Archive for September 17th, 2010

The New Silk Road

September 17, 2020

An Article by Ben Simpfendorfer, Royal Bank of Scotland

Ben Simpfendorfer, Chief China Economist, Royal Bank of Scotland will be a guest speaker at SuperReturn Asia 2010 (27-30 Sept) Hong Kong

China and the Middle East are two historic  powers. Yet, their modern economic relationship wasn’t resurrected until after 2001. The relationship has since grown rapidly and is illustrative of the rebalancing taking place in the global economy.

The number of Arab traders visiting China surged around this time. Yiwu, a small Chinese coastal town south of Shanghai, receives 200,000 Arab visitors annually. It is a virtual Arab market town. China’s entry to the WTO in 2001 was an important explanation for the rise in Arab visitors. Equally important was the surge in oil prices after 2004 and the relaxation of China’s visa policies even as the developed economies tightened their own.

The results are evident in trade flows. China overtook the United States as the world’s largest exporter to the Middle East in 2008. It was the first time the United States had lost its number one position since the 1960s. Certainly many of China’s exports to the region are consumer goods, often made by foreign subsidiaries, but they are also increasingly accounted for by capital goods, from automobiles to port cranes.

Yet, these exports may equally produce instability in the Middle East. They are resulting in factory closures and jobs losses, troubling for a region in which 60% of the population is under the age of 30. It is not all bad news, however. There are tentative signs that China is building factories in the Middle East, from Egypt to Saudi Arabia, hoping to profit from the region’s strong trade ties to Africa and Europe.

The relationship is not only about what China sells to the Middle East, but also what it buys. China imports half its oil from the Middle East. Its dependence will only grow in time as domestic oil production peaks. By 2030, the Middle East is expected to provide every two out of three barrels of oil that China consumes. The upshot is that China is starting to take a new interest in the Middle East’s security.

Islam is a more delicate topic. But it is also easily misunderstood. China’s Muslim population is targeting the Middle East as a potential market for Halal food and Muslim clothing. Prime Minister Wen Jiabao, while speaking at the Arab League Headquarters in Cairo last year, was also keen to emphasize that fact that China has 35,000 mosques and requires Halal food to be served in public offices.

These two historic powers also see a symbolism in their simultaneous rise. Centuries ago they rose together as trade flourished along the Silk Road. They also fell together, as Europe took their place as the world’s dominant economic power. The return of the Silk Road, even if only figuratively, has thus reinforced the impression that China and the Middle East may yet reclaim their former glories.

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Ben will discuss China’s strengthening relations with the Arab world.  He will examine the rapid growth in trade and investment links between the two historic powers, explore the importance of oil and Islam, and speak about China’s role as a growth model for the region.  His views are based on extensive research in such cities as Beijing, Shanghai, Cairo, Dubai and Riyadh.

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About Ben Simpfendorfer, Chief China Economist, Royal Bank of Scotland.

Ben Simpfendorfer is Chief China Economist for Royal Bank of Scotland, Hong Kong.  Prior to this, he worked at JP Morgan Chase, Hong Kong as Senior China economist.  Ben speaks Arabic and Chinese, and has lived in Beirut, Damascus, Beijing and Hong Kong.  His editorials have appeared in the Financial Times, Wall Street Journal Foreign Affairs and the Internal Herald Tribune.  He is the author of “The New Silk Road: How a rising Arab world is turning away from the West and rediscovering China”,  published by Palgrave Macmillan in 2009.

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