Dragon, Meet Camel

The news of China's $586 billion "bailout" package for its domestic economy raises some interesting prospects for growing ties along the new Silk Road. According to press accounts of Beijing's plans, the money would be spent on infrastructure development--specifically, building railways, subways, and airports--and rebuilding the earthquake-devastated Sichuan province. Unlike fiscal stimulus packages in the US, the money for these projects will not come from the central or local governments but will be financed by state banks and state-owned companies. The Chinese government designed the plan to stimulate economic growth and consumer spending as the country faces a rapidly slowing economy. The latest projections put Chinese growth at 5.8 percent in the fourth quarter, or close to half of what it was towards the beginning of the year.

You might wonder what this has to do with the Middle East. During the period of the most recent global economic boom, trade and investment ties between China and the Middle East, particularly the Persian Gulf, grew rapidly. As Chinese consumption of Middle East oil grew, Middle East investment capital also began to swell and head east. Much of this investment was destined for infrastructure projects, albeit largely in real estate. With Middle East companies, such as DP World of the UAE and Agility of Kuwait, having a competitive advantage in logistics, could we see an expansion of such ties? With one market drying up in the West, will China turn to its nearer neighbors for capital and know-how for its development?

On the one hand, both the Middle East and China could be served by drawing on each other's strengths as the rest of the world falters. Persian Gulf oil producers and China offer more complimentary production capabilities than competitive. The Gulf supplies the oil, the capital, and, in some cases, the ability to manage multi-billion dollar projects. China grows, buys more oil and more contracts. Everyone is happy. But, on the other hand, China's decision to focus on infrastructure does directly clash with Middle East development goals since many of those countries are focusing intensely on infrastructure development as well. In a world of limited investment capital, human capital (a shortage of engineers, architects, and skilled foreman has plagued the Middle East in recent years), and material (such as steel), China's development plans make the country a direct competitor of the Gulf. It may be possible to reconcile the two region's goals. China's plan is very short term--according to the New York Times on Monday, Beijing's idea is to spend the money over a two-year period. With such a tight schedule to identify projects, put out bids, and then contract, it may be possible for both regions to have their cake and eat it too if the Gulf is willing to delay some of its projects with an eye to the longer term.

Things might be looking up for the Gulf producers.