This report first appeared as a part of Hudson's China in the Middle East newsletter series. To subscribe, click here.
The Birth of the “Petroyuan”?
In an effort to undermine the hegemony of the US dollar, Chinese officials extended trading hours for China’s onshore yuan market, allowing foreign-exchange transactions until 3:00 a.m. Beijing time, rather than the previous 11:30 p.m. cutoff. This alone may not be a major event, but it is a small piece of Chinese President Xi Jinping’s larger strategy to de-dollarize the international economy by fostering trade in the Chinese currency.
That strategy includes the creation of the “petroyuan,” a renminbi-based international energy trade. Credit Suisse analyst Zoltan Pozsar coined the phrase in an end-of-year note analyzing Xi’s recent visit to Saudi Arabia and its several attendant summit meetings. According to Pozsar’s provocative and compelling analysis, a new multipolar order is “being built not by G7 heads of state but by the ‘G7 of the East’ (the BRICS heads of state).” BRICS, of course, refers to Brazil, Russia, India, China, and South Africa, but Pozsar envisions that these five will soon welcome Saudi Arabia and Turkey or Egypt into their group.
“President Xi’s visit to Saudi Arabia,” Pozsar writes, “was the very first China-Arab States Summit in history, and echoes FDR’s meeting with King Abdul Aziz Ibn Saud on Valentine’s Day 1945 aboard an American cruiser, the USS Quincy.” President Franklin D. Roosevelt’s meeting with the Saudi monarch represents the symbolic beginning of the so-called “oil for security” bargain that underpinned the US-Saudi relationship until the Obama administration began (as we at Hudson see it) courting Iran, an ill-starred initiative to which the Biden administration remains committed.
Xi Jinping’s speech at the summit envisioned a global energy trade in yuan within the next five years. In sharp contrast to analysts who believe that the dollar is too powerful to be dethroned, Pozsar argues that “China can claim to have built a ‘special relationship’ not only with the ‘+’ sign in OPEC+ (Russia), but with Iran and all of OPEC+.” If Pozsar is correct, then the global energy market will soon bifurcate between dollar and yuan zones, leading, among other things, to the inflation of Western currencies.
This newsletter will track developments pertaining to Pozsar’s thesis with great interest.
Belt Road Initiative and Saudi Vision 2030
Offering grist for Pozsar’s mill, The Global Times, an English-language mouthpiece of the Chinese Communist Party, published a January 9 opinion piece entitled “Points of Convergence between the Belt and Road Initiative and the Saudi Vision 2030.” Written by Fahad Almeniaee, the director of the China and the Far East Unit in the Center for Research and Knowledge Communication in Riyadh, the article argues that Saudi Arabia is well-positioned to play a critical role in stabilizing and developing the Middle East through participation in the BRI.
The Chinese Are Coming
China’s move to downgrade the management of COVID-19 from Class A to Class B beginning on January 8—and thus permit its citizens to travel abroad and return without quarantine requirements—has been met with mixed reactions throughout the Middle East. Since the relaxation of Xi Jinping’s signature “Zero-COVID Policy” in response to widespread protests, a wave of new infections has hit China, the full extent of which is unknown due to a lack of statistical transparency and case reporting by the Chinese government. The BF.7 Omicron sub-variant, where one infected individual transmits the virus to an average of 10–18.6 others, is surging in China and causing great concern as the country opens up outbound travel for the first time in three years. In response, several countries have reimposed mask mandates and announced testing requirements for passengers traveling from China, regardless of nationality or vaccination status. The United Arab Emirates is requiring travelers from China to present a health declaration upon arrival; Qatar and Israel are requiring a negative PCR test; Egypt, Jordan, and Lebanon seem to be considering advanced protection measures. The strongest measure thus far, Morocco’s outright ban on travelers from China, went into effect on January 3.
China, however, has criticized the increased restrictions as “discriminatory” and warned about potential “countermeasures.” In her first press conference of 2023, Foreign Ministry Spokesperson Mao Ning explained that Beijing does not “believe the entry restriction measures some countries have taken against China are science-based,” arguing that some of them are “disproportionate and simply unacceptable.”
Meanwhile, the Middle East is gearing up for an influx of Chinese tourists. Naturally, China wants to highlight this boost to tourism in the region. Chinese state-run media company CGTN published a collection of Middle Eastern tourism industry workers’ expressions of excitement for the return of Chinese tourists to their services.
Emergency UN Meeting
Shortly after taking office as the newly created position of Israeli national security minister, Itamar Ben-Gvir entered the courtyard of Al-Aqsa Mosque in East Jerusalem on January 3. This visit, which drew international condemnation, prompted the UAE and China to request an emergency meeting of the United Nations Security Council. The Chinese permanent representative to the UN, Zhang Jun, reiterated his country’s historic support for the two-state solution, stressing that “Israel, in particular, should stop all incitements and provocations, and should refrain from any unilateral action that may lead to the deterioration of the situation.” China, he affirmed, “will continue to work with the international community to make positive contributions to the comprehensive, just, and lasting settlement of the Palestinian question and the attainment of durable peace and common security in the Middle East.”
In the Security Council, China has tended, historically, to hide behind Russia on Middle East issues. With a few notable exceptions, Beijing has refrained from taking initiatives such as this one. The event thus provides yet another example of the new assertiveness that characterizes Chinese policy in the Middle East. Until recently, analysts were quick to claim that China had no intention of involving itself in the thorny political issues of the Middle East lest the myriad conflicts in the region spoil trade opportunities.
Tangier Tire Factory
Chinese tire company Qingdao Sentury announced its plan to invest $297 million in building a car tire factory in Tangier, Morocco. The company explained its selection of the North African city due to its stable economy, secure political environment, ideal geographical location for European distribution, and positioning as a connector hub between the European, Middle Eastern, and African markets. The factory—expected to become operational by the end of 2024—is set to produce 3.6 million tires in its first year and increase to a capacity of 6 million tires by the end of year two.
China-Egypt Economic and Investment Forum
On January 5, nearly 300 officials and entrepreneurs attended the China-Egypt Economic and Investment Forum, co-organized by the Chinese Chamber of Commerce in Egypt and the Egyptian-Chinese Friendship Association. The forum focused on upcoming opportunities for bilateral economic and trade cooperation in new energy mechanisms, manufacturing, infrastructure, and self-learning technology. Following the Chinese ambassador to Egypt’s celebration of China’s status as Egypt’s largest trading partner for the ninth consecutive year, Chairman of Egypt’s Suez Canal Economic Zone Waleid Gamal Eldien shared that they “intend to launch a promotional tour to China this year to highlight what has been achieved in the infrastructure in the SCZone to attract more Chinese investment.”
Kuwait and China Talks
When May Al-Baghli, Kuwait’s social affairs minister, hosted China’s ambassador to Kuwait, Zhang Jianwei, on January 8, Ambassador Zhang extended an invitation to Minister Al-Baghli to visit China in order to enhance cooperation between the two countries. Kuwait imports roughly 20 percent of its goods from China, valued at over $1.5 million.
UAE Chinese New Year Gala
The Dubai Opera House hosted the Ninth UAE Chinese New Year Gala on January 8. Among the 2,000 attendees were Xuhang Li, the Chinese consul general in Dubai, and Yiming Zhang, the Chinese ambassador to the UAE, who gave the opening address.