Beijing is reinventing globalization and the Gulf is taking note
BY Mohamed Khashoggi
“I would say to every nation on earth, by treaty, your people shall trade freely with us, and ours with you,” U.S. President Thomas Jefferson once said, as he set out a new vision for his nation. In the United States, a fundamental commitment to foreign trade has underpinned the state’s well-being. From Jeffersonian times until Reagan, although some would argue Clinton, foreign trade was firmly controlled by the state. It was a tool of defense as much as a tool for economic growth. In 1994 Clinton signed the agreement that shifted the regulation of America’s commerce from Washington to the World Trade Organization. China soon after joined and won, with the help of the United States, a most-favored-nation status. This was in 2000.
China joining the WTO certainly helped accelerate its economy to global prominence. Events in the past few months are no exception; we may have seen the devaluation of the yuan, the near collapse of China’s stock market and the slowing down of its all-powerful industrial sector. But don’t be fooled—China will very soon surpass the United States to become one of the world’s largest economies.
Two recent initiatives, launched by the Chinese, lend credence to this view. Both focus on growth and exports in the future: The One Belt, One Road (OBOR) Initiative and the internationalization of the yuan. But a West-Asian centric lens by which to view these developments might prove useful; the initiatives very much concern and are relevant to the Gulf Cooperation Council (GCC) and its ambitions for diversification and relevance to new world economic sectors. The internationalization of the yuan will take on more and more importance for the oil sector in the future. Since the 1970s, virtually all oil sales have been settled in U.S. dollars. That might change in the future, if oil sales from the Arab Gulf to China are ever to be settled in yuan. The Chinese will eventually want that to occur, and are indeed, with the internationalization of the yuan, certainly moving in that direction. That may eventually allow the Chinese retail gas market to reap the same benefits as the U.S.
The real focus for the GCC now is the OBOR initiative, which is being heralded by the Chinese government as their new Silk Road—a bold new development strategy. It seeks to connect and boost cooperation among Eurasian nations with two pillars, the land-based “Silk Road Economic Brain” and oceangoing “Maritime Silk Road,” that form the bedrock of the strategy. An early node was the New Eurasian Land Bridge, a railway that connects China to Central Europe through Kazakhstan and Eastern Europe. Much of China’s promised $1 trillion in OBOR investment will focus on trade and logistics-related infrastructure, including many new or expanded ports along OBOR’s sea routes. The geography this initiative encompasses includes the entire Asian land-mass, all the way through Europe. The maritime version links China’s ports with Africa and continues all the way through the Red Sea to the Mediterranean. China is reinventing globalization.
In Chinese planning literature, “high-end sectors” and “advanced manufacturing” are commonly mentioned. This often includes IT, new materials, high-speed rail-roads, nuclear power, aerospace, agribusiness, and finance.
The GCC features very few, big industrial multinationals that can take serious stakes in foreign countries—except, of course, for those in oil and related services sectors. But a concerted effort by the GCC to quickly build up a state-backed fund—that can co-invest with China in some of these initiatives—would mark a significant move forward. It is the sort of plan that results in huge opportunities for the future growth of small, medium and large GCC companies that will need to expand outside the GCC.
Abu Dhabi has already launched its China fund, in cooperation with Chinese institutions. The GCC as a whole is beginning to pay close attention to these developments. But the game-changer would be if a substantive—and a well thought out strategic plan to ensure a future GCC/China state-led superfund were to enter the fray. It could influence and drive OBOR’s priorities in the MENA region as well as parts of Africa.
This is a historical opportunity that can lead to unimagined economic benefits for generations of young GCC citizens. Future architects, engineers, traders, entrepreneurs, doctors and any other imaginable profession would be served by a strong initiative partnering the GCC and China on the modern day Silk Road.
For many obvious reasons, the state needs to establish the path and guide the process. GCC sovereigns, as with the U.S. in Jeffersonian times, have to lead the way. When state-led foreign trade is mature enough, the fund would pave the way for the private sector that can then make the right commercial and market decisions and adjustments that would open an important dimension for the GCC’s roadmap for future growth and economic relevance .
It is said that if you look around your home, you will find nothing made in Russia. The opposite is surely true about China. Anything from the wash-bucket to the remote control in your home would have a good chance of having been made in China. If the GCC is to become a major industrial and manufacturing power, its natural growth markets would eventually be Africa and Central Asia. African countries, for a combination of reasons, are leaving poverty behind and are well on their way to becoming middle income countries. Central Asia is resource rich. Economic compatibility will become more and more obvious with these regions as “old” businesses such as agriculture, logistics and utilities merge with “new” businesses, such as healthcare, renewables and IT.
There will be much to learn from the Chinese, who have already created important economic inroads in many of the countries that GCC based-businesses will need to explore in the future. China’s technology also offers important lessons in manufacturing and other sectors. In turn, China can learn from the GCC investment skillset, and the Asian nation still hasn’t mastered the management of geopolitical risks in international investment. RMB-denominated investment may have no trading hub in MENA as of now—but this is certain to change.
Mohamed Khashoggi is the founder and Chairman of Mk Associates, a consulting company. He has lived and worked in Greater China for over 10 years.