How Xi's trip to Riyadh opened a new chapter for ties between China and the region

As Chinese President Xi Jinping wraps up his Middle East tour, Chinese scholars examine the state of China-Arab ties and identify future cooperation potentials.

Here are the key takeaways:

▲ Energy cooperation, featured heavily on this trip, is commercially driven instead of politically oriented.

▲ China and Arab countries have great potential for security cooperation, especially as China continues to promote its Global Security Initiative.

▲ China should not overestimate fissures between the Middle East and the United States.

▲DING Long, Professor of Middle Eastern Studies at Shanghai International Studies University

China-Arab energy cooperation is a market-driven commercial activity that is mutually beneficial, non-politicized and not targeted at third parties. China has never treated the Arab world as an arena for great power competition, nor is it interested in filling any “vacuum”.

This was the first time after the 20th Party Congress that the country co-hosted a multilateral diplomatic event with other states and international bodies. Energy, which has received special attention as the most fundamental and strategic area of Sino-Arab relations, will continue to play a ballast role.

Firstly, energy cooperation best reflects the complementary nature of China-Arab relations. Arab states are the world's most important oil and gas-producing regions, while China has become the world's largest oil importer. In 2021, China's total crude oil imports from Arab countries reached 260 million tons, accounting for nearly 52% of the total crude oil imports. Arab countries occupy five of China's top ten sources of crude oil imports, with Saudi Arabia being China's largest supplier of crude oil and Qatar expected to become China's largest supplier of LNG. Meanwhile, China has become the most important oil export market for Arab countries, with nearly 1/5 of Saudi Arabia's crude oil exports going to China and almost all of Oman's exports going to China. As a result, China and Arab states have formed one of the most important sets of supply and demand relationships in the international energy market. The China-Arab oil and gas trade is important not only for the economic development of Arab countries and China's energy security but also for the stability of the international energy market.

Secondly, China-Arab "oil and gas +" cooperation in the whole industrial chain has been further promoted. To extend the industrial chain of China-Arab oil and gas cooperation, the two sides initiated the "oil and gas +" cooperation model throughout the whole industrial chain from exploration and exploitation to refining, storage, transportation and sales. The Arab world is also the region where China has the most overseas equity oil, as Chinese oil companies have acquired a large amount of equity oil in Sudan, the UAE, Iraq and other countries. PetroChina, among other oil companies, has invested in ADNOC (Abu Dhabi National Oil Company) and other large oil companies in the Arab states. Chinese oil companies also provide extensive oilfield service operations in Iraq, Saudi Arabia, and other Arab states. Several refinery projects cooperated by China and Saudi Arabia have been in progress, with the two sides reaching an agreement on building large-scale petrochemical projects. This has enabled the two sides to move from pure oil and gas trade to building all-around energy cooperation. Cooperation in the whole oil and gas industry chain will deepen the bundle of interests between the two sides and facilitate the early completion of the China-GCC Free Trade Area.

Thirdly, the “dual carbon” target (China would reach its carbon emissions peak before 2030 and become “carbon neutral” before 2060) brings opportunities for China-Arab energy cooperation. Faced with the challenges of the “dual carbon” target’s implementation and global energy transition, China and Arab states rush to set foot in clean energy industries. Arab countries are endowed with substantial new energy resources, while China leads the world in new energy technology and equipment manufacturing. Several large-scale new energy projects undertaken by China have landed in Arab countries, such as the Al Kharsaah photovoltaic project in Qatar, which serves as one of the major power suppliers for the World Cup, highlighting the sporting event with green and low-carbon solutions. Arab countries feel the urgent need to develop energy technologies such as crude oil decarbonization and carbon capture and storage, creating an uncontested market space for scientific and technological cooperation between the two sides. China-Arab low-carbon technology cooperation will enhance both parties’ status in global energy and climate governance, build their narrative power and raise their voices in standard-setting. China-Arab cooperation is expecting the trend of energy system digitalization. Digital technology empowers China-Arab energy cooperation for its significant role in energy conservation, emission reduction and energy system upgrading.

Finally, the “petroyuan” – the yuan-priced oil contract - is on its way. Although the US dollar’s role in the international oil and gas market is unlikely to be challenged in the short term, several Arab oil-producing countries have expressed their willingness to diversify their oil and gas trade settlement currencies. Renminbi’s rising global popularity, its newly launched oil futures, its increasing swap agreements with local currencies and expanding cross-border payments all contribute to the emergence and maturity of “petroyuan” in the global oil market. The two sides could set foot in the RMB settlement of trade in petrochemical products and expand the use of RMB in the oil and gas trade. “Petroyuan” will be a major breakthrough in the internationalization of the RMB, and it will be of great significance or Arab countries to rid themselves of financial hegemony.

The summit comes at a time when the Arab–American relations are fraying over energy issues. Some Western media, therefore, tended to view the summit from the perspective of great power politics. However, the summit has been in preparation for years ahead of this. China-Arab energy cooperation is a market-driven commercial activity that is mutually beneficial, non-politicized and not targeted at third parties. China has never treated the Arab world as an arena for great power competition, nor is it interested in filling any vacuum.

The China-Arab Summit will witness a historic leap in China-Arab relations and will further strengthen the foundation of China-Arab energy cooperation, promote the current pattern of China-Arab energy cooperation of "oil and gas traction, nuclear energy follow-up and clean energy acceleration" to upgrade to a "China-Arab energy community of destiny", give full play to the role of energy as ballast in China-Arab relations, and make greater contributions to the economic development and well-being of the people of China and the Arab region.

▲QIN Tian, Deputy Director of the Institute of Middle East Studies of China Institutes of Contemporary International Relations (CICIR)

In the future, China may work with major Arab states and regional organizations such as the Arab League and the Gulf Cooperation Council to follow the path of “constructive engagement” and make Middle East security governance a model for implementing the “Global Security Initiative.”

There is much to be done in China-Arab strategic cooperation.

One is to work closely in the international political arena and set an example for South-South cooperation. The two sides enjoy a time-honoured history of friendly exchanges. In the mid-20th century, China and Arab states supported each other in the struggle for national liberation and forged a revolutionary friendship. In 1971, 13 Arab states supported China’s restoration of its lawful seat in the United Nations.

As the world enters a new period of turbulence and transformation, China-Arab states mutual assistance in the international political arena has once again been highlighted. The Arab states’ quest for strategic autonomy requires the support of the great powers rather than intervention. Instead of investing in the Middle East, the U.S. interferes in regional affairs. On the contrary, China firmly supports the strategic independence of Arab states and their own path. Similarly, as the U.S. continues to contain and suppress China, Arab states have firmly supported China in safeguarding its sovereignty, security and development interests. It is particularly important that the Arab states have played a good role as a model and a driving force by firmly supporting China’s Xinjiang policy.

In the future, China and Arab states should further explore the international strategic value of our cooperation and continue to support each other on core interests.

The second is to support each other in the energy transition and inject certainty into the international energy landscape. The prospects of Arab and Chinese development depend on how well they navigate their energy transition.

The Arab states need both to finance their economic transition from oil and gas extraction and to use the foundations laid by the oil and gas industry to pave the way for a green transition. China’s large economy still needs oil and gas energy as a guarantee for sustainable development. At the same time, green and low-carbon development is the key to high-quality development.

In the traditional oil and gas sector, China’s import security and Arab export security are highly complementary. In green and low-carbon energy transformation, China and Arab states share similar concepts and match the pace. At the international level, both China and Arab states oppose the abuse of energy sanctions and radical green transition. As the world’s largest oil importer and exporter, China and Arab states also have broad space for cooperation on oil pricing, oil trading currency and other issues.

The third is to forge innovative cooperation in regional security governance, trying to implement the "Global Security Initiative" first and foremost. The Middle East has the most prominent security deficit in the world. The Palestinian-Israeli issue has lingered, armed conflicts in Yemen and Libya are still raging, and non-traditional security threats such as terrorism and drugs persist. More importantly, the Middle East lacks an inclusive security coordination mechanism that encompasses all representative forces, making it difficult to respond effectively to regional crisis developments. China is willing to contribute to the security of the Middle East and the stability of the Arab states from the perspective of international morality and safeguarding regional security, and protecting overseas interests. At the opening ceremony of the 8th Ministerial Meeting of the China-Arab States Cooperation Forum in July 2018, President Xi pointed out that “we should abandon the idea of exclusive security and absolute security, and refrain from taking one’s interests at the expense of others. We should build a common, comprehensive, cooperative and sustainable security architecture”, putting forward an important vision for Middle East security governance. In 2022, at the second Middle East Security Forum, China put forward the idea of “building a new security architecture in the Middle East.”

In the future, China may work with major Arab states and regional organizations such as the Arab League and the Gulf Cooperation Council to follow the path of “constructive engagement” and make Middle East security governance a model for implementing the “Global Security Initiative.” Building a multilateral dialogue platform in the Gulf, maintaining security and stability in Iraq, and exploring trilateral cooperation between China, Saudi Arabia and Pakistan are all options to try out.

▲WU Bingbing, Director of the Arabic Language and Culture Department, School of Foreign Languages, Peking University

There is certainly a great deal of interest and concern in the U.S. about the China-Arab States Summit. However, it should be noted that the Gulf countries currently remain deeply dependent on the United States for security, finance, etc.

From a bilateral perspective, China-Arab cooperation has a long history, with some important nodes. For example, Egypt was the first Arab and African country to establish diplomatic relations with the PRC in 1956, closely followed by Syria and Yemen. In 1958, Iraq became the first Gulf country to establish diplomatic relations with China. In 1990, Saudi Arabia established diplomatic relations with China, and by then, we had established bilateral relations with all the Arab countries.

At the beginning of the 21st century, we started to focus on multilateral relations with the League of Arab States, which is an inevitable result of the evolution of diplomacy. Due to the common culture, common language, and some common concerns among Arab countries, the bilateral structure was no longer sufficient for the relations and cooperation between China and the Arab world. That is why the China-Arab States Cooperation Forum was launched in 2004, indicating the start of multilateralism based on bilateral relations, while China also established One-to-Multilateral Relations with the Gulf Cooperation Council. After the establishment of the China-Arab States Cooperation Forum in 2004, a ministerial meeting is held every two years. After years of development, the relationship between the two sides has indeed been upgraded to a new level, which is why the ministerial meeting is upgraded to a summit. This path is very clear.

The China-Arab States Summit includes the regional multilateral mechanism between China and the League of Arab States, the sub-regional multilateral mechanism between China and the Gulf Cooperation Council, and also the bilateral relations between China and Saudi Arabia, etc. The summit has a series of defined levels and structures. There has been a great advancement in China's relations with the Middle East region in recent years. For example, in 2016, President Xi visited Saudi Arabia and Egypt, establishing a comprehensive strategic partnership with Saudi Arabia and further advancing the comprehensive strategic partnership with Egypt, and in 2018 he visited the UAE; subsequently, officials at different levels also visited the Gulf countries and North African countries, but these visits are still bilateral-level diplomatic activities. This time, it is very significant that the summit has been upgraded to head-of-state diplomacy on a multilateral basis and consolidated in an institutionalized pattern. The most outstanding and important aspect of this summit is the political and diplomatic dimension.

From the U.S. perspective, its first and foremost concern is the political and strategic significance of this summit. After all, it is a summit with China, the Arab world, and the Gulf countries. In particular, the summit comes when the United States is making strategic adjustments in the region, so there must be great concern about this. Secondly, the Middle East countries, especially those traditional allies and partners of the United States, are gradually expanding and enhancing their autonomy, which means that the United States does not have as strong a grip on the region as before. Thirdly, some specific areas, especially high technology, are of constant concern to the US. When Biden visited Saudi Arabia this July, he signed 18 agreements, the vast majority of which were on high technology, including nuclear energy, digital technology, aerospace, etc. In addition, the United States is very focused on China-Arab cooperation at the security level. In short, There is certainly a great deal of interest and concern in the U.S. about the China-Arab States Summit.

However, it should be noted that the Gulf countries currently remain deeply dependent on the United States for security, finance, etc. There may be a sense of optimism in China now that some time ago, the U.S. asked the OPEC+ countries, led by Saudi Arabia, to increase oil production, only to have OPEC+ drastically reduce production, sparking a heated debate. In fact, on the issue of whether to increase or decrease oil production, the conflict between the United States and Saudi Arabia is not as great as one might think. Biden called for increasing oil production to meet the short-run interest of the mid-term elections, while Saudi Arabia’s decision to cut output is out of the long-term interest of obtaining cash and capital flows. The conflict between the two sides is not that deep, and they can understand each other.

Saudi Arabia is now largely dependent on the United States’ global financial system. Why? Firstly, the huge amounts of money generated by the oil trade require a highly negotiable currency for transactions, which requires free convertibility. Secondly, countries like Saudi Arabia have a fixed exchange rate that is tightly pegged to the U.S. dollar and also holds a large number of dollars and dollar assets, making it difficult for them to weaken the dollar proactively. Most importantly, the global oil trade is denominated in dollars, so the whole issue is affected by this single matter. Even though Iran has been under U.S. sanctions for many years, Iranian oil exports are still denominated in U.S. dollars. Moreover, once oil is settled in RMB, all trades between the two will inevitably be settled in RMB. These two issues are linked. Otherwise, where would the RMB obtained by Saudi Arabia go? So, is China ready in terms of trade structure and financial system? This is a question for us to be considered seriously.

▲TANG Tianbo, Associate Fellow of the Institute of Middle East Studies of China Institutes of Contemporary International Relations (CICIR)

Given Saudi Arabia's important position in the GCC, the Arab League, the Islamic world, OPEC and emerging countries, the equal participation of China and Saudi Arabia in bilateral cooperation, each to its advantage and mutual benefit, will set an excellent example and create a demonstration effect.

President Xi's visit to Saudi Arabia is undeniably leading the bilateral relationship further.

Firstly, the field of energy cooperation will be further expanded. The significance of energy cooperation between China and Saudi Arabia is becoming increasingly prominent. In the short term, the Russia-Ukraine conflict has caused continuous turbulence in the global energy market and increasing uncertainty on the supply side. In the long term, the global energy market is in the midst of a complex transition, with Saudi Arabia rising through the ranks with the low cost of its oil production and low carbon intensity. With China being the world's largest crude oil importer and Saudi Arabia the top exporter, expanded energy cooperation between the two countries will benefit their respective development and security and enhance the stability of the global energy market. Cooperation between the two sides has and will continue to expand and upgrade beyond trade relations to two-way investment, downstream areas, and technology upgrades. Moreover, Saudi Arabia is vigorously developing new energy sources, and China has comparative advantages in areas such as wind energy, solar power and nuclear power, making it an ideal partner for Saudi Arabia. In the future, China-Saudi Arabia energy cooperation is expected to achieve "dual blossoms" in traditional and new energy fields.

Secondly, the further alignment of the Belt and Road Initiative with Saudi Arabia's Vision 2030, a comprehensive reform plan launched in 2016. The reform plan aims to liberalize the economy and has achieved landmark achievements such as the successful listing of the Saudi Arabian Oil Company. At present, the implementation of Vision 2030 is accelerating, creating opportunities for our cooperation in infrastructure, production capacity and science and technology under the framework of the B&R Initiative. At the same time, Saudi Arabia hopes to vigorously attract foreign investment and diversify its vast oil wealth, making China-Saudi Arabia's two-way investment and investment and financing cooperation involving third parties much to be expected.

Thirdly, the demonstration effect is further highlighted. Saudi Arabia is an important ally of the United States in the Middle East, but in recent years, it has upheld strategic autonomy, resisted U.S. pressure, and firmly established its friendship with China, enthusiastically supported the B&R Initiative, Global Development Initiative, and the building of the China-Arab community with a shared future, and actively moved closer towards Shanghai Cooperation Organization and BRICS countries. With China, Saudi Arabia issued a strong voice of autonomy of the development path, opposition to foreign interference, exchange and mutual appreciation of civilizations, and building a China-Arab community with a shared future. Given Saudi Arabia's important position in the GCC, the Arab League, the Islamic world, OPEC and emerging countries, the equal participation of China and Saudi Arabia in bilateral cooperation, each to its advantage and mutual benefit, will set an excellent example and create a demonstration effect.

Li Chunmiao, Sun Mengqi, Liu Lin, who interns for Beijing Channel, contributed to this newsletter.