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n a notable update from the International Monetary Fund (IMF), China’s economic prospects have brightened, with the IMF revising its growth forecast for the Asian giant. The IMF has increased the 2023 GDP growth projection from 5% to 5.4%, attributing this adjustment to China’s robust post-COVID-19 recovery. However, there is caution in the air as the fund anticipates a deceleration in the following year.

The report, released on Tuesday November 7, indicates that China’s GDP growth may temper to 4.6% in 2024. This expected slowdown stems from persisting frailties in the nation’s property sector coupled with a reduction in external demand. Despite this, the outlook remains more optimistic than previous IMF predictions, which anticipated a growth rate of only 4.2% as per the World Economic Outlook issued in October.

A key factor influencing the IMF’s revised forecasts is China’s strategic economic decisions, including the authorization of a one trillion-yuan (equivalent to RM640 billion) sovereign bond issuance. This move, along with the permission for local governments to utilize a portion of their 2024 bond quotas ahead of schedule, is designed to inject vigor into the economy.

Revised projections

IMF’s First Deputy Managing Director Gita Gopinath underscored the significance of recent economic data and policy measures in shaping these revised projections. “We have raised our growth forecasts for both 2023 and 2024 by 0.4 percentage points compared to our October projections,” Gopinath explained, highlighting the unexpectedly strong economic performance in the third quarter and the introduction of new policy support.

Looking forward, the IMF foresees a gradual decrease in China’s growth rate to about 3.5% by 2028. This moderation is attributed to challenges such as diminishing productivity and the demographic impact of an aging population.

Gopinath, while addressing Reuters, stressed the need for comprehensive policy interventions to bolster the property market and to facilitate a speedier and more cost-effective recovery.

Gopinath elaborated on the necessary policy measures, which include expediting the withdrawal of unsustainable property developers, easing housing price adjustments, increasing central government funding for housing completion, and supporting viable developers in restructuring their finances to adapt to a contracting property market.

A critical juncture for China’s economy

This IMF announcement comes at a critical juncture for China’s economy, which has been implementing a suite of measures to support its property sector. The hope is that with targeted and effective policy packages, China can navigate through the current economic headwinds and sustain its long-term growth trajectory.

China should also develop a comprehensive restructuring strategy to reduce the debt level of local government financing vehicles (LGFVs), she added.

LGFVs were set up by local governments to fund infrastructure investment but now represent a major risk to China’s slowing economy, with their combined debt ballooning to roughly $9 trillion.

“Improvements to local governments fiscal transparency and risk monitoring are necessary to prevent new vulnerabilities emerging, Gopinath warned, noting “financial stability risks are elevated and still rising.”

Sources: Reuters and Business Today

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The world’s second-largest economy is currently struggling with deflation for the first time since 2020. Last month, China reported that its consumer prices fell to 0.3% with a 4.4% year-on-year drop in producer prices. This comes as a surprise as the rest of the world is grappling with inflation.

While lower prices may sound attractive to the ordinary consumer, economists warn that deflation may be the tip of a horrible iceberg. Economists perceive deflation as a bad economic sign, which should be reversed immediately.

Why is China struggling with deflation in the first place? What are the implications of its current economic situation? And, will China become the next Japan, in terms of economic recession?

The effect of COVID-19 on the Chinese public

In 2020, the U.S. and UK governments enacted aid programs known as “social security nets.” The programs aimed to relieve some of the economic hardships that came with COVID-19.

In March 2020, the U.S. government introduced its Economic Security Act, known as the “CARES Act.” The act provided “economic impact payments” of up to $1,200 per adult and $500 per child. In December 2020, the COVID-related Tax Relief Act authorized additional payments of up to $600 per adult and per child for eligible individuals. Similar aid programs were also applied in 2021 to help homeless, poor, and unemployed Americans adapt to the economic fallout.

Similarly, in March 2020, the British government announced that it will help pay the wages of millions of workers across the country. Rishi Sunak, the Chancellor of the Exchequer and Second Lord of the Treasury at the time, declared that the government would pay up to 80% of workers’ wages if companies kept them on their payrolls. Sunak said that the government’s aid was a national effort to protect jobs from the economic turmoil of COVID-19.

These actions ultimately intended to prove to citizens that they were not alone in the economic crisis. However, that wasn’t the case for Chinese citizens. Although the Chinese economy is one of the strongest in the world, China has one of the weakest social safety nets among developed nations. The Chinese government handled the COVID-19 crisis with one of the harshest approaches, known collectively as the “zero-COVID” policies: cities were forced abruptly into lockdowns and people were forced to stay indoors. In some cities residents were not allowed outdoors except for COVID-19 tests.

This affected the employment of millions of Chinese people and led to mass unemployment. In March 2020, the beginning of the pandemic, it was estimated that 80 million Chinese workers became unemployed, causing people suddenly to lose the source of income that covered their living expenses. Meanwhile, the Chinese government only provided aid to 2.3 million people. As a result, 77.7 million people were left to fend for themselves financially during the pandemic.

The economic behavior of Chinese consumers after COVID-19

Unfortunately for the Chinese public, the government did not effectively help citizens overcome the economic crisis. Instead, government efforts were directed towards industrial manufacturing activities. As a result, when lockdown measurements were lifted, the Chinese decided to save their money instead of indulging in what is known as “revenge spending.”

Revenge spending is a term used to describe the tendency to spend more money than usual after a period of restrain or financial struggles, such as the COVID-19 pandemic. This is what happened in countries like the U.S. and the UK, and this is what China was also hoping for after the pandemic; however, the Chinese public preferred to save its money instead.

The public’s frugal spending led to the deflation of commodity prices, as the demand for such items was not high. In the first half of 2023, the savings of Chinese families in banks were reported to have increased to ¥12 trillion, equivalent to $1.7 trillion. Families typically would spend this money on daily expenses or real estate. This has changed as a result of the suffering real estate industry after COVID-19.

Since 2021, the Chinese real estate industry has been drowning in increasing crises. On August 8, 2023, Country Garden, the largest real estate developer in China, announced that it would not be able to pay its two-dollar bond coupons on time, totaling $22.5 million. The announcement led Chinese consumers to choose to save money rather than invest it, causing a decline in the overall real estate prices—a problematic development given that real estate accounts for 30% of China’s GDP.

A vicious cycle

The Chinese government understands the risk of declining real estate prices and has prohibited developers from reducing real estate prices despite their debt which currently stands at ¥13.6 trillion. The government is aware of the panic the deflation has caused among consumers.

The problem of the Chinese economy is reflected in two factors: unemployment and the “deflationary mindset.” China’s youth unemployment rate, which official resources estimate to be around 21%, is among the highest in the world. The unemployed cannot afford to get married, let alone buy real estate. This, in turn, affects the spending behavior on other commodities such as household products, which are also in decline. As a result, companies engage in competition to lower prices in order to attract consumers.

On the other hand, when prices keep dropping for a long time, a “deflationary mindset” makes an appearance in society. This refers to the idea that when prices continuously decline, consumers restrict their spending in the hope that prices will continue to drop and they can get the product for an even cheaper price in the future.

While this may sound like good news for the consumer, it is terrible news for the economy. The deflationary mindset can lead to huge company layoffs as price drops will affect their marginal profit and lead to an inability to finance their workforce. As a result, in the long run, the Chinese public will not profit from the current deflation.

Who will be affected by the deflation in China?

 The international demand for Chinese products has declined in recent months, resulting in a decline in the rate of exports as well. For example, in July, Chinese exports fell by 14.5% year-on-year, which is the largest decline in Chinese exports since February 2020 and the third consecutive monthly decline.

China hoped that domestic consumption would help make up for the decline of exports. However, the Chinese public seems to be unable to forget the experience of COVID-19 and at the moment, is preferring to save money. Even price wars are not able to change the current Chinese economic behavior. For example, Nanchengxiang restaurants in Beijing offer breakfast for just ¥3, which is less than $1. Such competitive offers have failed to reverse the deflation, which combined with the unemployment rate, is considered to be the Chinese economic miracle’s newest nightmare.

Internationally, the effect depends on the situation of individual countries. For instance, oil-producing countries would be negatively affected because of the decreased Chinese demand for oil and natural gas. Conversely, countries with a weak domestic production would benefit from the deflation in the prices of Chinese products.

The deflation that China is currently experiencing is reminiscent of the prolonged Japanese economic decline that began 25 years ago. While it is too early to say whether China will follow in Japan’s footsteps, it is an alarming possibility if the current deflation doesn’t turn into economic growth soon.

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hina’s lending practices towards developing countries under the Belt and Road Initiative (BRI) have come under heavy criticism from the U.S., which has dubbed it “debt trap diplomacy.” China’s critics argue that it is causing unsustainable debt by financing mega-infrastructure projects whose economic viability is not guaranteed.

Again, according to its critics, some of the implications of the BRI appear to be that Chinese loans will eventually cause developing countries in the Global South to default on their debts, allowing China to take control of strategic assets such as ports, railways, power stations, etc.

China rejects such discourse, claiming that it is criticism invented to discredit it. Referring to the BRI, China portrays itself as a benevolent development partner of developing countries in the Global South.

China argues that its development finance has created a niche for developing countries that lack sufficient national savings to finance their own development investments. The ease of borrowing compared to Western institutions such as the World Bank and the International Monetary Fund (IMF) strengthens China’s international reputation.

In fact, China has become the “lender of first resort” for developing countries in the Global South. China emphasizes its role as the largest contributor to the Global South and temporarily suspended interest payments to developing countries canceling 23 interest-free loans to 17 African countries during the COVID-19 pandemic.

Brad Parks, executive director of AidData at William & Mary’s Global Research Institute in Williamsburg, Virginia, told AP News that China’s interest-free loans to Africa were mostly from two decades ago and amounted to “less than 5% of the total” loans it has given to Africa. In addition, Harry Verhoeven, a senior research scholar at Columbia University, told Voice of America that China has forgiven the 23 interest-free loans to African countries in order to counter the West’s debt-trap diplomacy discourse.

How China’s development finance works 

Between the 1950s and 1970s, due to the Cold War context, China’s aid was based on the strategic purpose of funding sympathetic movements and governments. From the 1980s onwards, its development finance started to undergo a paradigm shift that prioritized China’s own economic development. In the newly emerging paradigm, China’s development finance rested on export credits and loans tied to the global expansion of state-owned enterprises (SOEs). The China Development Bank (CDB) and the Export-Import Bank of China (China Exim Bank) became the pioneering development financiers within this process. SOEs financed developmental investments overseas to stimulate external demand for Chinese goods, services, and capital within the framework of the BRI in a profit-seeking manner. The scope of overseas financing by SOEs covers the construction of railways, ports, and power plants.

What differentiates Chinese loans from those of the West and international organizations such as the UN, the World Bank, and the IMF are as follows:

Chinese SOEs’ financing often begins with Chinese SOEs lobbying the government of developing countries to provide finances for the developmental investments and win the relevant contracts.

China’s SOE-led development finance proceeds through the developing countries’ pursuit of finances to materialize their developmental investments, which contrasts with the conventional approach by the West and international socio-economic institutions which remain simple donors.

An article by Chatham House has argued that the loose governance of overseas financing by Chinese SOEs and banks has created a set of flaws such as closed tendering which are the result of the lobbying activities of Chinese SOEs for overseas projects initiated by developing countries’ governments. The article also claimed that the interplay of Chinese state-owned enterprises’ commercial interests and the policymaking of the political elites in recipient countries makes project viability assessment problematic.

Chinese loans vs. Paris Club’s loans

China’s loans have higher interest rates with shorter grace and maturity periods compared to concessional loans by the World Bank and the Paris Club which makes Chinese loans harder to repay. The Paris Club (or Club de Paris), established in 1956, refers to an informal group of creditor nations whose main objective is to find solutions for various debt repayment issues faced by debtor countries.

In order to mitigate the risk of default posed by the high-interest loans, in some cases, China opts for the collateralization of assets. In Southeast Asia, the Global Career Development Facilitator dataset detected 54 collateralized debt-financed loans, approximately 95% of which was allocated to strategic sectors such as energy, mining, transportation, and communication. What is more, Brad Parks, executive director of AidData, has also discovered that Chinese state-owned enterprises were including clauses in some contracts that required borrowing countries to deposit U.S. dollars in secret escrow accounts. Thus, China’s risk mitigation strategy for debt-financed foreign loans has given rise to the Western-orchestrated discourse of “debt trap diplomacy.”

China often channels its loans to developing countries through Chinese SOEs, joint ventures, and banks, keeping them off government balance sheets. The country’s development finance relies on the commercial interests of SOEs, with government-to-government loans accounting for a small share of Chinese lending.

AidData has revealed that China does not report half of its loans to developing nations in debt statistics. The commercial contracts by Chinese SOEs with the governments of developing countries include confidentiality clauses, precluding borrowers from revealing the content.

Configuration of Chinese loans to the Global South

China’s debt-financed loans heavily outweigh aid-financed loans. Figure 2 demonstrates the configuration of China’s foreign loans to developing countries in Southeast Asia. The findings are in line with the Organization for Economic Co-operation and Development’s definition of flow types, namely “official development assistance” (ODA) aid and “other official flows” (OOF).

The drastic change in the aid-debt ratio that started in the early 2010s reflects China’s tendency to provide loans with high interest rates at the market level rather than aid with either zero or concessional interest rates. China’s rising debt-financed loans relative to aid-financed loans to developing countries also coincided with the introduction of the Belt and Road Initiate in 2013. This fueled the Western perception of China pursuing a grand strategy of economic statecraft in the Global South.

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hinese President Xi Jinping’s visit to Riyadh last week marked the opening of a new period of bolstering Sino-Gulf relations that have already been on the rise. In his keynote speech, Jinping underlined five key areas of cooperation: energy, finance and investment, science and technology, aerospace, and culture. Solidarity, collaboration, and common prosperity have become the main characteristics of Beijing’s official discourse in explaining the prospects for this visit to the region.

For the Gulf Cooperation Council (GCC) countries, which host their biggest international commercial partner, Xi’s official visit will bolster areas of cooperation while mitigating any areas of contention. Traditionally, Sino-Gulf relations remained primarily confined to economic cooperation. However, this partnership could well develop beyond that even if Beijing has a long way to go to counter the entrenched American presence in the region.

Economic cooperation as a gateway

Beijing has long been accustomed to relying on economic cooperation to achieve a larger influence in its investment landscape. For instance, the Belt and Road Initiative (BRI) created lucrative business opportunities for China while functioning as a soft power instrument. Bolstering economic cooperation to reach common prosperity is the most commonly used theme by Chinese policymakers. Predictably, President Xi Jinping used the same rhetoric to woo the Gulf region.

China and GCC are inevitable partners in commerce. The bilateral trade volume reached $232.1 billion in 2021. The joint statement underlined that both sides would further develop ties in finance, investment, energy, and technology. During the first days of the visit, approximately $29.3 billion worth of trade deals and a memorandum of understanding for BRI investments were signed.

It seems that China-Gulf relations will gain momentum in the economic field, and China will diversify its engagement in multiple areas. Another sign that economic cooperation paves the way for more Chinese influence is that Xi Jinping highlighted the priority of Yuan settlement for gas and oil transactions. These could be the first steps into lessening petrodollar hegemony in the Gulf and a major sign of defiance towards Washington.

A delicate equilibrium

Although China views the Gulf primarily from the prism of economic cooperation, this complex relationship will need more than money to develop into a strategic alliance. In this context, there are two delicate balances to be maintained. First, China needs to calibrate its relations between Saudi Arabia and Iran. The former is its largest trading partner within the GCC, and the latter has long-standing economic and military ties with Beijing. Incidentally, Tehran and its proxies continue to represent a major security menace for the Saudis.

Already Tehran expressed resentment towards Beijing’s charm offensive in the Gulf, depicting it as a “betrayal”. The islands of Greater Tunb, Lesser Tunb, and Abu Musa, which Iran occupies, were mentioned in the joint statement in the context of seeking a peaceful resolution. These islands remain the subject of heated disagreements between Iran and the UAE. Unsurprisingly, the Iranian official news agency did not translate this part of the statement in its report about the GCC meeting, and Tehran summoned the Chinese envoy, revealing Tehran’s uneasiness vis-à-vis the Chinese rapprochement with the Gulf countries.

The second is the GCC’s own balancing act between China and the U.S. The Saudis aspired to use the recent summit as a bandwagon to get the GCC behind its policies. By doing so, Riyadh presented a facade of Gulf harmony while sending key foreign policy messages. However, beyond the veneer of unity, existing disagreements in the Gulf continue to hinder Riyadh’s aspirations.

The UAE, for example, was underrepresented during the recent GCC-China summit held in Riyadh. This is not a good omen and could indicate the existence of major divergences in foreign policy approaches between Abu Dhabi and Riyadh. Therefore, a common Gulf foreign policy position towards China is not as straightforward as it seems.

China’s pivot to the Gulf

Apart from these delicate balances, the political dimension of China’s pivot to the Gulf will be decisive. Exchanging energy supplies for security has been the lynchpin of the region’s relationship with the U.S. Washington, as the traditional security guarantor of the Gulf in the second part of the 20th century, has played a vital part in entrenching this relationship. Although there is a perception that the U.S. has gradually begun to withdraw from the region, it would not be judicious to say that this withdrawal will produce a geopolitical vacuum that Beijing can fill.

There are a few impediments to such a potential posture. China has to first address its strategic doctrine which is based on the “non-interference” principle, which is normally part of the main themes governing China’s foreign policy, also known as the Five Principles of Peaceful Coexistence. Second, the U.S. has already a network of air, army, and naval bases in the region.

How could China assume a similar protective role does not seem conceivable in the near to medium term. Last, China is currently not interested to conduct such a role. In the joint statement, China stated it seeks to mutually preserve its non-interference policy in conducting diplomatic relations and prefers to avoid criticizing the internal affairs of another sovereign nation.

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he world has closely followed the latest Shanghai Cooperation Organization (SCO) summit in Uzbekistan, as leaders gave their speeches, hinting at several threats and opportunities for the current international relations. The 22nd Shanghai Cooperation Organization summit was Xi Jinping’s first visit abroad since the pandemic outbreak. The summit amplified the already existing signals of dynamism and change in the near future of international relations.

There are three apparent signals that may emerge in the short and long run with a potential to reshape international relations. First, the broadening rift within the Western bloc regarding regional and global issues. Second, the reality of interstate wars affecting international relations with several conflicts waiting to break out. Third, the emergence of an alternative source of power that has the potential for norm-setting. Turkey’s participation at the SCO summit with a special invitation from Russia, in this regard, could have potential implications for the Middle East.

Chinese president Xi Jinping highlighted the following in his speech: “Under these new conditions, the SCO, as an important constructive force in international and regional affairs, should keep itself well-positioned in the face of changing international dynamics, ride on the trend of times, strengthen solidarity and cooperation and build a closer SCO community with a shared future.” President Jinping’s central prospect for the international system is creating functional ties between states and regions in order to build a common strategy for the future.

Jinping’s visit to Uzbekistan, his first abroad visit since the outbreak of the pandemic, potentially signals a change in the international system, which is about building trust bonds that do not necessarily rely on the current set of values promoted by the status quo benefactors. This necessitates political integration with other regions and states outside of central Asia, and Turkey comes into play with a lot of potential.

There are simply two states that can set an example for the rest of the Middle East: Turkey and Saudi Arabia. As China and Saudi Arabia still need time to establish a political ground that would allow functional ties to prosper, Turkey is in a time- and cost-wise advantageous position to be approached for political cooperation.

Broadening the scope of the SCO will naturally necessitate more inclusiveness and collaboration for investment and development. President Jinping emphasized and promoted the “Shanghai spirit” with the words, “It has been shown that the Shanghai spirit is the source of strength for the development of the SCO as well as the fundamental guide we must continue to follow in the years to come.” The 22nd SCO summit finalized Iran’s membership in the organization while moving Belarus’s application to the last stage of accession.

One of the most important highlights of this year’s event was the admission of Egypt, Saudi Arabia, and Qatar to the dialogue partnership. Moreover, small countries such as Bahrain, Maldives, the United Arab Emirates, Kuwait, and Myanmar were designated as the new dialogue partners.

These countries all share a common value of not profiting from the current international system’s status quo and have been actively seeking alternatives to it. These moves bear a potential of change, especially remembering Turkey’s arguments in several UN General Assembly speeches that development and growth should not be confined to a selected few that manipulate the capital flow.

Chinese President Xi Jinping also alluded to this by saying, “Obsession with forming a small circle can only push the world toward division and confrontation.” This argument almost identically twins Turkish President Erdoğan’s central critique of the Bretton Woods system that has been governing financial and commercial relations for the last three decades. It is obvious that Jinping promotes collaboration and delegation of responsibility to the regional security complexes instead of unipolar and superpower-centric international systems.

International relations scholarship reveals through several studies that multipolar systems and robust security complexes help political and economic integration prosper. One of the unique examples of this has been the European Union since 1992.

The Shanghai Cooperation Organization is another integration project that resembles the EU from several perspectives. Both procedures promote economic integrity with the support of political integration for a regional sense of unity that prioritizes the region’s interests rather than those of the states.

The Chinese quest for higher political integration might facilitate decisions like banning foreign military camps in East Asia or facilitating a demilitarization process which will allow international trade and development in East Asia and the Middle East to prosper.

The main idea behind materializing the Turkish-Chinese rapprochement would be about the search for alternatives to the current economic models and stigmatization in the international system that have caused all of the miseries we have witnessed since the 1980s.

China is ready to take a step further and broaden the scope of its integration strategies. This, in turn, may encourage Turkey or other states in the Middle East and East Asia to be the pioneers of change in their region.

China-Lithuania relations reached a breaking point in July 2021 over Lithuania’s decision to allow a Taiwanese representative office to open under the name of “Taiwan” in Vilnius. The de facto embassy officially opened in November of the same year.

This move was received by China as an attack on the “One China” policy. Only 15 nations have formal ties with Taiwan, while most others have informal relations with the country through trade offices under the name of “Taipei” to avoid conflict with China.

As a result, Lithuania was hit by sanctions like never before by China. These Chinese sanctions were “unconventional” and included Lithuanian exports, EU products containing Lithuanian parts, as well as raw material imports from China.

China downgraded its diplomatic ties with Lithuania and recalled its ambassador in August 2021, and three months later, its consular services were suspended until further notice. Last December, the Lithuanian embassy in China was shut down.

Earlier this year, Lithuania’s president Gitanas Nausėda stated on news radio Ziniu Radijas that the name of the office was a “mistake” and that the nation is now dealing with its consequences as both Lithuanian companies and European companies that procure parts from Lithuania express concern.

Tit for tat?

High-tech and infrastructure are issues of repeated dispute between China and Lithuania. In September, Lithuania’s Defense Ministry had urged consumers to dispose of their Chinese phones. The statement came after its National Cyber Security Centre prepared a report assessing the security of 5G technology mobile phones sold in Lithuania. It found that Xiaomi mobiles had a built-in censorship feature that could be activated remotely, and that Huawei’s devices had cybersecurity issues including data leakage.

Both companies have denied these claims. In 2019, Lithuanian intelligence made allegations that a Chinese company had been spying on Lithuanian individuals, with the Chinese Embassy considering these allegations “totally unacceptable.” In May of the same year, the Lithuanian Parliament had voted to ban “unreliable” manufacturers from the electronic communications market including China’s Huawei.

The legislation required high-technology companies to act in compliance with national security interests. In Huawei’s case, Lithuania’s military intelligence stated that Chinese law required companies to share information with the government. The decision came after a suggestion from the chairman of Lithuania’s Parliamentary Committee, Laurynas Kasčiūnas, who stated that manufacturers from “non-democratic” countries should be identified and that Lithuania would not be part of the “China-controlled technosphere.”

China, Russia’s invasion of Ukraine, and Lithuania

As an ex-Soviet nation, communist regimes have a negative connotation for Lithuania. Therefore, it advocates a tougher stance against Russia and China. Especially with Russia being its next-door neighbor, the invasion of Ukraine has put Lithuania and former Soviet nations at unease.

China’s relationship with Russia and its unwillingness to condemn Russia over Ukraine paints an even more tainted image for Lithuania. The Chinese Foreign Minister Wang Yi reaffirmed on Monday, March 7, 2022, China’s position on the issue and emphasized that China’s relationship with Russia was “rock-solid.”

In accordance with its value-based foreign policy, Lithuania distanced itself from China. The approach takes principles in the constitution such as democracy, independence, and rule of law as its basis. China has been criticized over the years by Lithuania on different occasions.

Last year, Lithuania signed a joint statement with 13 countries criticizing China over the lack of transparency in the WHO’s COVID19 report. A few months later, the Seimas, the parliament of Lithuania, passed a motion condemning China for committing genocide against the Uyghurs, calling on the UN to start an investigation into the issue.

The Chinese Communist Party (CCP) views Western values as “hostile and harmful,” and associates them with China’s competition with the U.S. Following the tensions resulting from the de facto embassy of Taiwan in Lithuania, the Chinese media claimed that it is the U.S. influence on Lithuania that shapes Lithuania’s foreign policy attitudes towards China.

The article describes the Baltic nation’s strategy as “to woo and follow the U.S. and be a ‘loyal puppet’ that barks the fiercest at the U.S.’ strategic rivals in exchange for protection.”

In light of ongoing tensions between the West and Russia, China’s ally in the region, the ties between the Baltic nation of Lithuania and China are likely to remain uneasy for now.

China is setting up for a return as a superpower under Xi Jinping. By all definitions, Beijing cleverly demonstrates greater economic and political power in Asia to establish itself as a great global actor. The Chinese road to global supremacy runs through ambitious but articulate strategies like the Shanghai Cooperation Organization (SCO) and the Belt and Road Initiative (BRI). It is worth noting here that China has successfully triumphed over colonial exploitation moving from a Soviet-style Communist state to an independent socialist regime with a mixed economic system.

The mammoth economic growth over the last 70 years has allowed China to achieve great economic and political success both at home and abroad; however, this hasn’t been sufficient to ensure China a place of global leadership. Today, China is truly a global player: it is a member of the World Trade Organization (WTO) and a permanent member of the United Nations Security Council (UNSC); a factory of world products; a center of the world supply chain; and a major part of the global political economy. Yet, China is not a comprehensive power of the U.S. or the Soviet style.

Although Beijing has achieved colossal economic weight to pursue its interests abroad, it seeks more than economic power and desires to restore its lost glories known as “Chinese Dreams” and to become a superpower. Beijing’s SCO and BRI framework should be studied within this perspective to understand its grand strategy in Central Asia, an important zone of world geopolitics.

How China uses the SCO

Let’s discuss the SCO framework first. For China, the SCO has been conceptually used both as an institution and a region. Initiated as “Shanghai Five,” the necessity of the SCO became quite apparent for China by the end of the 20th century. China initiated the foundation of the first multilateral organization named the “Shanghai Cooperation Organization” in 2001.

The collapse of the Soviet Union, the emergence of newly independent states with porous borders of around 3,000 kilometers had largely worried China, which had virtually no connections with the region until 1992. This organization at times was defined by external observers such as Matthew Brummer and Richard Weitz as “the world’s least-known and least analyzed multilateral group, an OPEC [Organization of the Petroleum Exporting Countries] with [nuclear] bombs and a prospective anti-American Asian NATO.”

Shanghai Cooperation Organization was created to cater to Chinese needs for creating “New Regionalism.”

Others like Stephen Blank and Simon Tisdall have dubbed the organization as “either an ineffectual and shallow regional talk-fest or a transparent cloak for the maintenance and expansion of malignant Russian and Chinese influence in Central Asia.”

However, those who understand its significance and the process of its evolution trace its roots to Chinese initiatives taken in the 1990s. The advocators of this perception, such as Chung-Chian Teng and Niklas Swanstrom, were quick to unravel the Chinese design behind the SCO’s foundation. For them, China is the principal driver of the SCO, and the organization was created to cater to Chinese needs for creating “New Regionalism, establishing vassal relations between China and Central Asia or as geopolitical maneuverings.”

Scholars like Shirley Z. Yu have put forth the notion that the world would witness a paradigm shift in three decades and have attributed this to the successful operation of the BRI. In 2018, Yu wrote that the “BRI will serve as the transitory grand strategy between 2013 and around 2050 when China reaches its modernity according to Chinese President Xi Jinping’s ‘Two Centenaries Plans’, China would govern the world with its version of world order and will establish a Sino-centric world i.e., Pax Sinica.”

China needs to develop strong regional leadership with the help of its political relations with Central Asian states.

For that, China needs to develop strong regional leadership with the help of its political relations with Central Asian states and the economic infrastructure Belt and Road Initiative as a mechanism to assert its position abroad and influence on a global scale.

Therefore, it is obvious that the Chinese observers are busy providing a very rosy picture of the Chinese Belt and Road Initiative as announced by Xi Jinping at Nazarbayev University in Kazakhstan in 2013 depicting the “Belt” as the land trade route connecting China with Central Asia, Russia, and Europe, and the “Road” as the maritime route via the Indian Ocean and the western Pacific.

To be precise, unrest in China’s western province Xinjiang and its bordering with the Islamic republics of Central Asia, which are rich in oil and gas; the vacuum created in the region with the retreat of Moscow; and the military withdrawal of Washington from Afghanistan prompted the Chinese to come up with a developmental strategy through which they can address the country’s core concerns of threat of terrorism, instability in the wider region, and effective exploitation of the regional hydrocarbon resources.

In a nutshell, the BRI can be viewed as China’s geopolitical power play under President Xi rather than an economic and infrastructural development project. By pumping massive money to attain geopolitical advantages for Beijing, this initiative is intended to influence the emerging world market, to secure energy resources, to promote the Chinese currency, to create a Sino-centric Asian order, to counter other great powers’ influence, and to strengthen ties with neighboring countries.

As far as Sino-Russian cooperation in Central Asia is concerned, it is merely symbolic and largely U.S.-centric. The cooperation is, in fact, governed by the spirit of “the rival of my rival is my partner.” Although Sino-Russian collaboration through two non-western cooperative initiatives like the Eurasian Economic Union (EAEU) and the BRI have overshadowed the American influence in the region, the unprecedented rise of China in the region has certainly unsettled Moscow in its hinterland. Central Asia was the backyard of Russia until the arrival of China, and Moscow enjoyed enormous strategic advantages from this arrangement.

The Sino-Russian cooperation in Central Asia is merely symbolic and largely U.S.-centric and is governed by the spirit of “the rival of my rival is my partner.”

But with massive Chinese economic investments and integrative infrastructure projects making inroads into Central Asian countries, Moscow slowly but steadily has started losing ground in its so-called near abroad. In fact, China’s Belt and Road Initiative has strengthened Beijing’s position in Central Asia and unprecedentedly improved its rule-making ability in the region.

China is moving forward under the leadership of Xi Jinping with the “Chinese Dream” as its thrust to establish an ever-stronger Chinese nation characterized by wealth and power in military terms. The Chinese agenda of a Sino-centric Asian order on the premise of “Two Fronts and One Circle” will definitely irk Russia if not now very soon.

Amid escalating tensions between Moscow and the West over Ukraine, Russian President Vladimir Putin paid an official visit to China to finalize the negotiations over a new $80 billion natural gas agreement. On February 4, Gazprom signed an agreement with China National Petroleum Corporation (CNPC) to supply Russian gas to China via the Far Eastern route for the next 25 years, which will boost Russian gas volumes to China by an extra 10 billion cubic meters (bcm) a year.

Unlike the previous Russia-China gas agreement on the Power of Siberia pipeline, which is being built for the last five years, the new agreement does not entail the construction of an additional pipeline network. Although the Western media dubbed this agreement unexpected, the negotiations over the agreement lasted six years and resulted in the signing of memoranda of understanding in 2015 and 2017, respectively.

Russia has long aimed to capitalize on its vast hydrocarbon resources to cater to China’s increasing liquefied natural gas (LNG) demand. The agreement was signed at a time of an uneasy geopolitical situation between the U.S. and Russia over Ukraine, which prepares for the full-scale war with Russia. In this vein, it is significant that the new gas agreement was settled in euros in an effort by both Moscow and Beijing to diversify away from trade in U.S. dollars.

The de-dollarization process is a relatively new phenomenon in Russia-China trade relations, and can be seen as a move by both countries to enhance security of bilateral trade against potential U.S. sanctions. This process is more visible in the energy field with Gazprom and the CNPC mainly using national local currencies – ruble and yuan – and sometimes euros due to the current trade volumes between the EU and Moscow-Beijing. This move can also be explained by Russia’s and China’s desire to push for a greater role of their local currencies in the global financial market.

In addition to natural gas export, the new deal would boost the development of Russia’s Far East, which has remained economically underdeveloped for many years; help create more jobs; fully gasify the region; and attract additional investments.

Europe remains the top destination for Russian gas and oil as the volumes of exported energy are much higher than those exported to China.

Although the agreed extra gas volumes are moderate for China, the biggest natural gas consumer globally, Moscow seeks a deeper alliance with Beijing and to gain its political support aimed at neutralizing the Western pressure and possible new economic sanctions. The new gas deal raised concerns in Europe that Moscow would sharply divert its LNG exports to China; however, the LNG export to China will not flow through Russia’s European pipeline network. In other words, Europe remains the top destination for Russian gas and oil as the volumes of exported energy are much higher than those exported to China, and hence Moscow is unlikely to decrease the volumes of LNG to Europe anytime soon.

Moreover, China deliberately avoids any possible military confrontation with the U.S. or NATO, and relies on its rising economic power as a tool. Therefore, a possible invasion of Ukraine by Russia may result in global economic disruptions and negatively affect China’s economic stability during the post-pandemic recovery period, as well as the running of Chinese companies. However, both China and Russia have an interest in deepening their political and economic ties in an uneasy period when both are cautious of Washington’s bellicose rhetoric.

Whereas recent events, such as the Russia-China-Iran joint naval exercises, intensifying incursions of Chinese jets into Taiwan’s airspace, and the harsh Chinese statements towards Taiwan, stir concerns in Europe of Moscow and Beijing creating a simultaneous crisis in both Europe and the Indo-Pacific region so as to undermine Western influence and earn additional concessions, this scenario is unlikely under the current conditions.

In contrast to Russia, which is a declining power with a one-man rule and a stagnating economy, China has long been revising the international order through its soft power methods and existing global institutions, thus preserving its global reputation. Given this fact, it is safe to note that the Chinese army will unlikely commit a blatant violation of international law to seize Taiwan, though it definitely possesses the capacity of destabilizing regional security.

What is more, unlike Ukraine, Taiwan enjoys the paramount support of the U.S. militarily, politically, and economically, and a possible invasion of Taiwan would bring an unprecedented reaction by Washington causing severe economic, political, and security damage to Beijing. In this case, even the close alignment with Russia will not yield significant results.

China may look as a reliable partner but always remains tightfisted when it comes to taking high risks, and expresses carefully worded support for Russia. It is most likely that the Chinese will attempt to dissuade Russia from invading Ukraine, but, at the same time, the country feels comfortable with an economically weak and internationally isolated Russia. The current standoff will likely help China secure.

An article by Gideon Rachman in the Financial Times last July is a prime example of western intelligentsia’s limited understanding of China’s unhindered rise as a superpower. “Becoming a superpower is a complicated business. It poses a series of connected questions about capabilities, intentions and will,” Rachman wrote.

To help us understand what this claim precisely means, the FT writer uses an analogy. “To use a sporting analogy, you can be an extremely gifted tennis player and genuinely want to be world champion, but still be unwilling to make the sacrifices to turn the dream into reality.”

At least, in Rachman’s thinking, China is capable of being a political actor, though it remains incapable of vying for the superpower status, as it supposedly lacks ‘the will’ to make the required ‘sacrifices’.

Although I visited Beijing only once, a few years ago, I, or even any casual visitor to the Chinese capital, could attest to the powerful collective economic engine that fuels not only China but much of the world economy. While Chinese officials do not outright profess that their ultimate aim is to make their country a superpower – for, frankly, rarely are superpowers aware of the mechanisms that lead to such status – the Chinese leadership fully fathoms the nature of the challenge at hand.

Take Chinese President Xi Jinping’s speech in October 2019, on the occasion of the 70th anniversary of the founding of the Republic of China. “Over the past 70 years, under the strong leadership of the Communist Party of China (CPC), the Chinese people, with great courage and relentless exploration, have successfully opened the path of socialism with Chinese characteristics.

Along this path, we have ushered in a new era,” he said. Note Xi’s constant references to ideology, nationalism, forward-thinking and insistence on China’s central position in this ‘new era’. Xi was elevated to the status of Mao Zedong – as a ‘core leader’ in 2019 and ‘helmsman’ in 2021 – precisely due to his role in transitioning China in terms of power, politics and global prestige.

The sooner we acknowledge that China is an influential political entity that operates according to a clear and decisive political strategy, the more meaningful our understanding of the geopolitical transformation in Asia, and the rest of the world, will be.

Indeed, the sooner we acknowledge that China is an influential political entity that operates according to a clear and decisive political strategy, the more meaningful our understanding of the geopolitical transformation in Asia, and the rest of the world, will be.

Since the rise of Britain as a colonial power, thus the advent of a new world order, determined almost exclusively by western powers, the global center of power, starting in the 18th century, had shifted away from Asia and the Middle East.

Later on, starting in the mid-twentieth century, the main competition that colonial western powers had been forced to contend with came from the Soviet Union, its Warsaw Pact, and their international allies, mainly Europe’s former colonies in the Southern hemisphere.

The U.S. involvement in long wars with undefined objectives opened up unprecedented geopolitical spaces that Washington and its western allies have dominated over the course of decades. For example, the U.S. had near-total geopolitical control over much of South America starting with the introduction of the Monroe Doctrine, in 1823. The same assertion can be made about Africa which, despite the formal end of colonialism in the long-exploited continent, continued to revolve around the same western colonial powers of yesteryears. However, a noticeable shift in the West’s geostrategic influence in these regions began taking place in the last three decades.

Russia has speedily offered itself as a military and strategic ally and alternative to the U.S. in parts of the Middle East, Africa, and South America.

While the West was fighting essentially futile wars in Afghanistan and Iraq as part of the intentionally ill-defined ‘war on terror’, regional and international political actors moved in to fill the gaps created by American and western absence from their various regions of influence. Russia has speedily offered itself as a military and strategic ally and alternative to the U.S. in parts of the Middle East, Africa, and South America – in Syria, Libya and Venezuela respectively – as China moved in to fulfill a much larger economic role, branding itself as a fair partner, especially if compared to western powers.

It was not until the gradual U.S. retreat from Iraq in 2011 that Washington announced its ‘Pivot to Asia’, a new military and political stratagem aimed at offsetting the Chinese influence in the Asian Pacific region. Much of former U.S. President Barack Obama’s first term in office was dedicated to America’s political strategic realignments in the Asia Pacific.

“The United States is a Pacific power, and we are here to stay,” Obama declared in a speech to the Australian parliament in November 2011. “As we end today’s wars, I have directed my national security team to make our presence and missions in the Asia-Pacific a top priority.”

However, the American geopolitical shift may have arrived belatedly. For one, the repercussions of America’s military undertakings in Central Asia and the Middle East – as time has clearly demonstrated – were far too severe and costly to be simply canceled out by a declaration of a new strategy. Two, China had, by then, built a complex network of alliances in Asia and around the world, allowing it to cement real bonds with many nations, especially those concerned or fed up with the West’s obsession with military superiority and interventions.

According to a report published in October by the International Institute for Sustainable Development, over the last twelve years, China has been Africa’s largest trading partner. “China has created 25 economic and trade cooperation zones in 16 African countries,” the report reads, “and has continued to invest heavily across the continent throughout the COVID19 pandemic,” according to a government report about Chinese–African economic and trade ties.

In contrast, according to data published by Statista Research Department in August 2021, “after a peak in 2014, foreign direct investment (FDI) in Africa from the United States dropped to 47.5 billion U.S. dollars (from 69.03) in 2020.”

Here is precisely where many analysts go wrong, arguing, as Rachman did, that “China’s economic weight, as the world’s largest trading power and manufacturer, gives it significant political leverage internationally. […] But Beijing’s economic power is not always politically decisive”.

This limited thinking is based on the assumption that, to be ‘political’ is to follow the same blueprint used by the U.S. and its western partners in their approach to foreign policy, diplomacy and occasional wars. China’s take on politics, however, has always been quite different. According to Beijing’s thinking, China does not need to invade countries to earn the designation of a political actor.

Instead, China is simply tapping into its own historical trajectory of utilizing economic influence in its quest for greatness, and arguably, empire. The fact that the Road and Belt Initiative – a long-term strategy aimed at connecting Asia with Africa and Europe via land and maritime networks – is a modern interpretation of the Silk Road, which was a network of ancient trade routes which linked China to the Mediterranean region, is enough to tell us about the nature of the Chinese model.

After seven years of negotiations, The European Union (EU) paused a trade deal with China over a battle of sanctions and counter-sanctions.

The E.U. and China signed the fundamentals of the Comprehensive Agreement on Investment (CAI) in December 2020. The trade deal aims to guarantee a stable framework of conditions for trade and investment in each other’s markets. But to enter into force, the trade deal needs ratification from the E.U. member states and the European Parliament, where it faces vigorous opposition.

The E.U. imposed sanctions against China’s violation of human rights on the Uyghur Muslims in the Xinjiang region on March 22, 2021. It is the first time that the E.U. imposes these sanctions against China since the 1989 Tiananmen Square massacre. As a response, China sanctioned several E.U. citizens, including five members of the E.U. Parliament and E.U. human rights and security committee members. China’s foreign ministry specified that all relevant personnel and their family members will be prohibited from entering mainland China and its administered regions.

China’s retaliation against the E.U. members sparked concern among European representatives. “China’s sanctions on MEPs, the Human Rights Subcommittee, and E.U. bodies are unacceptable and will have consequences,” tweeted President of the European Parliament Davide Sassoli. But the remark over the violations of human rights on Uyghurs was anticipated by the President of the European Commission Ursula Von Del Leyen in the E.U.-China summit in June 2020, where she reiterated that human rights and fundamental freedoms were non-negotiable for the E.U.

The Chinese Foreign Ministry stated that the accusations on human rights issues in Xinjiang are based “on nothing but lies and disinformation. Moreover, it highlights that the European sanctions interfere in China’s internal affairs and undermine China-EU relations.”

Amid the battle of sanctions and countersanctions, U.S. President Joe Biden can breathe a sigh of relief over the EU-China trade deal. Following the freeze of the deal, the United States, Canada, and the United Kingdom joined the E.U. sanctioning China. U.S. Secretary of the State Antony Blinked welcomed the European sanctions by describing the coordinated sanctions as a “united transatlantic response” to those who violate or abuse international human rights.

But for the United States, the stake of the E.U.-China trade deal is much bigger than a trade agreement. Biden aims to end unilateralism and seek a united front with the E.U., Japan, and other partners in its trade war with China. Thus, the CAI could represent a serious risk to achieve his goal.

The CAI eases the market access between the E.U. and China. China will provide a higher level of access for several sectors and guarantee fair treatment for E.U. companies. Furthermore, the CAI regulates forced technology transfer by prohibiting several investment requirements that obstacle the technology transfer.

In a nutshell, the trade deal would provide companies with a much safer environment for conducting their business, especially in general manufacturing industries, the automotive sector, and financial services. If implemented by China, those CAI could advantage E.U. businesses, but it would disadvantage U.S. competitors.

Both German and French companies are among those European firms that would benefit more from the E.U.-China investment.

In the E.U., politicians and human rights activists are concerned about whether Europe should be deepening its economic ties with China. This not only because of the issues over Uyghurs but also due to China’s policy in Hong Kong and its use of mass surveillance technologies. Furthermore, E.U. diplomats and officials have also criticized German Chancellor Angela Merkel and French President Emmanuel Macron’s push to finalize the deal with China.

Both German and French companies are among those European firms that would benefit more from the E.U.-China investment. Critics also came from the European Parliament. Diplomats and members of the European Parliament criticized Merkel for rushing to finalize the deal and not focusing on the forced labor rights protection in China.

However, Merkel aligned herself with the E.U. message to Beijing speaking at a press conference at the G-7 summit held in Cornwall, United Kingdom, last week. She warned that the E.U. will only ratify its investment agreement if China makes progress on labor rights.

The United States would be damaged in the framework of an E.U.-China deal. The most beneficiary of the trade deal would be European companies due to easier access to the Chinese economic infrastructure. For its part, China would attract more investments and could place itself in a favored position.

At the geopolitical level, the United States wants to restabilize ties with the E.U. and divert European attention from the appealing Chinese economic opportunities. China made some progress in expanding its influence during the Trump administration. Thus, the E.U.-China deal would impact the Biden administration’s efforts to unify the front to increase leverage on China.

But the tension raised over the violation of human rights marks a shift in the E.U.’s policy of achieving closer economic ties with China. Also, the latest G-7 summit seems to have strengthened the relations between the United States and the European countries over China. However, the E.U. is cautious. It bears in mind and acknowledges the importance of China not only as an economic party but also as a partner in climate change cooperation.

As Biden aims to freshen up the transatlantic cooperation to contain Beijing, European countries are much more cautious to unravel the economic ties with China. The E.U.-China economic relations benefit both powers. In 2019, the E.U. was China’s biggest trading partner, while China was the E.U.’s second-largest partner. The E.U.-China trade in goods is worth around €1.5 billion a day. Moreover, the E.U.-China import-export was worth almost 500 billion in 2019, according to the E.U. figures.

China’s investments in Balkan countries that are not members of the European Union keep growing. The region remains stuck in the EU’s waiting room, as well as in the Euro-Atlantic sphere of influence, but is using every opportunity to deepen its economic, political, and, to a certain extent, cultural ties with Beijing.

The so-called Western Balkan states – all of them located in the central and southern parts of the Balkan Peninsula, not in the West – have always attracted the interest of the regional actors, Russia, Turkey, and the European Union. The United States, as the major global power, traditionally has the last say in the coal-rich region. Not so long ago, China, through its Belt and Road Initiative (BRI), has expended its partnership with Albania, Bosnia and Herzegovina, Montenegro, North Macedonia, and Serbia.

The BRI, launched in 2013 by President Xi Jinping in Kazakhstan, aims to connect Asia with Europe and Africa through major infrastructure projects, trade facilitation, financial integration, and cooperation in other areas. In the Balkans, Beijing is mostly interested in infrastructure and energy.

According to the American Enterprise Institute, China’s investments and contracts in Bosnia and Herzegovina, Montenegro, North Macedonia, and Serbia amounted to $14.6 billion from 2005 to 2019. The amount is relatively low, given the fact that the European Union still accounts for more than 70% of the overall direct investment in the region. On the other hand, China’s share in the Balkan countries accounts for only 5.7% of the overall trade in the region.

There are, however, fears that the EU could eventually lose its influence in the region. North Macedonia’s president Stevo Pendarovski has recently emphasized that if the EU appears disengaged in the Balkans, other countries would step in. “When you are absent, then the strategic void will be filled by somebody else. Everybody knows whom we are speaking about,” he said.

Back in 2017, Federica Mogherini, an Italian politician who served as High Representative of the European Union for Foreign Affairs and Security Policy, warned that the Balkans can “easily become one of the chessboards where the big power game can be played.”

The game apparently already started, although at this point the West does not force the Balkan countries to pick a side. Indeed, Washington and Brussels have mechanisms to reduce the Chinese influence in the region that is heavily dependent on the European Union. One call from the White House could easily expand the American de facto control over the Balkans, and reduce the Chinese economic presence.

The Washington Agreement, signed by Prime Minister of Kosovo Avdullah Hoti and the President of Serbia Aleksandar Vučić on September 4, 2020 at the White House, clearly demonstrates who the “real boss” is in the Balkans. The agreement committed Belgrade and Pristina not to use equipment supplied by “untrusted vendors” in their telecommunications networks.

It remains to be seen if Serbia will have to eliminate China’s tech giant Huawei completely – with whom Belgrade signed a strategic agreement in 2017 – from the ongoing installation of fixed broadband infrastructure, including the 5G network. For now, the country manages to relatively successfully balance between the West and China.

Serbia, the region’s largest economy that accounts for 44% of regional GDP, already hosts several large Chinese equity investments, most notably the Chinese Hesteel Group’s 2016 purchase of the Smederevo steel mill that was previously owned by the American company U.S. Steel. In addition, China is also involved in some huge infrastructure projects in Serbia, namely the construction of Corridor X, railway and highway sections, Corridor XI highway, as well as Kostolac thermal power plant.

The very fact that the U.S. companies operating in Serbia sold their assets to China is a clear indication that Beijing’s business in the country has Washington’s tacit support, at the very least.

Beijing also owns copper-gold assets in the Serbian town of Bor, which the Chinese Zijin Mining company purchased from the American Freeport-McMoRan Inc. in 2019. The very fact that the U.S. companies operating in Serbia sold their assets to China is a clear indication that Beijing’s business in the country has Washington’s tacit support, at the very least.

It is also worth noting that in June 2020 Serbia has publicly displayed six new military drones purchased from China. Such an action, however, did not seem to worry the United States, given that the Serbian Army has close ties with the Ohio National Guard. In addition, in 2019, Serbia, whose parliament declared armed neutrality in 2007, conducted 13 military exercises with NATO members. One of them, Montenegro, has also developed strong ties with China.

In 2014, the smallest nation in the Balkans took out a loan of nearly $1 billion from the Export-Import Bank of China for the construction of the Bar-Boljare highway that will link the Adriatic Sea and the country’s border with Serbia. The highway, which is located at one of the most challenging landscapes for building in the whole of Europe, will connect Bar, the largest coastal town and harbor in Montenegro, with the Serbian capital Belgrade.

The deal that Podgorica and Beijing signed provides a 20-year repayment period and a six-year grace period, while the first annual repayment of $67.5 million falls in July. So far, Montenegro has paid only 2% of the interest, but the country is already facing a debt crisis. Even though the Balkan state targets 2025 to be ready for E.U. accession, the bloc will not be paying the Chinese loan.

“Through its banks, China has provided the most favorable and competent loans, has offered reputable infrastructure contractors, and has given the possibility for domestic contractors as partners in these projects, allowing local enterprises to be involved,” wrote the former Montenegrin president Filip Vujanović for the Chinese Global Times.

Still, according to EU figures, Montenegro’s national debt could soar from 65% to around 80% of GDP once its loan from China is fully repaid.

North Macedonia is another Balkan state that relies on Chinese loans. Skopje has reportedly received both Chinese state bank loans and development cooperation funds. It was the first country of the “17+1” cooperation platform, formed between China and Central and Eastern European nations, to make use of the $10 billion credit line made available by China for infrastructure projects.

In the most recent session of the Boao Forum for Asia in April 2021, Chinese President Xi Jinping gave a speech in which he warned against U.S. plans of decoupling the two superpowers’ economies. Repetitively, he has voiced his concerns about the U.S. plans to undermine China’s standing in the international order. He also called for a new international order that is built by everyone and reflecting the changes in the reality of the global balance of power and economic role.

While Xi is trying to build bridges with the U.S. and the world, U.S. President Joe Biden looks keen on being more adversarial. In a recent speech at the White House, Biden touted confrontation and competition with China. He promised a $2.5 trillion infrastructure plan with the clear aim of competing with China and restoring American competitiveness as the leading global economy.

At this stage, global economic recovery post-COVID-19 will be contoured around the global reconfiguring of economic relations on a scale never seen since WWII. This will be particularly significant in the reorganization of the global supply chains which came under scrutiny since the beginning of the COVID-19 crisis as countries struggle to secure essential raw materials, vaccines, protective gears, and other commodities due to governmental policies, consequential supply shortages, and the choking of the global shipping routes and ports due to COVID-19 closures.

In the forefront of U.S.-China supply chains competition is the competition over advanced technology supply chains. As the global economy turns more digital, 5G communication networks are becoming critical to the transformation to the digital age. Historically, the U.S. built its economic supremacy on the premise of leading cutting-edge technologies and exporting them to the world.

As China grows more independent in advanced technology research and manufacturing, it is seeking to be on par with the U.S. and threatening its historical supremacy. Identifying a strategic threat, the U.S. targets China’s technology supply chains in order to undermine Chinese capabilities and to slow down its progress. To do so, the U.S. is hampering China’s 5G network and technology building efforts. It has imposed sanctions on Huawei, the Chinese tech giant, and banned its equipment use in its networks.

The U.S. gave an ultimatum to allies and pushed them to ban Chinese companies from investing in their local 5G infrastructure.

Not only that, but the U.S. gave an ultimatum to allies and pushed them to ban Chinese companies from investing in their local 5G infrastructure. India, the U.K., Italy, France, Romania, and Sweden, to mention a few, have advanced legislations banning China’s technology investments and the use of its equipment in their upcoming 5G networks.

The U.S. has also imposed sanctions on several Chinese advanced technology companies such as artificial intelligence and satellite communication companies for alleged involvement in human rights violations and industrial espionage. However, and despite the U.S. efforts, many countries remain welcoming of Chinese 5G equipment. Germany, Pakistan, the UAE, Qatar, Hungary, Saudi Arabia, and Egypt keep their doors open to working with Huawei and ZTE to build their future communication infrastructure.

Furthermore, the resulting global shortages of chip supplies are leading many prominent manufacturers of cars and technological products to shut down some of their factories as they struggle to secure necessary supplies. China did not stop at stockpiling chips, but sought to gain an edge in the chip making industry, and in 2020, it became the world’s biggest buyer of chip making tools with a total spending of $19 billion.

Fighting back against the U.S. stranglehold, China did not shy away from using its own strong position in global supply chains of rare earth metals.

Feeling the urgency to secure U.S.-based chip supply chains, to cement the U.S. position in the global supply chain of chips, and to increase the pressure on China, earlier in March, Biden called for $50 billion spending to boost the U.S. chip industry. U.S. companies were also worried and sought to find alternatives to Asian supplies. For example, Intel announced that it is set to invest $20 billion in building a plant for chip manufacturing on U.S. soil.

Supply chains of rare earth metals

Fighting back against the U.S. stranglehold, China did not shy away from using its own strong position in global supply chains of rare earth metals. As of 2019, China controlled 90% of the global production of rare earth metals used in manufacturing advanced technological products. China has mulled sanctions on U.S. weapons manufacturers in a clear expression of willingness to weaponize the supply of rare earth metals to undermine the U.S. military.

Aware of the seriousness of any potential shortages, the U.S. is actively pursuing and funding the building of local processing plants to help deal with any potential curbs of exports by China. It has also invested with allies like Australia to help de-Chinese the Western supply chains of rare earth metals. Clearly, supply chain mistrust is spreading, and interdependence is seen as a vulnerability by the two superpowers.

India attempted to take advantage of the situation and tried to steer Western supply chains away from China by offering incentives for Western businesses to move shop from China to India. These incentives included, among others, cheaper rents, land allocations, and tax deductions. The U.S. also formed the Quad group consisting of the United States, Australia, Japan, and India to steer them away from falling heavily under Chinese influence. For example, the U.S. has signed agreements with these countries to supply them with U.S. COVID-19 vaccines known as the Quad Vaccine Partnership.

On the Chinese side, the Belt and Road Initiative continues to advance, while strategic agreements are being signed with Russia, Pakistan, and Iran with the aim of positioning China at the heart of global supply chains for raw materials and shipping routes. Despite the hurdles of the pandemic, China signed a new strategic investment treaty with the European Union with the aim of improving mutual investment standards to solidify fair competition and rule of law between the two.

China also flexed its regional economic muscle during the pandemic and managed to advance the Regional Comprehensive Economic Partnership (RCEP), which is a regional free trade agreement that involves 15 Asian nations constituting a third of the global GDP in an attempt to create a regional economic bloc like the U.S. federal system.

China is also building a new global financial infrastructure. The Asian Infrastructure Investment Bank continues to grow its mandate to fund development projects across the world with China playing the key role as a funder. To counter Chinese financial engineering, the U.S. established the American Development Bank to fund private ventures and public-private partnerships in developing countries in order to regain influence from seemingly increased Chinese investment in Africa and Latin America.

Finally, the global supply chain of finance is shifting from the U.S. towards China and other powers as evident by China’s renminbi (yuan) internationalization and its drive for the de-dollarization of global trade.

China and Iran have been building an increasingly close economic, political and security partnership since the mid-1990s, when China emerged as Iran’s partner of choice for its energy projects in both the nuclear field and hydrocarbons. Iran needed a credible partner to bring on-line its long-dormant Bushehr nuclear power plant which had been in the making since the mid-1970s.

Iran also badly needed investment in its oil and natural gas fields, which had remained underdeveloped since the revolution. With sanctions continuing to bare down on Iran, its choice of partners was limited by the number of countries which would be prepared to overlook American pressure and proceed to invest in Iran and work with its leaders.

As we know, under severe American pressure, China withdrew its offer of completing Iran’s Bushehr nuclear power project in the 1990s and ceded that opportunity to Russia. But in other fields, China made efforts to develop military and economic ties with the Islamic Republic. These ties endured and once the nuclear deal (the JCPoA) came into force in January 2016, the barriers to open ad trade and investment were lifted.

The visit of Chinese president Xi Jinping at that time underlined the growing interest that China now had in broadening and widening its interactions with Iran, and of course with the other major regional states that he visited during that same trip.

Ties with Iran have become even more significant from China’s perspective, largely due to the roll out of its Belt and Road Initiative (BRI). This multi-billion-dollar series of infrastructural project straddling Eurasia and facilitating connectivity between China and inner Asia, West Asia and continental Europe, is directly dependent on the compliance and partnership of geopolitically linchpin countries such as Iran whose territories and infrastructure will create the pathways between China and Europe.

The BRI also benefits Chinese companies and businesses in providing the opportunities for these businesses to explore and capture new markets and to recycle much of China’s oversupply of materials such as cables, steel and steel products, cement and concrete and all manner of other manufactures and semi-manufactured goods. Asia’s markets and Africa’s markets have been ripe for China’s expansion and the BRI is arguably the most systematic and comprehensive tool for the creation of long-term and long-lasting connectivity between China and its wider hinterland.

Iran is a significant feature of this Chinese strategy, but is also a beneficiary of China’s interest in the Middle East. In the first instance, China’s growing thirst for hydrocarbons has resulted in convergence of interests between Iran and other Persian Gulf hydrocarbons exporters and China. With the bulk of their oil and gas, and oil products, heading East, and largely towards China, new trade and investment synergies have become more evident since the 2010s.

The BRI provides an additional layers to Iran’s urgent need to break through the sanctions, reduce its economic ties with the West, and at the same build on the growing and fast-maturing Chinese economy.

In the case of Iran, the critical energy relationship has been a lifeline against the intrusive and overwhelming American sanctions. For the Iranian authorities, China’s role has been fundamental, essentially checking the downward spiral of an already dysfunctional and weak economy.

The BRI provides an additional layers to Iran’s urgent need to break through the sanctions, reduce its economic ties with the West, and at the same build on the growing and fast-maturing Chinese economy. The ‘look East’ strategy first articulated by the Ahmadinejad administration (2005-2013) has come to form the backbone of Iran’s diplomatic strategy too, encouraging Tehran to turn Eastwards and ‘Northwards’ (Russia) since the Trump administration in order to break free of the straightjackets that the Western alliance had endeavored to keep Iran wrapped in.

And on March 28 2021, Iran finally formalized its Eastern orientation by inking the long-awaited 25-year strategic cooperation pact. Adding up to $400 billion worth of Chinese investments, this pact is set to change Iran’s political economy, and orientation of its economy away from its traditional partners in Europe, as well as possibly its place in the international order. Will Iran rise in the Jetstream generated by the Chinese economy, or will it become a vassal literally fueling and facilitating China’s growing domination of Asia?

Not surprisingly the pact has generated much commentary within Iran beyond its borders about the consequences of this for Iran’s independence, its national economy, and the revolutionary order’s fiercely defended autonomy and sovereignty. While some have interpreted the pact as a capitulation of historic proportions, akin to the disgraced the Treaty  of Turkmenchay signed with Russia centuries ago which cost Persia much of its territories in the north, others see in the pact with the world’s next superpower a strategic opportunity to hitch Iran’s wagon to the most powerful country of the next generation on the planet.

The elite see this pact as a masterstroke, which formally ties China to Iran’s prosperity and well-being.

The elite see this pact as a masterstroke, which formally ties China to Iran’s prosperity and well-being. Some in Iran see the pact in purely strategic terms, and a new line of defense against the ever-encroaching United States. The other parties with which China has cultivated closer economic ties – Saudi Arabia, the UAE, Israel, Egypt, and Turkey – have less of a sanguine perspective. For Tehran’s regional rivals in particular this pact raises questions in their minds about the wisdom of drawing closer to China when it now so openly ties its regional strategy to Iran.

And it was partly for this reason that Chinese foreign minister, Wang Yi, toured five other countries in the region during the same trip to assure them of China’s even-handedness and support for close cooperation with all regional countries. But doubts must persist when regional capitals reflect on the basis of the IRI-PRC pact in which long-term supply of discounted Iranian oil to China is to be the plank on which Chinese investments in infrastructure projects (roads, railways, telecommunications, ports, high-tech sectors of the economy, and of course in hydrocarbons) will be built.

It will be harder for the other Middle East oil exporters to easily match the (undisclosed) discounted price for oil that Iran will be providing China. Within the pact also are provisions for closer military and security cooperation, which will not only worry independent-minded Iranians but also the Islamic Republic’s rivals. A strengthening Iranian military working more closely with Asia’s largest and increasingly strongest military force and being able to draw on a wider range of Chinese weaponry is stuff of nightmares.

To provide a measure of perspective for the named ‘Iran-China Comprehensive Cooperation Program’, it may instructive to view it alongside the China-Pakistan Economic Corridor (CPEC). This project too was years in the making and was built on the long-established political and military ties between Beijing and Islamabad which were forged to counter the dominance of India. This massive collection of infrastructural projects amounting to over $60 billion of Chinese loans and investments in Pakistan since 2013 grew out of China’s development of the deep-water Pakistani port of Gwadar adjacent to Indian territory in the 2003-7 period.

The success of that project laid the foundations for the much more strategically-significant CPEC which has helped build roads, railways, electricity networks, internet facilities and mobile telephony infrastructure, urban centers, power generation plants (including solar and wind farms), and of course vital seaports which have transformed connectivity in this poor and mountainous country. Pakistan today is tightly knitted in China’s BRI and the economic corridor now provides China overland access to the Indian Ocean, firmly placing Pakistan in China’s orbit of influence.

Pakistan has largely benefited from China’s rivalry with India, so it is possible that Iran too could reap benefits from the Chinese-American rivalry, but before one reach to any conclusions it would be advisable to consider the wider geopolitical context. CPEC arguably had minimal impact on any other country bar India, whereas the Iran-China pact, worth over five times CPEC, will have ramifications for all of China’s regional and international relations and it is likely to be this dimension which will drive the partnership more than any other bilateral issues.

The beginning of the relations between China and the KRG, the semi-autonomous Kurdistan Regional Government, dates back to the toppling of Saddam Hussein in 2003. Despite this relatively short history, Beijing has significantly strengthened its economic and diplomatic presence in the region. Only in the past six months, Beijing has signed a number of multibillion-dollar agreements with authorities in Erbil.

Among them are the $210 million contract for the construction of a cement plant based in Erbil, a $5 billion project for a giant housing development and an urban tourist attraction in the city (both announced in October 2020), and a $5 billion agreement for the construction of a massive Chinese commercial center (signed in January 2021). All this, without mentioning the enormous help China provided to Erbil during the COVID-19 pandemic by supplying hospitals and the public with masks, sanitizers, and necessary equipment.

Furthermore, China is increasing its diplomatic presence in northern Iraq. Earlier, in 2014, by opening its consulate general, Beijing showed clear support to the KRG and established a solid diplomatic presence in the region. During the opening ceremony, China’s Vice Foreign Minister Zhang Ming said, “The opening of our consulate general in Erbil expresses our strong support for the political process in Iraq. It is a sign of our strong desire to further deepen and strengthen our bilateral ties with Iraq and the Kurdistan Region in various fields.” This move turned a new page in developing diplomatic relations between Beijing and Erbil.

Considering it was the time when Daesh (ISIS) was at the peak of its strength in Iraq, Beijing’s move meant China had a number of strategically important plans in Iraqi Kurdistan. Despite the aggressive and devastating interventions by Daesh in Iraqi lands, the KRG was able in a surprisingly short period of time to protect and free its territories, such as Mosul and Kirkuk, from terrorists – to a great extent as a result of having its own military forces. For many, northern Iraq was a safe area that could be defended using its own forces, independently from Iraq’s central administration.

At the same time, the KRG took control of the oil-rich province of Kirkuk and connected its oil reserves to the pipeline linking the region to Turkey. This opened a lucrative opportunity for the Kurdish government to raise its oil production to up to 450,000 barrels a day and created the ground for new Chinese investment projects in the region.

China’s non-ordinary approach to enhancing economic and diplomatic ties with the KRG during politically unstable times in war-torn Iraq is explained by Beijing’s ambitions to secure and expand its Belt and Road Initiative far beyond Iraq and the KRG. Following its non-interference policy and soft military presence in the Middle East, China is becoming an influential player in the region. Through its involvement in UN peacekeeping operations (UNPKO), China uses soft power to intervene in the international affairs of other countries, and especially Arab and African countries.

China has also been a frequent facilitator in negotiations between the Taliban and Afghan authorities. China pursues a mediation role in the Syria conflict too and aims to become a key investor in Syrian infrastructure, energy, and other industries as part of international efforts to rebuild the country.

Today, China’s strategy in Iraqi Kurdistan follows an ambitious geopolitical goal: to scale up Big Asia’s vector.

Today, China’s strategy in Iraqi Kurdistan follows an ambitious geopolitical goal: to scale up Big Asia’s vector. This refers not only to a geographical frame but also to the emergence of a new counterbalancing power against the West, Russia, and Turkey that will be led by China and Iran.

Having pursued a pro-Western policy for decades, the government of Iraqi Kurdistan is turning its geopolitical and economic compass to the East. It’s enough to recall the speech of Chancellor Masoud Barzani in 2018 to verify this claim. During the meeting with the Chinese ambassador to Iraq, Chen Weiqing, Barzani expressed his hopes that China would play “a greater role” in bringing stability to the Middle East – a role that China appears to have realized.

China, a poor country only a few decades ago, has now become a superpower with a new approach. China’s influence in the Middle East, and particularly in Iraq and the KRG, goes far beyond the economic and geopolitical dominance. Within a couple of years, China has introduced its culture and language to the region. Books about China and its leaders are being translated into the Kurdish language, while tourist spots, hotels, and even some schools in Erbil have started to provide information to visitors in Chinese, apart from English and Arabic. The famous Salahaddin University-Erbil has opened a center for the Chinese language.

However, there are several risks of letting Beijing dominate northern Iraq. One is that economic relations between the KRG and China are still one-sided. In order to avoid the trade deficit and the potential inflation crisis, the KRG has to balance the imports and exports between the region and Beijing – preferably by finding other sources of exports apart from oil.

The second risk is the internal tensions between the KRG and Iraq. Should the Chinese political approach and ideology prevail in the region, it will seize the freedoms enjoyed in Erbil with its semi-autonomous status from Baghdad, as China has always supported a centralized governance model.

Finally, the Chinese Model could impact the KRG’s economic and diplomatic ties with the U.S., Russia, and Turkey, all of whom are still very important geopolitical partners in the region. This may lead to the isolation of the KRG and Baghdad from the global economy, and to becoming cut off militarily and in terms of goods supplies.

It may also exclude KRG from international diplomatic initiatives such as the U.S.-funded media outlets aimed to promote the Kurdish language, culture, and policies (e.g. Radio Nawa) and lead to the political enhancing of ties with Russia as seen by the visit of the Kurdistan Democratic Party (KDP) delegation to Moscow to enhance Russian-Kurdish cooperation in Syria.

Yet, this scenario is – at least – for the moment unlikely as the KRG has the ability to use its soft power and to establish diplomatic ties with nations which oppose each other in the international arena.

Last year, as the Latin America reeled from COVID19 and the related economic crisis, one area of economic activity rebounded: Chinese investments in the region’s infrastructure, particularly the electrical grid of Peru and Chile. Chinese mergers and acquisitions in the region jumped from $4 billion in 2019 to $7 billion last year, with an additional $5 billion in already-announced purchases set to take effect this year. These purchases involved Chinese state-owned enterprises (SOEs) buying up assets sold off by Western investors fleeing an economic downturn.

Such a sudden boost raises the questions of why China is investing when others are leaving, and whether Latin American – or U.S. – leaders should be concerned. Recent evidence from Peru’s governance of its power sector gives encouraging signs that the region may be learning to enact and enforce the right kind of regulatory oversight to manage the relationship. U.S. leaders would be wise to understand the incentives of Chinese investors, and recognize that Latin America benefit from a diversity of partnerships, including the U.S. and China.

Why are they coming?

In 2020, Latin America and the Caribbean (LAC) suffered the worst economic downturn of any region in the world, seeing GDP shrink by over 7% and poverty jump to levels not seen in a generation. In contrast, China was the only country in the world with GDP growth, so it is not surprising that what little investment LAC saw came from China.

It is also unsurprising that the largest Chinese investors in Latin America in 2020 are SOEs. Instead of quarterly profit metrics, Chinese SOEs have longer-term goals driven not only by commercial aims but also by overarching policy dictated through China’s five-year plans. So it makes sense that when market downturns scare away Western private investors, Chinese SOEs would be willing to buy in.

During the 2008-2009 financial crisis, Latin America suffered much less than would have been expected in previous U.S. recessions, because the region still had an external partner – China – willing to invest and trade with the region.

Should LAC governments be concerned?

Chinese investors have been a lifeline for Latin American economies during past economic slowdowns. During the 2008-2009 financial crisis, Latin America suffered much less than would have been expected in previous U.S. recessions, because the region still had an external partner – China – willing to invest and trade with the region.

However, the question remains of whether LAC governments can sufficiently oversee Chinese investors. These investors have been heavily concentrated in sectors tied to environmental and social problems: mining, oil extraction, and now infrastructure. However, the recent experience of Peru in taking care with new Chinese electricity investment suggests that on this they are capable of doing so if they have the necessary political will.

Indeed, the investor-host relationship is essentially state-state, in which staying power is key. Proper regulatory frameworks are crucial: LAC governments need not fear that regulation will scare away Chinese investors, but recognize that it is a crucial tool to ender high-level social and environmental performance from these firms.

To find examples, one need only look a decade or two in the past, to the first wave of Chinese investment in LAC. In the mid-2000s, western oil and mining companies were hesitant to invest but Chinese companies – like now – were happy to step in. In Peru, Chinese mining companies arrived as the government privatized state-owned mines and Western investors were wary of these potentially-risky ventures in a newly open market. Research comparing these Chinese firms’ environmental and social performance with their U.S. and Canada-based peers showed no significant difference in labor or environmental practices.

As mineral prices cooled in the early-to-mid 2010s, LAC governments began rolling back those environmental and social protections to facilitate faster new investment projects and fill the economic gap left in the wake of the commodity boom. But the investment that came in was largely Chinese (notably including the large-scale las Bambas copper mine in Peru, owned in majority by China Minmetals Corporation). There is no evidence that loosening regulations facilitated their arrival, so governments have merely relinquished due diligence, not accelerated investment. Las Bambas has since devolved into years of local conflict over environmental and social governance of the project.

In the current wave of Chinese investment, the relevant regulatory area is market concentration. Chinese investors have arrived with such vigor into two markets in particular – electricity distribution in Peru and Chile – that concerns have arisen that the entire sector will be foreign owned, and owned by state-owned enterprises from one foreign government in particular: China. This regulatory challenge cannot be satisfied by well-performing firms. Their mere presence is enough to trigger concerns of monopoly or oligopoly. So it will be incumbent on these national governments – who have sometimes shown themselves willing to de-regulate to attract investment – to determine where the line is for them and hold that line.

Peru has shown itself willing to do so in this case, vetting China Three Gorges Corporation’s purchase of local power company Luz del Sur for several months, because the same company is involved in energy generation in Peru, through its ownership of the Chaglla and San Gabán III hydropower plants. To prevent self-dealing, which could result in price fixing and higher electric bills for Peruvian consumers, a judge ruled that Luz del Sur would be required to buy its electricity on public auction, like all other power distribution companies. This ruling is an encouraging indication that LAC governments are willing to enforce their own regulations on Chinese investors in this area.

Should the U.S. be concerned?

The arrival of Chinese competitors in Latin America has caused great consternation in Washington, DC. Former U.S. President Donald Trump took a clear stance of discouraging Latin American countries from doing business with China. But rather than stand between the two, Trump’s trade tensions with China actually propelled China-Latin America trade further, as China looked to South America to take the place of the U.S. as a supplier of agricultural products. Observers broadly agree in expecting Biden to take a more conciliatory, realistic approach to the region.

As such, it is important recognize that this new wave of Chinese investment is driven by economic incentives. State-owned enterprises simply do not face the same pressure to divest from emerging markets during downturns that private corporations do. None of this poses a threat to the U.S. or U.S. firms, who are fleeing the region at the same time. In fact, U.S. investors benefit from the fact that Chinese and U.S. business cycles do not move in parallel: when U.S. firms wanted to sell last year, Chinese firms were in a position to buy. The reverse will hopefully be true when U.S. investors are interested in re-entering the market.

Sheikh Yamani, Saudi Arabia’s former oil minister (1962-86) once quipped that that the Age of Oil, like the Age of Stone, would come to an end long before the world ran out of oil. Reminiscent of history’s flow of game-changing trends implied in China’s ancient philosophy – the “I Ching” (易經) or “Book of Changes”, global paradigm shifts are afoot seemingly to help bring about Yamani’s “prophecy”.

Following Deng Xiaoping’s “Open Door Policy”, China has grown to be the “factory of the world”. The nation became a net importer of oil mostly from the Middle East. Fossil fuels have since driven China’s economy and turned it into the world’s largest oil and gas customer, representing 30% of China’s total energy demand and 25% of the world total.

China’s crude oil imports surpassed 10 million barrels per day in 2019, 55% from Organization of the Petroleum Exporting Countries (OPEC) with greatly increased imports from Saudi Arabia (16% of total).

Dependence on energy supplies from the Middle East, however, has national security concerns for China. Such supplies transit through the narrow “choke points” of Iran’s Strait of Hormuz, open to U.S. hostility, and the Malacca Strait near Singapore which hosts America’s 7^th Fleet.

China has been pushing hard to reduce energy intensity of its GDP growth, in pursuit of a green revolution to build a low-carbon energy system towards 2035 and 2050, part of the “China Dream” of national rejuvenation. China now formally pledges peak carbon emission by 2030 and carbon neutrality by 2060, targets likely to be incorporated in the coming Five Year Plan (2021-25).

With Climate Change rallying the world to embrace a greener future, including green-energy vehicles, these imperatives are bound to drastically reduce global demand for oil.

China has launched an ambitious Belt and Road Initiative (BRI) to connect the world, including GCC countries and the rest of the Middle East.

In May 2017, China succeeded in extracting scalable quantities of methane hydrates (“inflammable ice”) in the South China Sea. Compared to coal, oil, and natural gas, methane hydrates are a lot less polluting but 10 times more energy- rich per unit. One cubic meter of methane hydrates is equivalent to 160 cubic meters of natural gas.

Global reserve of methane hydrates is estimated at twice as much as all other known fossil fuels combined, enough for 1,000 years’ human consumption. China’s gas hydrates reserve is estimated at 100 billion-ton oil-equivalents, 80 percent of such reserve is in the South China Sea.  The nation is expected to kick start commercial production by 2030.

China has launched an ambitious Belt and Road Initiative (BRI) to connect the world, including GCC countries and the rest of the Middle East. This includes a “Digital Silk Road” for internet transactions and an “Arctic Silk Road” encompassing increasingly-navigable maritime routes through the Arctic.

China has launched a sovereign digital currency and a joint venture between the People’s Bank of China, the country’s central bank, and SWIFT (Society for Worldwide Interbank Financial Telecommunication), the world’s premier network for international transactions. This would turbo-charge RMB internationalization.

China is the largest importer of Saudi oil. However, China doesn’t share Saudi Arabia’s hostility towards Iran.

The BRI also provides alternative overland energy transit routes with pipelines through China-friendly territories including Central Asia and Pakistan’s port of Gwadar, bypassing Hormuz and the Malacca “choke points”.

China is the largest importer of Saudi oil. However, China doesn’t share Saudi Arabia’s hostility towards Iran. Despite some earlier Chinese arms sales and recent supply of Chinese COVID-19 vaccines, China doesn’t seem to have broader synergy with Saudi Arabia other than economic and energy interests. Saudi-China relations are deemed largely “functional, not strategic”, according to the Brookings Institution.

However, Brookings’ classification misses a more granular and subtle approach. According to Degang Sun,Professor of Political Science at the Institute of International Studies, Fudan University, China is establishing a non-aligned network of Middle East partnerships, a kind of ‘marriage without licence’, seeking common ground while preserving differences.

There are four categories –

• ‘Pivot states’ – regional powers with comprehensive strength which function as pivots or hubs in China’s global partnership network;
• ‘Node states’ – partners serving as bridges to facilitate cooperation between China and other great powers;
• ‘Key states’ – medium-sized powers with development potential which can exert influence on neighboring countries;
• ‘Stronghold states’ – smaller countries but exhibiting a strong desire for cooperation to function as China’s strongholds in the Middle East.

Meanwhile, the United States’ strategic interest in the Gulf has substantially changed as America has become energy self-sufficient or energy-surplus following extensive exploitation of homeland shale energies. Uncle Sam’s current interest shifts to boosting the security and economic interests of Israel, its immutable ally thanks to the bipartisan, politically and financially powerful Jewish constituency.

Hence, the recent rapprochement with Israel of the UAE and Bahrain under the so-called Abraham Accords brokered by Jared Kushner, ex-President Trump’s son-in-law.

China has no ambition of dislodging the United States from the Arab Peninsula. A cordial relationship with all Members of the GCC is in its best interest. The same applies to Iran, Israel, and Turkey. Nor does China want to be dragged in the proxy war in Syria involving Sunni-Shiite rivalry and self-interests of the United States, Russia, Israel, amongst others.

For China, one strategic interest in the Middle East and Central Asia is maintaining good relations with Islamic countries (including Turkey) with a Uyghur population. Some Uyghurs are suspected to be connected with the East Turkestan (Xinjiang) independence movement, which China brands a terrorist organization. International condemnation of Uyghur camps in Xinjiang is keeping Beijing on its toes.