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China’s One Belt, One Road Initiative And The Middle East Is A Crossroads, Part 4, Pakistan, Turkey, United Arab Emirates, And Yemen

ArmchairTechInvestor, May 27, 2018, by Brad Peery

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Below are summaries of the OBOR initiatives in the countries covered in the Middle East Part 4.

Pakistan

*”Pakistan is part of the southern region of the Asian continent that is known as South Asia. It is located on the crossroads of Asia and the Middle East, bordering China in its north-most area, India in the east and Iran and Afghanistan in the west. Pakistan is the world’s sixth most populous country with about 200 million people. It is the second largest economy in South Asia after India.”

Pakistan is a member of the South Asian Association for Regional Cooperation (SAARC), Pakistan is also a member of the South Asia Free Trade Area (SAFTA). Pakistan is one of the member states of Central Asia Regional Economic Cooperation (CAREC) and Economic Cooperation Organization (ECO). Importantly Pakistan has signed a bilateral a trade agreement with China, and agreements with Malaysia and Sri Lanka that also have ports financed and managed by China.

The China-Pakistan economic corridor is being established to develop modern infrastructure projects that include roads, railroads and power plants. A 250-mile Multan-Sukkur section of the Peshawar-Karachi Motorway began construction in 2016 for completion in August 2019.

Gwadar Port is financed and operated by China Overseas Port Holding Co., It started operations in November 2016. Located at the mouth of the Persian Gulf, it is close to the Straits of Hormuz, and the Gwadar Port provides China with an important shipping route to the Middle East. In April 2017, China provided a loan of US$1.2 billion to Pakistan to help it with a currency crisis.

**“China has reportedly halted funding for three road projects that are part of the China-Pakistan Economic Corridor, a centerpiece of the so-called Belt and Road initiative. The sudden decision reveals how unilateral Chinese decision-making is on Belt and Road investments, according to analysts.

Turning off the money for the project is “China’s way of conveying a diplomatic yet strong message to the Pakistanis: We will pay, but only on our terms,” the European Foundation for South Asian Studies, an Amsterdam-based think tank, said in a note, describing the situation as “a temporary punitive step to affirm control.”

This is another example of the risk that Sri Lanka learned about when it couldn’t make payments on the Chinese loans that financed its port project and led to China essentially owing the port. The same thing has happened to Pakistan’s Gwadar Port. Pakistan has no control of it.

China’s One Belt One Road Initiative is likely to end up being a way for China to expand its territorial presence in Asia, Africa, the Middle East and even Europe.
**Pakistan learns the downside of taking infrastructure money from China, China giveth, and China taketh away. CNBC Asia-Pacific, Nyshka Chandran, December 12, 2017

Turkey

*Turkey has been going through mounting geopolitical tensions with neighboring countries. It has also had high inflation because of a weak lira, which is casting doubt on its growth prospects. Despite these problems, government-sponsored credit guarantees have restored confidence in the Turkish economy. Its economy grew at a 5.1% annual rate in the six months through June 2017, and was expected to grow by 5.3% in the year 2017.

But given further recovery of the global economy and solid gains in industrial production and investment, the Turkish economy is forecast to see 4.0% growth in 2018. This is despite its geopolitical problems.

***The relationship between Turkey and China is turning into one of a strong friendship. Turkey’s sour relationships with NATO, the EU and Germany are driving it into the arms of China. Also Turkish President Recep Tayyip Erdogan’s human rights abuses, and use of the electoral process to essentially create a dictatorship are ignored by China. The Turkish Foreign Minister promised to eliminate any anti-Chinese media reports and stated “we see China’s security as our security”. Turkey and China are developing shared interests. This is an example of China befriending countries that are looking for alternatives to the West.

“The friendship has, to a substantial extent, already been struck. Beijing purchased a stake in Turk Telekom, a company that has been allegedly used by the Turkish government to spy on Turkish citizens and regime opponents. High-speed rail, ports and other infrastructure projects have all been lined up. The OBOR will also assist Ankara in promoting its construction industry in Central Asia, where Turkish firms have been operating since the 1990s.”
***Why is Turkey so eager to be led down the Belt and Road?, East Asia Forum, Nicol Brodie, October 28, 2017

United Arab Emirates

The United Arab Emirates (UAE) is heavily on the oil-related sectors. It is trying to diversify in several ways. It has an $81.7 billion plan to promote a knowledge-based economy which will include investments in education, health, energy, transportation, water and the space industry. It is already diversified to the extent that slightly less than 70% of its GDP is non-oil related, with the objective being to take that to as high as 80% by 2021. The plan also includes tripling the labor force in the “knowledge economy” by 2021.

“China’s investment in the UAE has been growing in recent years, with cumulative FDI rising from US$764.3 million in 2010 to US$4.6 billion in 2015.” In May 2017, UAE Minister of State Sultan Ahmed Al-Jaber commented that the UAE strongly supports China’s OBOR Initiative. “Foreseeing a 50% growth by 2040 in the energy demand in Belt and Road countries, he noted that both China and the UAE have made strategic co-investments in the energy sector. For example, China National Petroleum Corp. (CNPC) and China CEFC Energy Co., have recently taken a minority share in the UAE’s onshore oil reserves.”

On the regional level, The UAE is trading with Arab nations through the Greater Arab Free Trade Area Agreement (GAFTA). Under the GAFTA, the UAE has free trade with Algeria, Bahrain, Egypt, Iraq, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Sudan, Syria, Tunisia and Yemen.

****Chinese contractors have become increasingly active in local construction projects and Chinese visitors continue to increase according to consultants JLL. According to JLL, the UAE plays a crucial role in China’s proposed OBOR Initiative.
Dubai is a key city in this strategy, and a gateway to stable markets, especially in Africa. Currently about 60 percent of Chinese exports to regional markets are channeled through the UAE. JLL pointed to a number of significant Chinese investments in the UAE – such as in Abu Dhabi Industrial Park and Dubai Food Park – as signs of growing Chinese economic involvement in the country.
****Chinese economic influence in the UAE growing, says JLL
The UAE is a significant part of the country’s $124 billion ‘one belt, one road’ initiative
Asian Business, By Bernd Debusmann Jr, February 7, 2018

*****Another indication of the involvement of China in the UAE is an MOU that has been signed with the Shanghai Stock Exchange with Dhabi Global Market (ADGM) to establish a Belt and Road Exchange,” Richard Teng, chief executive of ADGM’s Financial Services Regulatory Authority, told CNBC.

“The joint exchange is poised to support businesses and investors along the Belt and Road. This Beijing-backed scheme plans to link the world’s second-largest economy to the west via a vast land and maritime infrastructure network across Eurasia.”
****China and UAE move a step closer to opening a ‘Belt and Road Exchange’, CNBC, Sam Meredith, April 24, 2018

Yemen

*”Yemen sits at the southwest tip of the Arabian Peninsula, between Oman to the east and Saudi Arabia to the north. It overlooks the Bab al-Mandab Strait where the Red Sea joins the Gulf of Aden. It has been locked in a complex civil war since 2015, with the rebel Houthi group fighting against the Yemen government backed by a Saudi-led coalition, the Islamic State and Al-Qaeda. The prolonged civil war has led to famines and humanitarian crises in the country.”

The Houthi group, backed by Iran, is fighting against the Yemen government backed by a Saudi-led coalition, the Islamic State and Al-Qaeda.

Yemen is a small oil-producing country, not a part of OPEC. It is one of the world’s poorest countries, and has a young population. “Yemen allows foreign oil companies to exploit its oil fields in light of their capital and technology resources. Prior to the civil war in 2015, the oil sector accounted for 65% of its fiscal revenue and one-quarter of its GDP. Yemen’s oil exports had been suspended since early 2015, but were resumed in 2017. “International oil companies in Yemen, such as Austria’s OMV are also looking to resume oil production in south Yemen in 2018.”

*****’Yemen is facing an acute humanitarian crisis after nearly three years of civil war, with more than 10,000 deaths and three-quarters of the country’s population in dire need of humanitarian assistance.’ China has not been a leader in Yemen, but has supplied humanitarian role, largely driven by China’s close relationship with Saudi Arabia.

“As Yemen’s major trade partner, China has an outsized economic presence in the country and can play a significant economic role in Yemen’s postwar reconstruction through its OBOR Initiative.”
*****China and Yemen’s Forgotten War, US Institute of Peace, By I-wei Jennifer Chang, January 16, 2018

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