Why China? Why now?

For those of you who have been on my mailing list since 1984 or before, it will not come as a surprise that I am continuing to focus part of my attention, regarding what is happening in the world, on what is unfolding to the east of Arab world, and on China in particular.

Until my family and I became residents of Dubai in early 1976, I had never travelled east of the Arab world except for one trip to Tehran. In the years that followed, my wife and I made numerous trips to the USA, while our children were studying there, and we would stop over in South East Asia or the Far East on our way to or from the U.S.A. This was a whole new world for us, and after a trip to China in 1984 1 wrote one of my letters to my friends reflecting on that visit. The text of this letter was later included in the small volume of my "Reflections of An Arab Businessman Living In The Gulf", which was published in 1988. I am enclosing copies of the pages featuring the "Reflections On A Visit To China."

Over the past 20 years I have continued to follow, with great interest, what has been happening in the East. What has occasioned my writing to you again about China, at this point in time, are several recent happenings:

* In late January, Saudi Arabia signed a contract with China's Sinopec Group for the exploration and production of natural gas in a 38000 square kilometres block block in the South Ghawar region in the eastern part of the Kingdom. (Another similar contract was signed with a European consortium of Italy's ENI and Spain's Repsol on the same day, after an agreement had been signed with Russia's Lukoil on 3anuary 26th).

Saudi Oil Minister Ali AI-Naimi said at the recent economic summit in Davos that Riyadh's ties with Beijing were expected to get stronger. Saudi Arabia already has a stake in a Sinopec-led refinery and petrochemicals venture in China.

"China is actually becoming quite a strategic ally for us in the energy business," Naimi said. "They want to come upstream in Saudi Arabia. They are welcome, and we want to go downstream in China, where we are welcome." It is estimated that China will need 5.8 million barrels of oil a day this year, replacing Japan as the second biggest oil-consuming state after the US.

* Chinese President Hu Jintao made tiny Gabon the sole sub-Saharan African destination on his latest diplomatic tour, thus demonstrating China's wish to rival U.S. access to West African oil.

* Chinese President Hu Jintao visited Airbus'headquorters in Toulouse during his recent visit to France. Industrial co-operation was at the heart of discussions throughout President Hu's visit. Five Chinese companies are already involved in manufacturing Airbus parts. China also participates in the A380 program and will deliver, in March, a ro-ro ship, built in Shanghai, which is specially designed for sea transport of A380 components.

November 17, 1984

Reflection on a visit to China

My first ever visit to China occurred in 1984 when I spent the period between October 12-24 with an international group of business executives attending a conference on "Business Practices In China", organised by Stanford Research Institute International in collaboration with China Economic and Trade Consultants Corp (CONSULTEC), which is a branch of the Ministry of Foreign Economic Relations and Trade of China.

After spending five days in Beijing, where the group attended many meetings and presentations, we then moved to Guangzhou (Canton) to spend three days at the Autumn Fair. We then stayed three days in Shenzhen, which is one of China's four Special Economic Zones. In both, Guangzhou and Shenzhen, we were given additional details of economic developments in China today and we visited port and other infrastructure projects, as well as several joint venture enterprises established in these areas.

A twelve-day stay in China certainly does not qualify me to become really knowledgeable about this vast country and developments currently taking place there. However, one cannot make such a trip and be exposed to the various top people we met, and see with his own eyes some of the developments going on, without coming away with some ideas or impressions, call them what you may. I must state here that some of the members of our group had been to China many times before and so the rest of us benefited very much from our private discussions with these colleagues who have been following developments in that country for many years.

A population of at least 1,000,000,000 people i.e. more than one quarter of the people on Earth!

* A vast geographical area with all sorts of climatic conditions.
* A rich historical and cultural background.
* A very strong presence in the Pacific Basin area, which most probably, will be the most dynamic area of the world in the remaining part of this century, and in the coming century.
* A political system that is currently going though very major changes in the way it manages its economic problems.

The above are some of the main facts that characterise China. The way, in which this vast and populous country will develop over the coming few decades is going to have a very major impact on the world geopolitical scene.

Communism in the China of today is certainly very different from the political and economic systems of Russia and Eastern European countries, and it would seem that the chasm will grow larger with the passage of time.

On 20 October 1984, the Central Committee of the Communist Party of China unanimously adopted (at the third plenary session of the 12th Central Committee) a document entitled "A Decision Of The Central Committee Of The Communist Party Of China On Reform Of The Economic Structure". This is an exceedingly interesting document that goes to great lengths in explaining where China plans to go in the reform of its economic structure and the rationale behind these projected changes. Some excerpts from this historic document are quoted in an Appendix in this volume. May I suggest that this document be read before perusal of my comments below because I think that one would get a better feel for the course, on which China is embarking by first knowing the "official line" of thinking, in the light of which my comments may have greater relevance.

I would also like to quote two statements, which appeared in the official "China Daily" during our visit to China:

"As China reforms its foreign system, it needs more people with a knowledge of economics and technology and with foreign management expertise."

"Management in capitalist countries is very good though their social system is decadent. They know how to raise production and they pay much attention to economic results. Since technology has no class nature, our students should learn from them so as to serve socialist construction."

From a statement made by Chen Muhua, State Councillor and Minister of Foreign Economic Relations & Trade at the 30th anniversary of the University of International Business and Economics in Beijing in October, 1984:

"Chinese leaders should dress more fashionably and help to create a revolutionary change in people's attitudes to clothes and lifestyles."

"Our leading cadres should take the lead to dress more fashionably. When most people become used to wearing new and fashionable clothes, the critics will automatically subside."

"The Old Chinese concept that a garment could be worn three years as new, three years as old, and then another three years patched-up is completely out of date. How are we going to develop our textile industry if everyone keeps wearing the same garment for nine years?"

"We should liberalise our minds a bit, make life more beautiful and stop viewing fancy clothes as exotic. The idea that a woman should dress and look older than her age or show she is austere must be banished once and for all. Women should be bolder in wearing pretty clothes and should discard the idea that wearing shabby clothes was virtuous."

Vice Premier Tian Jiyun, commenting on the clothing fair, which took place in Beijing in October.

The "Decision On Economic Reform" and what is being voiced in China today, as typified by the above two quotes, are indeed, not what I had come to expect as statements of economic policy and objectives in a communist state. It would seem that the interpretation of Marx & Lenin by China today is quite different from what Russia and its satellites in East Europe apply in the way of economic policy and directives.

Furthermore, what our group was able to see "on the ground", in the field of economic joint venture activity and, especially, in the very rapid development that has taken place in one of the four Special Economic Zones, Sherizhen, made us feel that we were witnessing a real desire for change that was actually being implemented, in various stages, and with varying degrees of success. China is undoubtedly undergoing very major changes in its economic direction.

For a country with the potential weight of China to move in this direction, which cannot but be described as a radical departure from the doctrinaire communist/socialist camp, the consequences for the balance of power in the world are immense. The geopolitical implications are of such magnitude that one cannot afford to ignore this development.

How Could This Affect The Arab World?

Politically, the Arab World has been a major field of battle for influence, plus the arena for dirty proxy wars, between the two superpowers of the world, the USA and the USSR. Europe has been proven to be incapable of acting as a credible and effective third force that would alleviate the pressure on Third World countries, in general, and the Arab World in particular. China has the potential of becoming a major balancing factor on the world political scene.

Furthermore, China's position on the Palestinian question is important, as it does not suffer from the equivocation of Russia's history on this vital issue, and the USA's definite bias.

China has had diplomatic relations for some time with Kuwait and Oman in the G.C.C. area and a recent decision was taken by the U.A.E. and China to establish diplomatic relations. It is to be hoped that the political relations of all the countries in the Arab World with China will move into high gear and will be intensified quickly because the Arab World has a lot to gain from the "China Connection".

Economically, China offers major fields for economic interaction with the Arab World, and the Gulf area in particular:

1. China needs a lot of capital for its ambitious economic development plans and there is no risk in giving loans to China as the country's history in repayment has been impeccable. In addition to the financial gain on the loans, the lenders from the Arab World, both government and private institutions and investors, would be gaining the goodwill of China and would be opening the door for other economic joint venture activities that would give greater returns on investment than direct loans, in view of the liberal policies now being implemented in the Special Economic Zones and in the fourteen coastal cities in which the economy is being liberalised.

With its usual foresight, Kuwait has given soft loans, over the past few years, to different projects in China (airport at Xiamen, chemical factory near Nanking, a cement factory and a plywood factory). The time is now ripe, in my opinion, for Arab governments, investment institutions and private investors to actively study a wide range of joint venture investments that could be far more remunerative than some alternative investments in other parts of the world. Such investments would also have the advantages of being a source of diversification of Arab portfolio investment and a means of developing good relations with a world power that will have an increasingly important role to play on the world economic and political scene.

These investments could also be of the triangular type, with Arab money joining Japanese or Western technology in establishing joint venture projects in China.

2. China is an oil producer with a current production of 105 million tons per year. China hopes to be producing 150 million tons per year by 1990. This information must be factored into the Arab world's and, especially, the Gulf countries' thinking. How will China's increased production affect the world oil scene?

3. China's agreement with the USA to purchase guaranteed quantities of grain has been effectively ended, according to recent reports. Under an agreement between the USA and China reached in 1981, China was due to import a total of 8.2 million tons over 1983 and 1984. But, according to U.S. statistics, China has so far only bought 4.3 million tons in this period, with less than two months to go before the end of the year. China's increasing ability to adequately feed its one billion people will also affect Australia and Canada, the other major grain suppliers.

It is not inconceivable that China could become a net exporter of grain in the future due to the progress that has been made in the field of agriculture and the potential for further improvement. We were told that the poor transportation and storage infrastructure that still characterise China today lead to a current wastage of possibly 50% of their agriculture production. Improvements in this field will undoubtedly lead to China becoming a major force in the field of export of food products. As the Arab World is a major importer of food, this development cannot but be an interesting fact, especially as there is a wide scope for arriving at mutually beneficial agreements with China's economic organisations at advantageous terms to the Arab world, which would, at the same time, lessen our dependence on the USA, Canada and Australia for grain imports. China could also become a major trade partner of the Arab world for other food products such as rice, meat, chicken and dairy products.

4. A potential market of 1,000,000,000 people, which is gradually opening up, cannot but make an entrepreneur's saliva run. Large new markets are there to be developed, if the entrepreneur can only find the formula that meets China's requirements, and this task is now being simplified by China's new more liberal economic policies.

Pacific Basin & ASEAN Implications

While Europe and most of the Western industrialised world have been experiencing serious economic problems over the past ten years, the countries in the Pacific Basin and the ASEAN countries (Singapore, Malaysia, Indonesia, Thailand, Philippines and recently Brunei) have experienced varying rates of positive economic growth. The outlook for the coming decades is, in varying degrees, also quite good for the majority of these countries, with China and Japan leading the way.

Furthermore, the very fact that this whole area will continue to prosper is the best guarantee that China will continue on its economic reform course because Chinese leaders have ample proof, in most of the countries surrounding them, that prosperity and progress are connected with the rewarding of initiative and hard work, and with giving scope for free enterprise to flourish. China has already experienced this in its rural economy and there will be no any stepping backwards in this area. Reform in the urban areas is just starting and this should also move forward, initially with some difficulties but, nevertheless, relentlessly forward, and at an increasing pace in the years ahead.

What Can Arab Governments, Organisations & Investors Do?

"Knowledge" is the key word.

In addition to the steps alluded to above, the major thrust should concentrate on knowledge.

* A much more active Arab presence should be established in the Far East, particularly in China itself, as well as in Hong Kong, as this is increasingly the best "window on China and on South East Asia". Needless to say, Singapore and Japan should also not be neglected, as important in their own right and as listening posts. Arab banks and investment organisations should increase their strength on the ground in these areas, as they will serve as the advisers for Arab investors and, possibly, the channel through which many investments can be made.

Arab embassies in the area should have strong economic and commercial staffs to help develop economic ties in a short period.

* Bright young Arabs should be sent to the Far East to learn to speak Mandarin, the official language of China, and to be immersed in Chinese culture so that we will have Arab executives and diplomats with a first hand knowledge of what is going on and we will not have to rely eternally on interpreters. Similarly, a knowledge of the Japanese language and Japanese culture should also be a prime objective.

I heard an interesting comment from a knowledgeable Singaporean, who is of the Indian Sikh sect, whom I met in Singapore on my way back from China. On discussing some of my observations on China he said: "Why do you think our Prime Minister spearheaded a campaign a few years ago for all Singaporeans to learn to speak Mandarin?

The 75% Chinese population of Singapore speak Cantonese as they are mostly originally from that area, and Mandarin is quite different. The forward looking Singaporean rulers want all their population to be well equipped to deal with China as the major political and economic power in the area!

When the USA was being developed, a popular slogan was "Go West, young man". Maybe we in the Gulf area of the Arab World should adopt a slogan of "Go East, young man".