How is the Belt and road impacting the Middle East?

• China has been increasing its economic ties with the Middle East, as reflected in investment and trade figures. Beyond its growing size, the nature of economic relations has changed substantially in a very short period of time. One of the key drivers is undoubtedly China’s push for a multi-trillion investment in its neighborhood, namely the Belt and Road Initiative (BRI). In fact, the Middle East received as much as 24% of China’s total investment in Belt and Road countries.
• It is important to note, however that China’s renewed relation with Middle Eastern countries is not so much based on foreign direct investment (FDI) but actually in project financing. In other words, China seems to prefer not to keep the project ownership in this part of the world, which contracts with its strategy in other parts of Belt and Road and, even more so, outside the Belt and Road.
• Another important feature of this evolving economic relationship between China and the Middle East is the rather resilient sectoral focus. In fact, not only trade, but also Chinese investment has been concentrating on the oil and gas industry. This is true both for project finance as for investment. Technology and agriculture are the exceptions, mainly driven by Israel.
• All in all, Belt and Road Initiative is clearly bringing a large pool of financing to the Middle East, which is particularly welcome in the current environment (weaker oil revenues). However, Chinese financing does not seem to be directed to changing the economic structure of Middle Eastern economies. If anything, it could actually increase their dependence on the oil and gas industry. In the same vein, China does not seem to be keeping the ownership of the projects it is embarking on in the region, preferring project finance to FDI.

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