies also made more direct investment in Saudi Arabia in 2023 than ever before. All are foundations for the long haul ahead.

Hong Kong is hoping that family offices from the Middle East will join the fray, too, as those funds increasingly look to Asia for opportunities.
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While the Sino-Arab investment flows are historic in scope, scale and pace, they still pale in comparison with those between the United States and the Middle East. In 2022, US foreign direct investment in the Middle East reached US$94.7 billion, while capital flows from the Middle East into the US totalled US$41.6 billion; manufacturing, mining, real estate and nonbank holding companies attracted the most capital.

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