By Richard Banks
During my last visit to China, I had continuous meetings with leading Chinese companies. I went to Beijing to discover the Chinese reaction to the Arab spring and to learn if recent events had changed their perceptions of the Middle East as a destination for partnership and investment. China had ambitious targets for its ODI (overseas direct investment plan) as a key part of the recently announced 12th Five Year Plan. China’s economy is over-invested and needs to cool – and the energy of Chinese firms has been instructed to turn outwards – China needs and wants to “go out.”
Every company I met was interested in the MENA region. They all view the region as one of vital strategic importance to China and to its vision of the Asian century. They were also all very concerned at the unrest in the region. Most said they wanted to increase their investment and business in MENA but also said that they were unlikely to do so until the political direction of the region becomes clearer.
China is, of course, already here. It had, for example, an estimated 40,000 workers in Libya (whom have all been evacuated without incident in a mission personally supervised by the Chinese Prime Minister). It has projects in many of the countries of the region. But its involvement is small compared to what it could be. One of the major Chinese policy banks has a commercial loan book of $150 billion committed to emerging markets worldwide. Only $500 million of that is in the MENA region.
What must therefore be done to increase flows of investment and capital between China and the Arab world?
First, the political turmoil needs to settle subside – and that will happen at its own speed. Chinese companies are just as sensitive as American, Japanese or British companies to the destabilising impact of political unrest and uncertainty – maybe even more so. The people and the new politicians of the region must understand that stability and predictability are essential to investment. Free speech comes with a price – responsibility. There comes a point where the reasonable exercise of free speech changes into damaging populism or sclerosis. The region is no stranger to either and they both kill investment attractiveness.
Second, the governments of the MENA region must present their opportunities clearly and directly to China – they must engage further with the institutions responsible for Chinese ODI. They must explain and communicate the reality of their countries to those in China who see only the reports on CNN or CCTV and do not know or understand the reality of the situation in the region. Many of the problems lie in perception – and exposure to reality changes perceptions. Every country should have a formal programme of engagement with Chinese businesses.
Third, Chinese investment will have to change its character. The Chinese have until now followed an investment strategy driven by a relatively narrow definition of China’s national interest. This has given them a reputation as investors who do not add much value to the economies in which they invest. Leaving aside how deserved this reputation is – the fact is the Chinese haven’t cared about their image as an investor and seemed not much concerned about ensuring that the benefits their investments bring are clear to the people. Now the people of the Arab world are beginning to find their voice. They don’t want investors who are perceived to exploit them – they want partners – from all over the world – who can create win-win investments. China will have to show it is a win-win partner – not an exploitative extractor.
Richard Banks is the director, Middle East, of the Euromoney conferences.
