Sino-Gulf relations come at expense of the US

Doha: China and Arab countries in the Gulf region are rushing to each other in an increasingly close embrace, throwing money into each other's economies and starting to discuss security ties.

The growing economic ties are turning political, and that could mean new uncertainty in the United States' ability to count on steady support from longtime Gulf Arab allies like Saudi Arabia. On the economic side, it could also mean less Arab oil money invested in US and European markets.

"This is the beginning of a long-term trend of investors from the Gulf region investing in the Far East," said Michael Philipp, chief executive of Credit Suisse Europe, Middle East and Africa, during a CEO conference in Doha last week. "The flows are tremendous. The interest is tremendous. This will continue to grow." The new ties burst into bloom last year when Saudi King Abdullah made his first overseas trip after assuming the throne: He skipped America and flew to China instead.

Chinese President Hu Jintao soon returned the honour and also later visited neighbouring Dubai.

Political side

The rationale for the strengthening bonds is largely economic, but has its political side. As US-Arab relations have been strained since the September 11 attacks, Gulf governments and investors have shifted away from the United States, seeking partners in Asia and Europe.

China is the biggest winner, with as much as $20 billion in Gulf money invested there the past year.

In turn, China, the world's second-largest oil consumer, is boosting investments in the Mideast as it seeks to secure a steady stream of oil and gas.

Cash-flush Gulf investors are drawn to China's red-hot markets, where returns have outpaced those in the United States and Europe. They also sensed anti-Arab bias after the US Congress voted to force a Dubai-based company to sell its ownership of American port operations a year ago.

"If you can't go to the United States, you have to go somewhere else," said Beshr Bakheet, a Saudi investment adviser. "People want to do business but [US authorities] are making their lives difficult." Overall, trade between the Gulf states and Asia doubled between 2000 and 2005, reaching $240 billion, according to figures released at the CEO conference.

Economists say deepening Gulf preferences for Asia could eventually affect the US economy or the value of the dollar, but has not yet.

China could take a larger political space in a traditional US domain. Gulf Arab leaders want China to take a role maintaining stability in the region.

Saudi Foreign Minister Prince Saud Al Faisal said in 2004 that Saudi Arabia would reduce its dependence on US-dominated security arrangements.

Security umbrella

For now, Gulf countries show no signs of wanting to end the US security umbrella that protects them, only to diversify it.

Leaders here are angered by the US invasion of Iraq, and while they are concerned about Iran's nuclear ambitions, they worry that Bush's hardline policy toward Tehran could provoke an unwanted war.

In January, a delegation from a Shanghai political think tank was told in Dubai that a bigger Chinese role in the Gulf would be welcomed, especially if Beijing backed Arab positions in the UN Security Council.

"We need them to say the Iranian nuclear programme is a threat," Dubai security analyst Mustafa Alani, who was among those who met the group, said. "We need a better attitude on the Palestinian issue and on the question of Iraq. They have a role to play in the region, but with power comes responsibility."

China appointed a special envoy for Middle East affairs in 2002 and hosted visits from Palestinian foreign minister and Hamas member Mahmoud Zahar last year.

"China's envoy hasn't been too effective so far," said Shen Dingli, dean of the Institute of International Studies at Fudan University in Shanghai. "But it's a sign that China is getting more involved."

Insight

Examples of the strengthening bond

- Kuwait and Saudi companies are building refineries in China, while Dubai firms operate Chinese ports and are developing residential and commercial complexes in Beijing and Shanghai.

- China is cementing energy-based ties with Iran, its top crude supplier and a traditional rival to Gulf Arabs.

- China's builders, engineers, labour suppliers and equipment companies have begun winning shares in the $1 trillion in projects planned or under way in the Gulf.

- A Chinese firm recently won a contract to prepare the site for a new Doha neighbourhood expected to house 200,000 people.

- Real estate investment house Qatari Diar is now looking to build a hotel and shopping development worth up to $1 billion.