China’s One Belt One Road policy makes big strides in Middle East with Egypt’s city development project

On October 2016, China took over a new project in Egypt, regarding the construction of a new capital city, with evaluation of about US$45 billion. China continues to expand in Middle East and beyond through huge investments and establishment of strong trade ties, adopting a very different approach compared to the intrusive one that the U.S. has had for many decades in the region.

By Dimitra Stefanidou 

China undertakes billion dollar project in Cairo

In October 2016, China Fortune Land Development Company signed an agreement to undertake the second and third phases of Egypt’s new capital city project. The investment is valued at US$20 billion and comes after a previous investment of US$15 billion, which was made by a Chinese state-owned company. This increased the funding of the project closer to the amount of US$45 billion which is required to complete the first phase of the new capital city project. However, the contract of China Fortune Land is not yet binding, as further negotiations must be made which create concerns about the speed of its final conclusion.

Cairo will become China’s showpiece in Middle East

This project is part of a greater plan for Egypt to establish a new capital city to the east of Cairo. Plans were first announced in March 2015. Unlike most Middle Eastern development plans, the Egyptian president, Abdel Fattah Al‑Sisi made clear that the state will not fund this programme and that most of the funding will come from outside Egypt. The project will need at least seven years to be completed. The purpose of the project was to ease Cairo’s congestion and overpopulation.

China has been rapidly increasing their global influence. In January 2016, China’s President Xi Jinping pledged support during a state visit to Egypt. Then, it was made clear that Chinese companies will back up local contractors during the initial construction phases through loans.

“China supports Egypt’s efforts to maintain stability, develop the economy and improve livelihoods, and … play an even greater role in international and regional affairs,” Mr. Xi said. He also said that China would provide Egypt with special loans of US$15 billion so as to promote industrial production in the region, US$10 billion in trade credit for joint energy projects and US$10 billion in soft loans.

The US$20 billion agreement will entail deeper financial commitment from China Fortune Land. The Chinese company will develop more than 5,650 ha of land in the new capital. Competing with top tier cities in Middle East, this new development will include a smart city and hi-tech zone.

The Chinese government’s intentions are clear. They are investing time and money to ensure Egypt becomes a Chinese crown jewel development in Middle East. This project is likely to become a showpiece for China as they engage different parts of the world to support China’s One Belt One Road policy, which aims to boost the political and economic dominancy of China overseas, through significant projects on energy and communications in the regions of central, west and southern Asia, Africa and Europe.

Within addition to financial intensive projects, Egypt and China also agreed to develop the China-Egypt Suez Economic and Trade Cooperation Zone. This could attract more than 100 companies to work in Egypt and could create more than 10,000 jobs. China is aggressively establishing political goodwill around the world. Some analysts observed that this is part of China’s plan to achieve equal status as that of the U.S.

Chinese’s international influence continues to grow beyond Middle East

On Friday, 14 October, the vision of the One Belt One Road policy was clearer through a series of deals that were signed between China and Bangladesh, during President’s Xi Jingping’s visit to Dhaka. About 26 memorandums of understanding and agreements were signed. The deals covered India’s infrastructure, climate change, cooperation and measures on counter terrorism and energy. Those deals intend to enhance the bonds of the two countries to a “strategic partnership” and will be funded with about $23 billion through loans from China.

Additionally, China Railway Group, which is one of the biggest construction companies globally, bid for a US$3.1 billion project in Bangladesh. This massive project involved constructing a rail network of 168,6 km. Trains will run with high speeds of 120km/h. The railway will connect Dhaka, the capital, to Jessore which is a district in the southwestern region of Bangladesh.

Southeast Asia’s economic and strategic importance led China feature ASEAN as well, within its plans of expanding overseas. In 2013, the China-ASEAN Investment Cooperation Fund was established with the purpose of realizing investments in infrastructure, energy and natural resources in ASEAN countries. Its establishment was funded with US$1 billion and it aims to reach US$10 billion.

The fund was sponsored by China Export-Import Bank (Eximbank) which contributed US$300 million of its starting capital. The China-ASEAN Investment Cooperation Fund specializes in sustainable investments that aim to bring financial development to the Company but also important values to the community.

Why is Middle East so important to China?

Middle East is not only crucial for China’s new Silk Road programme. The region is also rich in resources. It accounts for close to 50% of the world’s oil and natural gas. In addition, most of the nations in Middle East are development countries – high growth potential.

The different conflicts continue to challenge the Middle East. (e.g. example, Israel and Palestine, Sunni and Shia that may exist in the midterm). Religious, national and political conflicts affect economic perform in Middle East.

The key question is whether China is ready to ramp up military influence in the region should terrorism and religious extremism continue to grow.

China vs. U.S. in the Middle East

U.S.’s intervention in the Middle East has been labeled as intrusive and disruptive, having also played significant role in several arms and conflicts of the area. Since the late 70s, the U.S. has helped Egypt through military and economic aid. Investments to Egypt have been considered to be crucial by the different U.S. Administrations in order to ensure regional stability, through long term cooperation with the Egyptian military.

Between 1948 and 2015, the United States provided Egypt with $76 billion in bilateral foreign aid including $1.3 billion a year in military aid from 1987 to the present.

In order to enhance the U.S. influence even more, in July 2007, under the presidency of George Bush, the U.S. Administration announced the initiation of discussions as a part of a larger arms package to the region, for the conclusion of a proposed $13 billion military aid agreement for a period of more than 10 years.

However, as Egypt was already getting an amount of about $1.3 billion per year in military assistance by the U.S., the abovementioned plans of the Administration wouldn’t bring any important alteration in the U.S. aid policy towards Egypt. Since then, the Egyptian government hasn’t concluded any similar bilateral agreement with the U.S., regarding U.S. military aid.

China’s approach, on the other hand, is clearly different from the U.S. Instead of intervening in armed conflict, China’s choice of influence is investments. The basic policy of China is to expand economic and trade bonds. China has been long present in the region. China has participated in massive energy deals in Saudi Arabia and worked on huge Iranian infrastructure projects.

China’s choice to portray herself as a peacemaker and job creator seems to be more palatable for existing Middle East leaders. As Chinese vice Foreign Minister Zhang Ming said “If the Middle East is not stable, I’m afraid the world can’t be very peaceful. If a country or a region is not stable, it cannot realise development. China firmly supports regional countries individually exploring a development path that suits their national conditions. “

What comes next for China?

It is very possible for China to emerge as equal power brokers in the Middle East within the next decade. If this continues, China will have an equal say in oil and in major international disputes such as the Israeli-Palestinian conflicts.