China and the Arab world

Middle Kingdom meets Middle East

Chinese money is behind some of the Arab world’s biggest projects

THERE IS NOT much to see for the first 500km south of Oman’s capital, Muscat, as the highway slices through the Hajar mountains and down a barren coast. Then it hits Duqm, a sleepy fishing village that is being transformed into a mega-port. The government’s hope is to capture a share of the shipping trade between Asia, Africa and Europe. And there, in the middle of nowhere, a consortium of Chinese firms wants to invest $10bn to build a 1,000-hectare industrial zone. “Petrochemicals, glass, solar panels, car batteries—they want to attack all these markets,” says Reggy Vermeulen, the port’s CEO.

For decades the Middle Kingdom saw the Middle East as a petrol station. About half of China’s oil came from Arab states and Iran. Little went in the other direction. In 2008 the region got less than 1% of China’s net outbound foreign direct investment (FDI). Skip ahead a decade and Chinese money is everywhere: ports in Oman, factories in Algeria, skyscrapers in Egypt’s new capital. Last year it pledged $23bn in loans and aid to Arab states and signed another $28bn in investment and construction deals (see chart).

The Arab world is hungry for such investment. Annual FDI inflows have fallen by two-thirds since 2008 and lag far behind other emerging markets. Take Egypt, which is famous for its…