February 5, 2016

Enter China: The New Bilateral Middle East Aid-Security-Trade Nexus

Perhaps a legacy of the Obama administration will be a Middle East that is more engaged with bilateral ties that go East and not just West. That is, a Middle East that is less reliant and less engaged with the United States on aid, security, and trade. From Gulf diplomats, there is an emerging consensus that foreign policy and economic policy can and should be made without the proverbial American “green light.”

Aid agencies and multilateral donors see Gulf states making aid commitments that rival World Bank and International Monetary Fund packages, often without the accompanying conditionality of Western donors. Gulf aid to Egypt has been a case in point, with cash deposits in the central bank and in-kind aid of oil and gas, the provisions rival and surpass multilateral engagements. In post-conflict situations, Gulf states are establishing domestic institutions to manage humanitarian aid dispersion. For example, Saudi Arabia’s King Salman Center for Relief and Humanitarian Works has an aim to manage aid to postconflict Yemen. The aid, trade, and security nexus of the region is opening, which could mean more sources of funding and ties, but also new patterns and relationships that may have shorter-term horizons. There is an important new donor seeking to enter the fray, to cement trade relationships and a regional presence – China.

Following a visit to Egypt, Chinese President Xi Jinping offered $1.7 billion in loans to Egypt, including a $1 billion deposit to the central bank. With Egypt’s economy deteriorating, its ability to attract foreign exchange is essential. According to a recent Emirates NBD research report, hotel occupancy rates in Egypt fell to 39.5 percent in December 2015 in what should have been high season. The approach is both in foreign economic policy and security. In November 2015, the Chinese announced they would establish their first overseas military outpost in Djibouti.

China is adopting a region-wide approach, and partnering with Gulf states to disperse aid and place investments. The Chinese pledged $7.53 billion in aid to the Palestinian territories, including investment in and construction of solar power plants. China will partner with the United Arab Emirates and Qatar to fund $20 billion in conventional power infrastructure in the region. The same week, Saudi Arabia signed a memorandum of understanding for Chinese developers to construct a nuclear power plant in the kingdom.

Commitments of as much as $35 billion in investment and soft loans to the Middle East from China are forging a new model of foreign economic policy and development aid. There is a clear incentive for Chinese developers, state banks, and technology manufacturers (especially in solar) to gain market share in the Middle East. Taking a political stance to aid, particularly on Palestine and partnering with Gulf states is a new strategy for China. Zha Daojiong and Michal Meidan at Chatham House have argued that China’s increasing need for oil imports, largely from the Gulf, necessitates stronger commercial and diplomatic engagement.

The novelty is not an Eastern presence in the Middle East. The Silk Road established those connections long ago. What is new is an alternative development and aid model that is in line with current Gulf state thinking on regional intervention. Mutual trade and investment opportunities are the new diplomatic language in the Middle East. Economic reform and democratization are not part of that dialogue, as in the past. To some degree, neither are the traditional multilaterals of aid and humanitarian delivery that have dominated economic development discourse for the last 60 years.

Karen E. Young is a senior resident scholar at the Arab Gulf States Institute in Washington.