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Chinese trade takes off.

EVER SINCE establishing formal diplomatic relations with Saudi Arabia in July 1990, China's relations with the Gulf Cooperation Council (GCC) states has been increasingly significantly, although officials on both sides point out that the true bilateral trade potential will take some years to realise. China's bilateral trade with the Middle East totals about $2bn a year, but officials on both sides say that this could easily be doubled over the next few years. Most of this trade will be with the GCC states. Last year Chinese exports to the GCC totalled $840m while imports totalled 540m, giving rise to Gulf calls to narrow the trade gap.

Beijing seems to have stepped up its trade and investment drive in the Gulf during 1993 judging by the number of trade delegations visiting the region; the number of trade exhibitions being organised and the number of contracts signed between companies on both sides. In August a high-level delegation from the China Council for the Promotion of International Trade (CCPIT) visited the Kingdom and the latest Chinese trade fair set to be held in the Gulf is in November in Jeddah. Over 50 Chinese firms in the textiles, arms, automobile, machine tools and foodstuffs industries have confirmed their participation.

The two major markets for China in the Gulf are Saudi Arabia and the UAE, with whom Beijing has had good relations for over two decades. Bilateral trade between Saudi Arabia and China last year, according to Sun Bijan, the Chinese ambassador in Riyadh totalled about $600m compared to $520m in 1991. Chinese exports to the Kingdom totalled $400m in 1992 compared to $300m in 1991 - mainly garments, silk carpets, furniture, machinery, construction materials and foodstuffs.

The Kingdom's exports to China include petrochemicals, fertilisers and wheat. The Saudis are keen to narrow the trade gap especially through oil exports and perhaps more importantly through increased exports of petrochemicals and fertilisers to China. Saudi companies such as the Saudi Basic Industries Corporation (Sabic) are keen to diversify their export markets especially in the wake of continuing EC tariffs and quotas against Gulf petrochemical exports, which the Gulf states regard as protectionist.

However, a new trade and economic cooperation agreement signed in Beijing between Saudi finance minister Muhammed Aba Al-Khail and Chinese vice-premier for foreign economic relations and trade, Li Lanqing, is expected to boost bilateral trade beyond the $1bn mark over the next year or so.

There are also private sector plans to set up a Saudi Arabian International Trade Centre in Shanghai, one of China's important commercial cities. But as Chinese Consul General in Jeddah Gao Shio-tang stresses: "Beijing is interested in attracting more foreign investments from the Gulf and a full incentive package is given to investors including a two-year tax holiday for joint projects. And in the following three years, only 30 per cent tax is liable."

Saudi investors complain that quality information about markets in China are scarce; risks were too high and local labour costs can be punishing. However, a number of Saudi businessmen confirm that they are studying some projects for potential investment in China. To allay the fears of potential investors from the GCC, Li Lanqing during his June visit to the region, confirmed that Beijing was now guaranteeing the protection of capital and foreign funds following the passing of such legislation by the People's Assembly. Indeed, vice-premier Lanqing signed the first such investment protection and avoidance of double taxation agreement with the UAE.

The latest trade delegation from China's Muslim community came in August with a visit to Saudi Arabia and the UAE by a Chinese Islamic trade delegation from Jinan City in Shandong Province. According to the head of the delegation Fan Li, they were exploring a number of options with Saudi businessmen and officials.

These include the export of Chinese labour to the Kingdom; the joint exploitation of Jinan's mineral resources such as coal, iron ore, potassium, cobalt, fire-resistant clay and granite; and joint ventures in the building materials, contracting, foodstuffs, consultancy and livestock sectors, with companies such as Jinan's Islamic Industrial Company, whose president Muhammed Exong-Zhi Jin, was part of the delegation.

In May this year Saudi Arabia's Zamil Steel Buildings Company won its first order from China - a $2m steel structure for an air-conditioning plant in Shenzhen. Although China is currently both a producer and exporter of oil, it is widely expected to become a net importer of crude oil over the next decade as demand in Asia is set to rise to sustain high GDP economic growth activity. During a recent visit, Chinese vice-premier Li-Lanqing signed an agreement on behalf of the China National Oil Company (CNOC) with Saudi Aramco to import 3m tonnes of crude oil from the Kingdom, although it was not specified when the imports would start.
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:new economic and trade relations between Saudi Arabia and China
Author:Parker, Mushtak
Publication:The Middle East
Date:Oct 1, 1993
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