A topic of general interest can sometimes have so much weight that it’s tempting not to dig very far, because it’s too much to take in. Scraping beneath the surface can raise as many questions as it generates answers. Equally, sometimes a natural line of enquiry entails plunging in, and simply trying to make some sense of it, within the space available.
Take China, the dragon in the world’s living room, seen from the Gulf’s perspective. In the past few weeks, as ever, items of note have dotted the airwaves, such as the visit of GCC envoys to be received in Beijing by China’s foreign minister, and the announcement by Emirates NBD of its new representative office in the country.
Trite an expression though it may be, China is not so much flavour of the month as flavour of the century, made more so by the global financial crisis and its debilitating effect on what has been the established order between the US and Europe on one side and emerging markets, especially in the East, on the other.
The latest news as to Chinese economic data — whether the juggernaut is slowing down further or speeding up again — have taken on an unprecedented degree of importance to the rest of the planet.
Indeed the country’s claim on resources and everyone’s attention is likely only to accelerate, as a simple geometric function of population trends, let alone developmental surge. The ramifications are huge, whether in economic, political, strategic or environmental terms
Sticking to the economic focus, also lurking as a concern is the suspicion that China’s growth impetus is unsustainably imbalanced towards overinvestment, leading inevitably to booms and busts that will cast another shadow over prospects for international trade. Its administration would do well to avoid the unreconstructed budgetary overload and recourse to stimulus that has enveloped Japan and threatens to sap the energies of the US and Europe for decades to come.
For the Gulf in the longer term, essentially the key issue is simply the trade-off in security of energy demand and supply, and price. In the face of the Western world’s relative retrenchment, and now a growing realisation of the transformative effect of shale development in the US to America’s fortunes and geopolitical priorities, how China and Asia are faring has an even greater bearing on this region’s earning power and position.
A special report last month by the National Bureau of Asian Research referred to that region’s quest in this regard “driving it toward greater dependence on and engagement in key oil- and gas-exporting regions, most importantly the Gulf and Middle East”. Author Mikkal Herberg noted the “substantial implications” of the US reducing its reliance on and commitment to the Gulf, and a transition to China, in particular, potentially adopting an enhanced interest and responsibility for this region’s stability.
Thus, amid all the localised talk of the Gulf’s capital surplus, scope for infrastructure spending, and rising per capita GDP — mostly still derived from buoyant oil price trends — still there has to be a distinct watchfulness over global energy patterns, bearing in mind too the well-documented escalation of GCC states’ budgetary breakeven rates upon the higher government expenditures since the Arab Spring.
As an IMF publication put it in conjunction with a meeting with the region’s financial authorities this month, “although most GCC countries have sufficient savings to cushion even a sizeable shock, a prolonged drop in oil prices could test available buffers.”
The same document referred to the momentum in Asia having presently faded, besides the immediately uppermost short-term worry of the Eurozone and its critical challenge simply to hold together in one piece. While suggesting that oil prices are likely to be skewed upwards, its graphic of projections noted market futures prices actually pointing down.
The thought occurs that oil prices might actually need to be lower to get the world economy moving faster again, given the accentuated and urgent emphasis of governments on demand propulsion rather than supply-side reform.
That might put the Gulf countries in the dilemma of a necessary squeeze on preferred levels of revenue, restricting growth prospects, even at the same time as it may be suggested (as here in recent weeks) that the GCC states could face a reflationary danger from its policy settings. There’s always some economic threat on the horizon.
Which puts even more onus on China to be the locomotive it can be. Think-tank Arabia Monitor has argued that the spin-offs for Mena as a whole could go beyond the mutual energy reliance, and any diplomatic association that results. This “resumption of a centuries-old interdependence, the Silk Route being re-established” might even help prompt the drive to economic diversification.
That would indeed be a healthy bonus, one worth crossing this vast continent to discuss at considerable length.