U.A.E. Pursuing “Strategic Diversification” in Relations with China

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April 7, 2021

A panel of experts detailed the ways in which the U.A.E. is carefully balancing its relations with China and the U.S. during a conversation convened by the Middle East Institute and the U.S.-U.A.E. Business Council. A video of the webinar can be found here

Dr. Paul Salem, President of the Middle East Institute set the stage for the conversation by outlining the significance of the Middle East as an arena for potential great power competition, or perhaps great power cooperation. With China in a “period of massive global growth,” the Middle East has become an important source of energy and a significant global commercial hub for China. As for the U.S., the Biden Administration is still “trying to figure out how to organize its foreign policy,” but has made addressing China a central facet of its national security strategy while maintaining close ties with Middle East allies.  In this environment of great power competition, Dr. Salem is reminded of the adage, “When elephants fight, it is the grass that gets trampled.” 

Afshin Molavi, Senior Fellow at the Johns Hopkins School of Advanced International Studies, then kicked off the panel discussion by contextualizing the recent visit of Chinese Foreign Minister Wang Yi to the Middle East as the latest in an evolution in Gulf-China relations. He explained that in 1993, China began relying on the Gulf for oil when it could no longer produce enough oil to meet its growing demand. Then, in 2006, China-Gulf relations entered a new phase as the relationship expanded beyond the flow of resources and manufactured goods to the “flow of capital, investment, and even heads of state” with high-level visits between Gulf and Chinese leaders. Mr. Molavi suggested that in 10-15 years we might see a new phase in China-Middle East relations in which China plays more of an active security role in the region.

Mishaal Al Gergawi, CEO of Axis, spoke next, commenting on the U.A.E. perspective on growing ties to China. The U.A.E. has been historically happy to align in all areas with the U.S. Now, however, the U.A.E. is pursuing what Mr. Al Gergawi termed “strategic diversification,” where it can pursue multiple strategic partnerships as well many transactional deals at the same time. He emphasized that the U.A.E.’s relationship with China is one among many, and it does not signal a “sunsetting of the relationship with the U.S.”

Dr. Yuting Wang,  Associate Professor at the American University of Sharjah and Non-Resident Research Fellow at Purdue University, brought in the important element of growing socio-cultural ties between China and the U.A.E. She explained that more and more Chinese businesspeople are coming to the U.A.E. just as a rising second-generation Chinese population is making its mark in the region. Dr. Wang cited the establishment of Confucius Institutes at the University of Dubai and Zayed University and the creation of the first Chinese national school in Dubai as indicative of this sociocultural evolution and the “diversification of Chinese interests” in the region.  She explained, “it is not just about trade anymore.” 

Pivoting to the implications of growing Gulf-China ties for the U.S. under the new Biden Administration,  Brian Katulis, Senior Fellow at the Center for American Progress, explained that we in the U.S. “are trying to get our own act together” to better position ourselves to compete in a constructive way with countries like China. In light of this, he suggested one should view the recent U.S. infrastructure package as part of a strategy to transform the U.S. economic model at home to address China in areas such as climate change. Mr. Katulis sees the multifaceted China-U.S. geopolitical competition extending to arenas like tech, finance, and capital flows, and he expects the Biden Administration to continue to pressure U.S. allies regarding nascent tech and security relationships with China. Ultimately, he believes the Biden Administration may work to take a “pragmatic approach” toward China, finding grounds for cooperation on climate change and Middle East security while pushing back on technology, cyber security, and some conventional military issues. He also seconded Mr. Al Gergawi’s assessment of the U.A.E.’s “strategic diversification,” calling it “rational hedging.”

Deborah Lehr, Vice Chairman & Executive Director at The Paulson Institute, CEO of Basillina, and Board Member at the Middle East Institute, added that we have, thus far, not seen any major departures by the Biden Administration from the Trump Administration’s approach to China “except in tone.” She also remarked that “technology is at the core of divisions between the U.S. and China.” Ms. Lehr explained that as we look at our own competitiveness, “we will have to be very careful about how we put limits on our own tech companies” and how they work with China, given its status as the world’s largest consumer market.  She warned of the “real potential” for an “economic iron curtain” in places like the Middle East whereby the use of Chinese 5G could inhibit business with the U.S. across a wide range of sectors. 

Afshin Molavi expanded upon the implications of U.S.-China competition for companies in the Gulf. Remarking that “the U.A.E. was almost purpose-built for the one belt one road initiative,” he also expressed that “news of the U.S. demise in the Middle East has been greatly exaggerated.” There remains a strong U.S. commercial presence in the region across a wide range of sectors ranging from defense to healthcare to education to technology. 

Mr. Al Gergawi jumped in, noting that the pace at which China is progressing in tech, infrastructure development, and other areas, is particularly attractive to countries like the U.A.E. In this regard, China maintains a “strategic advantage.” Still, he explained, it is important to “right-size China’s perspective on the Middle East.” For China, the Middle East is a place for risk-minimization, with India, Southeast Asia, and Africa remaining more top of mind for China.  

As conversation pivoted next to U.S.-China competition and collaboration in the renewables business vertical, Ms. Lehr remarked that it is in the interest of the U.S. to cooperate with China on climate change. However, she noted, technology is the core to the solution on climate change, “and if technology is going to be the biggest challenge between China and the U.S., we may see a clash on greentech.” She cited China’s domination of green cars and lithium ion batteries markets as prime examples of potential avenues of competition. In summary, she explained, while we may see potential for high-level U.S.-China cooperation on climate change, we are facing the “potential of climate wars” surrounding technology. 

Dr. Wang then commented on the impact of Chinese tourism in the U.A.E. noting that Chinese tourists are in the U.A.E. to “spend money” as opposed to businesspeople who are there to “make money.” China has become a huge market for the U.A.E. tourism industry, and the U.A.E. has catered to this demand. This has changed throughout the pandemic with Chinese travelers prioritizing domestic travel over travel to the Middle East, but Chinese will soon be “ready to travel.”

The discussion concluded with an analysis on China-Iran relations and its impact on China-Gulf ties. Dr. Paul Salem explained that China prides itself on retaining good relations with all countries. He also remarked that for Iran,  China is a lifeline for a resistance economy but cannot replace the sanctions relief they are seeking from the U.S. Moreover, China has not offered Iran a security umbrella, which is an important issue for Iran that has been heightened by the signing of the Abraham Accords. 

​The other panelists shared Mr. Salem’s skepticism of the importance of last week’s announcement of an MoU between China and Iran. Mr. Molavi said, “When it comes to China and Iran, one should follow the money and not the MoUs.” He noted that Iran’s GDP was the size of Ohio’s, and suggested China  would not risk U.S. sanctions for the sake of economic ties with Iran.

In contrast, panelists did see significance in the recent agreement for the U.A.E. to produce a Sinpharm vaccine. Dr. Wang noted that China has successfully used the Sinopharm vaccine to boost its soft power in the region. In fact, she emphasized, China’s public perception during the pandemic has actually become more positive. Ms. Lehr agreed that just as the U.S. looks to build its own set of allies, China “will use vaccine diplomacy to neutralize its set of allies” and avoid isolation. 

For more information about the Business Council’s upcoming programming, please contact the U.S.-U.A.E. Business Council’s head of communications, Mary Zuccarello at mzuccarello@usuaebusiness.org or visit our website at www.usuaebusiness.org