More than a month has passed since China abandoned
its zero-COVID policy,
reopening its doors after three years of self-imposed isolation. Even as the
pandemic sweeps through the country like a tsunami, infecting millions,
many inside China believe the worst is behind them.
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This positive outlook is reflected in the economic
arena. China experienced the slowest GDP growth in four decades last year — around
3 percent. But as businesses get back on their feet, the government believes
external trade will increase significantly, and growth will return.
China’s economic recovery has significant implications
for the rest of the world, including the Middle East.
First and foremost, demand from the Chinese market will
expand, comforting many observers concerned about a global recession.
China’s import of energy resources, including crude oil, natural gas, and coal, increased more than
40 percent last year and accounted for nearly 18 percent of China’s total
imports. If the Chinese economy is to resume its post-COVID productivity — both
for export and domestic consumption — demand for energy products will only
grow.
How this demand might be met is a matter of
speculation. In 2021, Saudi Arabia was China’s biggest supplier of oil, but in
April 2022, that honor went to Russia. (Prior to the war in Ukraine, the two
countries alternated in the top spot). Price was a deciding factor. During the
first half of 2022, oil imports from Russia were cheaper than from Saudi
Arabia by nearly $15 a barrel. For the foreseeable future, China’s crude oil
imports from Russia will remain stable.
China’s renewed thirst for Middle East oil is about more than navigating an economic recovery. As China tries to achieve its “double carbon” commitment — carbon emissions peaking by 2030 and carbon neutrality by 2060 — it will need oil and gas to offset dirtier fuels like coal.
But China measures costs in more ways than one. Given
China’s need to maintain diversity in its crude oil supply, and President Xi
Jinping’s interest in improving relations with the US, Beijing could become more moderate and cautious in its energy
trade with Russia, which would present an opening for suppliers in the
Gulf.
This positive outlook for the energy trade between
China and the Middle East is in line with the official commitment from Beijing.
On December 9, China announced that it will expand imports of crude oil and
natural gas from Gulf countries over the next three-to-five years. The pledge
was made at the first China-Arab Summit in Saudi Arabia — attended
by rulers and officials from Bahrain, Kuwait, Oman, Qatar, Saudi Arabia,
and the UAE.
China’s renewed thirst for Middle East oil is about
more than navigating an economic recovery. As China tries to achieve its “double carbon” commitment —
carbon emissions peaking by 2030 and carbon neutrality by 2060 — it will need
oil and gas to offset dirtier fuels like coal. In 2021, 56 percent of China’s massive energy consumption
still came from coal, followed by about 26
percent from cleaner energy sources.
As Xi’s recent trip to the Gulf demonstrated,
China is looking to expand its economic relations with the Middle East, a
trajectory that is only expected to accelerate.
Beyond the traditional energy trade, clean energy
cooperation is another key area that China wishes to pursue with countries in
the region. One intriguing aspect is civil nuclear cooperation, which Beijing
is pursuing with Saudi Arabia and the UAE.
Specifically, China has shown fresh interest in nuclear
energy since the beginning of the Ukraine war. Around the world, China is
paving the way for an expansion of its third-generation nuclear reactors; Gulf
countries are potential buyers. China is already competing with South Korea to build two nuclear reactors in Saudi Arabia, and other
regional projects are reportedly in the works.
While China’s COVID situation since November appears
out of control, the chaos is unlikely to last much longer. Beijing is already
aiming for a normalization of the country by March, and many expect a trade and
economic rebound in the months that follow.
To be sure, a shadow recession in the US has cast a
layer of uncertainty about the external demand for Chinese products. But China
has other options than the American consumer. ASEAN and European Union
countries dwarfed the US in terms of trade with China in 2022, so even sluggish
demand from the US doesn’t spell disaster for China’s trade volume.
Beyond the traditional energy trade, clean energy cooperation is another key area that China wishes to pursue with countries in the region. One intriguing aspect is civil nuclear cooperation, which Beijing is pursuing with Saudi Arabia and the UAE.
China’s road to COVID recovery is far from over, and
many will die before normality returns. New variants could emerge, complicating
reopening plans.
But the zero-COVID reversal has brought a sense of
confidence to many Chinese, along with an eagerness to embrace new
opportunities. This will translate into enhanced economic and trade activity
this year – and a corresponding demand for energy resources from the Middle
East.
Yun Sun is director of
the China program and co-director of the East Asia program
at the Stimson Center in Washington, DC.
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