Arabia takes the New Silk Road to China, spurning the West

By Ambrose Evans-Pritchard

Published: 9:03PM GMT 01 Jan 2010

With hindsight we can see that two events occurring within days of each other
in late 2001 brought about an epochal change in the world’s strategic
system, drawing China and the Mid-East oil powers into each other’s arms
again after five centuries of estrangement. The old Silk Road came back to
life.

The Twin Towers attack of 9/11 – and the backlash that followed – caused the
Arab world and its money to turn away from the US. That much is well known.

Six days later, the World Trade Organisation (WTO) concluded talks on China’s
accession, opening the floodgates of Chinese exports. The country’s
breakneck growth over the next seven years lifted the price of oil from $18
(£11) to a peak of $148 a barrel. In synergy, Beijing and the Gulf capitals
amassed a vast share of global currency reserves. That too is well known.

It is the link between the two that is not immediately visible to the
distracted Western eye. You have to know both regions intimately, and speak
both Arabic and Mandarin. One of the few to combine these skills is Ben
Simpfendorfer, China economist at the Royal Bank of Scotland and author of The
New Silk Road
.

“These are regions with very rich civilisations that both experienced
colonial occupation, and feel that they have fallen. Both peaked around the
same time in the golden years of the 1500s, and now there is this sense of
shared destiny that China and the Middle East are back and rising again
together,” he said at the annual FIKR Arab Thought summit in Kuwait.

The broad outlines are familiar to Westerners, but not the crucial details. “The
assumption used to be that if anything was important, it would at some point
come across the desks of analysts in London, Brussels or Washington. But
that is not the case any more. There is a dialogue going on between Beijing
and Riyadh, and unless you are paying close attention, you are going to miss
it,” he said.

Simpfendorfer, an Australian economist, said he first became aware of the
remarkable undercurrents on a visit to Yiwu, a small city south of Shanghai
with a clutch of Lebanese, Syrian, and Egyptian restaurants, and its own
mosque and imam paid for by a welcoming Chinese state – so starkly different
to the mood in, say, Switzerland, where voters have just said no to
minarets.

On the outskirts of Yiwu is a vast “souk” with 18,000 stalls serving
an army of Muslim traders. Arabs come and go freely. It takes a day for an
Egyptian to obtain a Chinese visa. It takes 18 days for an American visa,
followed by a frigid welcome at US immigration posts – with enough horror
stories of mistaken identity to deter many from trying.

“The masterstroke was Beijing’s decision to relax visa requirements
around the same time as the events of September 2001,” said
Simpfendorfer.

This “temple of consumerism and globalisation”, as he calls it,
serves the rising middle class of the Arab world. Their spending power is
intimately linked with the industrialisation of China through oil prices:
directly in the energy states of North Africa and the Gulf, and indirectly
in Egypt and the Levant, through the regional wealth effect.

Oil demand in the OECD club has already peaked. China accounted for 40pc of
the increase in global crude demand between 2004 and 2007, a pattern that is
expected to last for another 20 years or so as the Chinese take to the road.
Measuring the “China effect” on the world oil price is impossible,
but if the International Energy Agency (IEA) is right in fearing a supply
crunch after 2010, this will lead to an immense Arabian windfall. The IEA
expects the Mid-East share of global oil output to rise from 30pc today to
around 38pc by 2030. Great wealth has already rotated from the West, through
China, to the Middle East. Arab wealth funds have accumulated $1.4 trillion
(£880bn). In a decade they may boast a lot more, and it is a fair bet that
much of it will be invested in China.

Simpfendorfer says the New Silk Road is much like the old one, then a network
of trade caravans moving dates, spices, medicines and cloth east in return
for oranges, roses, jade, musk, satins and silks, along countless routes
stretching across Central Asia. In the West we think of Marco Polo: the
Arabs have their own Ibn Battuta, a Moroccan Berber who roamed much of the
known world in the 14th century and reached imperial Fujian in a junk.

The trade dried up in the 1600s with the collapse of the Timurid Empire in
Central Asia. China’s Ming dynasty turned inwards, afraid of revolts.
Portuguese, Dutch, and English sea captains captured the coastal trade.

Of course, China’s relations with its Muslim Uighur (Turkic) minority are far
from happy, as deadly riots revealed last year. But that is an ethnic
separatist dispute. Most of the country’s 18m Muslims are Hui Chinese,
descendants or converts of the Arab traders who speak and look Chinese. They
have their mosques and halal food, but otherwise are fully assimilated into
ethnic Han society. They are viewed as loyal by Beijing. Many have learnt
Arabic.

Simpfendorfer says China’s rise will be rocky. The “big bang”
reforms of the 1990s that allowed the Chinese to buy property and opened up
markets for WTO accession will not be repeated. “There is nothing like
that this time.”

China is pinning too much hope on the revival of Western demand. It is irking
the rest of the developing world by holding down the yuan. As for the West,
there is still much ruin in our civilisation, to paraphrase Adam Smith.

“We’re seeing the rise of the East, but I don’t think we’re seeing the
fall of the West. China and the Middle East are for the most part massively
short of food and water. The US, Australia, France and Germany are all food
exporters, and if climate change is serious, that is a huge strength for the
West.”

Yet the global game will never be quite the same again.