(This interview with RBS chief China economist Ben Simpfendorfer was published in DNA edition dated September 8, 2009.)
In ancient times, caravans laden with silk, perfumes, spices and precious stones traversed on one of the world’s arterial trade routes: the Silk Road, which linked China, through Persia, to the Mediterranean. At its best, the Silk Road stretched over 7,000 km, and from all accounts it was the trade along this route, conducted by thousands of merchants, that accounted for the rise of Chinese, Indian, Persian and Roman civilizations. Today, the simultaneous rise of China and the Arab world is inspiring a recharting of a “New Silk Road”, with profound implications for the West and the rest of the world, says RBS economist Ben Simpfendorfer. A fluent speaker of Chinese and Arabic, the author of The New Silk Road: How a Rising Arab World is Turning Away from the West and Rediscovering China tells DNA Money’s Venky Vembu of the significance of this emerging strategic relationship. Excerpts from an interview:
Q. What are the economic and political forces shaping the emergence of the New Silk Road linking China and the Arab world?
A. There is a historical gravity to these commercial relations. Unlike the BRICs thesis (which groups four disparate economies: Brazil, Russia, India and China), these are economies that have strong historical commercial relations, and a strong historical memory of those relations.
Second, this is a part of the world that’s growing robustly. And they are to some extent natural partners insofar as oil goes one way (from the Arab world to China) and consumer goods go the other way.
Third, and this is crucial, is that given the events of the past 10 years, the shape of global trade has shifted for two reasons. One is that there’s been a growth of export factories in this part of the world; and second, because of global security worries – whether its September 11 or the Iraq war – it’s increasingly difficult for traders in emerging countries to obtain visas to developed countries. The flow of people between developing countries is growing much faster than between developing and developed countries. In other words, the East-East flow of people is faster than the East-West flow.
Q. China has become the principal sourcing destination for importers all over the world. Likewise, there are Chinatowns all over the world. So what’s special about the China-Arab links?
True, the rapid growth of China’s export to the Middle East is not exceptional. But there are some things that make it different. One, there’s an Islamic connection insofar as most of the traders are Muslim and they’ve reconnected with the Muslim population in China. The Muslim population in China serves two purposes: they work as translators, and because of their presence, there are mosques and halal restaurants across China. If you go to the Canton Trade Fair in Guangzhou in October, there’s a separate kitchen serving halal food for Muslim participants. That wouldn’t have been the case if there weren’t already a large Muslim population in China.
Q. You make the point that Arab-China trade growth has been facilitated not by governments but by individuals. Why is that significant?
Consider exports from China to the US and exports from China to the Middle East. When it comes to exports to the US, it’s big companies like Wal-Mart that are responsible for that; they will just have a few purchasing agents in China. It’s not a very intimate relationship.
Whereas exports from China to the Middle East are driven by thousands of individual traders. It is more organic – and stronger.
Q. When trade and commercial relationship are strengthened sufficiently, will it lead to a strategic relationship between China and the Arab world?
I think we will. There’s a temptation to say the strategic relationship is already there, simply because of the oil link. But I’d disagree with that. I think it’s in its infancy: while there are individual traders on both sides who get it, at the government level there are still some obstacles – mainly cultural obstacles. I don’t think China and Saudi Arabia are natural partners: they both still see the US as their Number 1 partner. They can recognise the logic for closer cooperation between them, but there’s just not a lot of momentum.
Q. You say this is part of an ongoing global rebalancing, and that a new centre of gravity is emerging. What does that mean?
The East’s share of the global economy – and by East I mean everything from North Asia to North Africa – has risen from round about 20 to almost 30 percentage points in the last few decades. Visibly there is a change. It’s also evident in increasing trade within the region – or intra-regional trade as a share of total trade; one in every two goods shipped from this region stays in this region.
Increasingly also the flow of ideas within the region is strong. In particular, Arab countries are looking to China as a growth model. They know China’s growth model was built on reforms proposed by the IMF but they feel that China has practical experience whereas the IMF has only theoretical experience. So they’d rather go to Beijing to learn their craft rather than to Washington.
Q. Does this New Silk Road connection upset any other country’s interest? Does the West need to worry about this emerging relationship? Is it a zero-sum game?
I don’t think it’s a zero sum game, but I do think the rules of the global economic and political system will change. And the West will have to adapt to the new reality. It’s only a zero-sum game if you believe or hope that the status quo will remain unchanged.
Q. Do you see a heightened consciousness in the West that the world is changing?
The West is aware of China, and of the Middle East, but I don’t think it’s aware of the linkages between the two. It misses out on that because the dialogue just doesn’t take place on the front pages of the major newspapers. Sitting in New York, it’s easy see how China impacts the US, but it’s very difficult to see how China impacts the Middle East.
Q. The Arab-Chinese relationship isn’t entirely trouble-free. What are the dynamics that are impeding it?
One of the major problems is that China’s exports to the Middle East have surged in the last decade, and China has overtaken the US as the largest supplier to the Middle East. That’s the sort of statistics that often gets people excited, but there is often a downside; there are factory closures across the Middle East as a result of China’s exports to the region. The Middle East has a major unemployment problem: some 60% of the region’s population is under age 30, and unemployment rates are upwards of 30%. Factory closures worsen social instability in the region,
Q. How are Arab governments responding to this?
We’ve seen the Syrian government impose tariffs on Chinese exports to Syria. It’s still early days, so we’re yet to see a significant worsening in relations.
Q. At the political level, how did the Arab world respond to the riots in Xinjiang in southwest China?
There was almost no coverage of the Xinjiang events in the Arab media.
Q. How do you account for that?
During that period (in early July), there were car bombings in Iraq, unrest in Gaza. Events in Xinjiang are big news in this region, but not so much in the Middle East. Second, there’s recognition that the Uighurs (the Turkic-speaking community of Xinjiang) are not ‘Arabs’. To them the ethnic card is more important than the religious card. Also, a lot of governments in the Middle East face the same problems of separatism, so they didn’t play it up. The Syrian government was even supportive of China, recognising that its own Kurdish minority population represents the same risk.
Q. So far, China has remained non-interventionist in geopolitical disputes, but can it continue to sit on the sidelines when it “rules the world”?
I don’t think it can. Increasingly, it will be a problem for many of these emerging markets. Initially it was all very nice to say that China is evidence that the East is rising and the West is falling. But the problem is that China’s rise is not a net gain for everyone. And as exports to the Middle East prove, it can sometimes be a net loss.
At some point, for instance, if there are serious job losses in not just the Middle east but also in India, these emerging market governments will retaliate.
At the same time, there’s growing pressure (on China). For instance, there was an editorial in a Syrian newspaper the other day that linked China’s ownership of US Treasury debts to its rise and the fact that it would respond poorly to US criticism of events in Xinjiang by dumping them. That’s recognition that China is a major player and has leverage over the US. And increasingly, these governments will turn to China during periods of stress or conflicts with the West, and say, ‘What are you going to do about it?’
Q. China recently announced it was launching an Arabic-language channel that will parallel Al Jazeera. Will it win hearts and minds in the Arab world?
I don’t think the channel itself will receive many viewers. But it will emphasise that there is respect for the Arab culture insofar as there are Arabic-speaking Chinese anchors. And that is unprecedented.
The Arab media space is also very competitive. There’s also the risk that in times of crises in the region, say, when there’s fighting Gaza, it may flag the idea that China is not willing to take a position. Those are potential strains going forward.