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China and the Gulf Region

The end of the Cold War left the world with only one superpower. However, the unipolar era of US’s absolute global preeminence has been short lived. America’s voluntary entanglements in Iraq and Afghanistan have been both draining and distracting and have diminished its lustre. The dawn of the new millennium had witnessed the emergence of a new strategic reality, the phenomenon of ‘Rising China’, marking the advent of a new global power and the potential evolution of very different new strategic equations. China has taken the fullest advantage of US preoccupations to spread its strategic shadow over the world far more rapidly and extensively than would have been possible under more normal circumstances.

China is already the most influential country in Central Asia. Though the balance of power still favours the United States in Northeast Asia, Southeast Asia and South Asia, China is making very impressive headway as far as the balance of influence in these regions is concerned and, in substantive relations and interaction with countries of these three very important Asian regions, China is already very much on par with the US. However, no country or combination of countries, including those within the region, is as yet in a position to effectively challenge America’s predominant presence, role and influence in West Asia and in particular in its Gulf region. This Paper narrates China’s very impressively growing interaction with and potentially rising influence in the Gulf region also.

Since the US linked that defining event in New York on 9/11 to Afghanistan, Pakistan and Saudi Arabia, indiscriminate violence perpetrated in the name of Islam and the consequences of US led counter measures to combat this growing menace have become the world’s primary strategic concerns. Though entirely unrelated, the quest for energy security has concurrently become the other primary driver of strategic ambitions. Since the Gulf region is the heartland of Islam as well as the world’s largest repository of oil and gas resources, it will inevitably become one of the major theatres where the new great games of the 21st century will play out and which, in turn, will hugely influence the evolving strategic landscape in Asia as a whole, indeed even across the world.

A particularly significant and noteworthy point is that unlike other regions of Asia with whom China has had extensive interaction over the centuries, China is a newcomer to this region and its interaction began only 6 decades ago and that too negatively from the perspective of the ruling monarchical regimes in the Arabian Peninsula. China entered the stage in the late 1950s spouting revolutionary rhetoric and finally gave up supporting left wing liberation movements in the region only towards the end of the 1970s. Since then, China’s approach to the region has been based on non-ideological pragmatism with top priority being accorded to economic relations, while arms sales became the vehicle for the original breakthroughs in substantive relations in the region. Diplomatic relations were established with the new republican regime in Iraq in 1958; following the Sino US rapprochement in 1971, diplomatic relations were established with the Shah’s Iran and Kuwait in 1971; thereafter, diplomatic relations were established with Oman in 1978, with UAE in 1984, with Qatar in 1988, with Bahrain in 1989 and finally with Saudi Arabia only in 1990. China grabbed the opportunity presented by the Iran Iraq war to become a very significant arms supplier to both sides, thus overturning the new Islamic Republic of Iran’s initial deep hostility towards China. It also started selling missiles to Saudi Arabia in the late-1980s even in the absence of diplomatic relations. China’s emergence as an oil importer in 1993 provided a strategic rationale for initiating proactive involvement with the region. This is reflected in the impressive record of exchange of high level political visits between China and countries of this region during the few years since official relations were established. Not surprisingly, this compares favorably with the record of all Asian countries including India, even though traditionally, interaction between the peoples of India and the Gulf region is as old as history itself and has been more intense than between the Gulf region and any other country of the world.

On May 27, 1981, just two days after the establishment of the GCC, Huang Hua, China’s Foreign Minister sent a telegram of congratulations to GCC Secretary-General Abdullah Bishara and China established ties with the organization despite then having diplomatic relations with only two member countries. From 1990 onwards, Foreign Ministers of GCC countries and the GCC Secretary-General have held an annual meeting with China’s Foreign Minister during the UN General Assembly in New York. The two sides held their inaugural Ministerial level Strategic Dialogue at Beijing in June 2010, co-chaired by Chinese Foreign Minister Yang Jiechi and Kuwaiti Deputy Prime Minister and Foreign Minister Sheikh Muhammed Sabah al-Salem al-Sabah. All this is another example of China’s innovative diplomatic initiatives vis-a- vis the region.

Building its comprehensive national strength has been China’s top policy priority for almost 3 decades and will remain so till it reaches peer status with the US. Ensuring energy security is an essential and unavoidable prerequisite for this. In just over a decade since China became an oil importer for the first time in 1993 it has become the world’s second largest energy importer; its energy requirements are growing faster than that of any other country. Therefore, the quest for energy security has now become perhaps the single most important driver of Chinese foreign policy. China has been scouting the world buying up energy assets and entering into long term energy tie ups, but the Gulf region has become and will remain China’s largest source of energy imports. According to IEA estimates, China’s oil imports from West Asia would rise dramatically, by almost 25%, to 69.4% of its total imports by the year 2020 despite diversifying its sources of oil and gas supply. China will then become the largest importer of the Gulf region’s oil and gas.

On its part, the GCC region’s evolving orientation towards Asia is logical. Asia consumed about 25 million barrels per day (mbpd) in 2009, which is 30 percent of the world’s demand. Asia imports around 16 mbpd, with about 12 mbpd coming from the GCC countries. World oil demand is estimated to increase by about 25 percent between 2005 and 2030, with Asian consumption expected to reach about 39 mbpd by 2030. In addition, for the GCC gas industry, the ‘fuel of the future’, a new front for cooperation and business with Asia is opening up.

Oil Consumption: Reference Case (1990-2030)

(Million barrels oil equivalent per day)


History

Projections










Region/Country

1990

2005

2006

2010

2015

2020

2025

2030United States.

17.0

20.8

20.7

19.6

20.2

20.2

20.8

21.7OECD Europe

13.7

15.7

15.7

14.5

14.5

14.9

15.0

15.0Japan

5.3

5.3

5.2

4.6

4.8

5.0

4.8

4.7South Korea

1.0

2.2

2.2

2.8

2.7

2.6

2.7

2.8China

2.3

6.7

7.2

8.5

10.0

12.1

13.8

15.3 India

1.2

2.5

2.7

2.4

3.1

3.9

4.3

4.7 Brazil

1.5

2.2

2.3

2.5

2.8

3.0

3.4

3.7Total World

66.7

84.0

85.0

86.3

90.6

95.9

101.1

106.6

Source: Adapted from International Energy Outlook, 2009

Natural Gas Supply in China and India by Source – 2003-2030

Source: International Energy Outlook, September 2008

For both China and India and, indeed for other major Asian consumers such as Japan, Korea and Taiwan, most of this additional demand for oil and gas will come from the Gulf region.  Therefore, the energy issue has already become and is likely to remain the primary determinant of China’s policies in relation to this region

Though China’s trade, investment and energy relationships with countries of the region started expanding in the 1990s, they have taken off explosively only in the past five years. China’s total trade with the region, excluding arms sales, was worth US $ 1.5 billion in 1990 rising to $ 2.26 billion in 1994; a decade later, in 2003, trade with GCC countries alone was valued at US $ 16.9 billion increasing to US $ 20 billion in 2004 and to US $ 33.7 billion in 2005. It reached US $ 93.211 billion USD in 2008. Trade is becoming an increasingly significant binding factor for both sides.

GCC’s Major Trading Partners, 2009 (Share in Percent)CountryExportImportTradeChina5%11%8%EU 253%19%10%India6%8%7%Japan20%8%15%US1%7%3%

Source: UN COMTRADE Database, 2010

In 2006 China overtook Japan to become Iran’s largest trading partner and trade has grown from US $ 3.1 billion in 2001 to US $ 27 billion in 2008. Currently Iran is China’s third largest source of imported oil. Both sides are mulling the possibility of extending the proposed Iran Pakistan gas pipeline to China. Thus, China’s economic relations with both sides of the political divide in the Gulf region are very robust.

China has used mutually beneficial economic instruments to embed itself firmly in the region and there cannot be a better basis for a stable, strong and sustainable relationship.

China has not sought a political role for itself in this region. Nevertheless, to project itself as a responsible player in the region, China has supported all Western initiatives from the Madrid Peace Conference onwards towards finding solutions to the Israeli Palestinian imbroglio and has not tilted against Israel as most Third World countries, including China itself had done in the past. In an unusual move, China increased its peacekeepers as part of the expanded UN Force in Lebanon from 200 to 1000 as a clear political favor to the West. A new assertiveness is evident by China deploying warships, rather far from its own region, off the coast of Somalia and in the Arabian Gulf for the first time in early 2010 and has unilaterally become a part of international efforts to combat piracy in this region.

The adverse fallout of post 9//11 US policy in West Asia has handed China a golden opportunity to burnish its presence and to strengthen its non-economy related relationships and influence in the region. China has taken full advantage of the flip side of US policies to undermine America’s influence while greatly enlarging its own shadow over the region. China has concentrated on proactively building its relationships bilaterally with all countries of the region on the basis of non interference in internal affairs, equality of status, mutual respect and mutual economic benefit without taking sides in intra-regional or bilateral disputes and without offering prescriptive advice to rulers of the region. China has taken great care to avoid directly confronting the US and consciously desisted from any overt competition with the United States in this region. However, by becoming Iran’s international patron in chief, China has very cleverly enabled Iran to move even more self confidently on its chosen path of sabotaging the success of US policy objectives in the region. Iran’s relationship with China is Iran’s best bilateral relationship by far with a major power. On their part, over and above the energy factor, amidst growing disillusionment with US policy in the region, while maintaining and even strengthening the traditional security relationship with the US, the top leaders of the countries of the Gulf region have started publicly articulating their deep interest in expanding their relationships with China in a multi faceted manner. Though there has been much criticism in this region, though palpably diminishing in more recent years, relating to the Kashmir issue and the ostensibly discriminatory treatment of the Muslim minority in India but China has not been subjected to anywhere near such harsh criticism vis-à-vis the Uigher issue in Xinkiang.

The four most significant countries of the West Asian/Gulf region are Iran, Israel, Saudi Arabia and Iraq (though semi paralysed now, it was the region’s most powerful country in Saddam’s time and will inevitably rise again). Except for belonging to the same region, they have nothing in common in terms of strategic objectives and in fact each of these four countries has significant problems with the other three. China is the only country in the world that has an excellent relationship with all four of these countries simultaneously. This is a remarkable achievement and the ultimate testimonial to China’s spectacularly successful diplomacy in this region. Having made conscious policy choices not to get directly involved in regional politics China has, nevertheless, become a very significant player in the region.

As far as I can foresee, the Iran factor is the only one real contingency that may disrupt the phenomenal momentum of growth of China’s relations with the region. Given sharply deteriorating relations between Iran and its GCC neighbours, China’s close relationship with Iran could become a question mark for its relationship with GCC countries. On the other hand, as Western pressure mounts on Iran, China’s ditching of Iran, despite GCC countries being happy about that, would certainly set back any lurking ambitions that China may have of capitalizing on America’s currently diminishing standing in the region.

What are the implications of this rosy scenario for China’s Asian neighbours?

China’s rise has aroused great apprehensions amongst all its Asian neighbours. Whether countries admit it or not, there is a ‘Rising China’ induced strategic competition under way in all regions of Asia whether it is Central Asia, Northeast Asia, Southeast Asia or South Asia between different sets of players, involving both regional and non-regional countries. In this regard, West Asia, and in particular the Gulf region thereof, stands out as being starkly different from the rest of the Asian continent. There is absolutely no fear of China in this region. Asian countries are not involved in the geopolitics of this region and hence there is hardly any possibility of any China-related strategic competition between Asian countries in this region. Also, the nature of the competition for energy sources under way between China and other oil importing countries in other parts of the world is virtually absent in this region. The growing pressure to meet competing requirements of oil and gas of the major Asian importers will cause concern but the nature of how that competition would be handled is once again likely to be qualitatively different from the strategic competitions currently taking place in other parts of Asia or the world. The fact is that amongst Asian countries, China is indubitably continuously gaining increasing strategic clout if not ascendancy in the region.

India itself has a rather high standing in the region in a unique way. It will be evident from what I have said in the Annexure part of my Paper that India has a relationship with this region which is very different from that of any other country and which simply cannot be replicated by any other country. The fact is that India does not have to compete with any country for a meaningful long term relationship with this region because, strange as it may sound, there is no relationship in the world anywhere (the only possible comparison that I can think of is between the US and Canada) which can compare with that between India and this region simply because it is natural – it has evolved naturally to the present stage of its own accord dictated by compulsions of evolving ground realities and will continue to do so unless someone is out there to willfully attempt to destroy it.

At some point in the future, as China and India continue to rise and as Western presence and influence inevitably declines, and as India’s dependence on the region’s oil and gas becomes even greater than China’s, an overt competition between China and India may emerge but is not inevitable. Talking about Sino Indian relations, India’s leaders are very fond of tirelessly repeating that that there is enough space in the world for both China and India to grow and live harmoniously. In the real world this sentiment is only applicable in the Gulf region and nowhere else in Asia. In fact, this is the only region in Asia in particular and the world in general where China is not consciously and deliberately trying to do India down or to keep India out, at least for the present. China’s increasing profile in the Gulf region is not threatening for India or Indian interests. However, India is the only Asian country that can meaningfully contest China in this region should it ever become necessary and it will not be a contest between unequals.

Annexure – India and the Gulf

India shares with the GCC countries socio-cultural commonalities and compatibilities, geographical proximity and continuous and close people to people interaction ever since history began. Islam came to South India soon after this great religion emerged in Arabia through traders and today India has the world’s third largest Muslim population in the world.

As far as the contemporary scenario is concerned, the 6 GCC countries collectively constitute India’s largest socio-economic partner in the world as manifested by 6 sets of facts:

– Almost 6 million people from India live and work in the GCC countries and constitute about 39 % of the total expatriate population in the GCC countries, constituting the largest chunk of Indian nationals abroad in any particular region. Indians constitute the largest expatriate group in every GCC country. The proportion of Indians amongst the overall expatriate population in GCC countries has increased steadily over the decades as compared to other nationalities, thus making Indians the foreign nationality of first preference in this region. This clearly exhibits a sense of confidence in India and Indians. For a democracy, the welfare and security of this huge Indian population is an enormously important factor in domestic politics; those who know ground realities in the GCC countries, know very well that the day to day functioning of the region will simply collapse almost irretrievably if there is a major disruption in the continued stay of Indians in large numbers. Virtually every Gulf family has a personal Indian connection. Indian cuisine, social conservatism and other Indian customs and the Bollywood factor contribute to strengthening the very strong people to people bonds.

– India’s trade (oil and non-oil) with GCC countries at US $ 120 billion during April 2008-March 2009 outstrips the financial volumes of trade ties that India has with any other region of the world. In the calendar year 2009 UAE was India’s largest trade partner pushing China and the US into 2nd and 3rd places respectively with Saudi Arabia being the 4th largest. India is amongst the top 5 trading partners of GCC countries. The other four major trade partners of the Gulf countries – the EU, the US, China and Japan – are all major global trading entities and therefore their high ranking is understandable. However, India ranks relatively lower amongst the world’s leading trading nations and, therefore, the statistic of GCC trade with India underlines the enormous significance of the bilateral trade relationship for both sides. And, it is growing very rapidly and India will overtake some of the higher ranked countries sooner rather than later.

–  India has if not the second, certainly the third largest Muslim population in the world. As the GCC region is the heartland of Islam this fact provides another and particularly significant element of connectivity particularly in the context that fundamentalism is an extremely worrying element for both sides.

– India’s hydrocarbon imports from the GCC countries as a proportion of its total hydrocarbon imports are the highest as compared to the proportion of any other major power’s hydrocarbon imports from GCC countries – 70%, and if Iran and Iraq are added, 80%. To provide another perspective –  the world average per capita oil consumption is 4.66 barrels, US 25 barrels, South Korea 16 barrels, China 1.8 barrels and India only 0.9 barrels. The Indian economy is growing rapidly and will clearly need increasingly larger energy imports. Since the main source (Gulf region)  and a market (India) constantly increasing in size are next to each other geographically, much closer than any other source or market for either side, India’s needs and imports from the Gulf region are almost certainly going to rise very significantly.

– These realities underlie another significant fact that flight connections between India and GCC countries are almost 50% of the total flight connections between India and the rest of the world put together.

Despite this background, in contrast to most world powers, India has never sought domination or influence, either politically or territorially, or in the economic and natural resources domains in this region at any time. Such a record cannot be matched by any major power in the world.

This current mutually beneficial and rather satisfying relationship has evolved incrementally over the decades but largely in an ad hoc manner, without being driven by any conscious vision or even sustained effort on the part of governments on either side. Another, and perhaps even more surprising facet of the evolution of this relationship is that it has overcome factors which would normally be considered virtually unsurpassable roadblocks – the ideological impediments of the Cold War era when India and the GCC countries were on opposite sides of the geopolitical divide; the enormously negative and extremely important Pakistan factor; since 1992 the Israel factor also; and, in more recent years, the Iranian factor beginning to raise its head too. From the Indian perspective elements of concern have been the public stance adopted by Gulf countries in the OIC in relation to Kashmir and the organisation’s pronouncements on this issue; significant financial assistance for Pakistan’s arms acquisition programmes; and, the large scale funding from the Gulf region of various entities, old and new, in India leading to a phenomenal upsurge of locally assertive activism of these entities which has manifested itself in a manner that arouses legitimate political and security concerns in India.

These facts exhibit that pragmatism has quietly trumped both ideology and supposed special relationships thus underlining a unique compatibility which highlights multi-spectrum mutual dependence, on the one hand, and symbiotic synergy, on the other, between GCC countries and India. India’s approach has been to build on complementarities and not allow negative factors to cloud its policy horizon. India is unlikely to take the initiative but the stage has been reached where India is likely to respond positively to requests for security and defence cooperation from Gulf countries.

(Presentation made by Amb Ranjit Gupta, IFS (Retd) at at a National Seminar on China organised by the Center for Asia Studies, Chennai Centre for China Studies and Indian Centre for South Asian Studies at Chennai on 17 December 2010. This will be a part of the edited volume on the Seminar being brought out soon by the convenors of the seminar mentioned above.)

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