February 26, 2019 – Saudi Crown Mohammad bin Salman’s Tour of China, India, and Pakistan Accelerates the Kingdom’s Ongoing “Eastward Tilt” and Poses the Question: Have We Reached a Tipping Point?
Saudi Arabia’s Crown Prince Mohammad bin Salman’s tour of China, India, and Pakistan has been described by many commentators as the Kingdom “tilting eastward.” The reality is, however, that Saudi Arabia has long viewed Asia as vital to its future and has been “tilting eastward” for more than a decade. Shortly after ascending to the throne in 2005, King Abdullah of Saudi Arabia chose China and India as his first two stops as head of state, and Saudi Aramco launched its Asia regional headquarters in Beijing as far back as 2012, while opening an office in Tokyo in that same year. In late 2017, Saudi Aramco opened two new offices, one in India, and the other in Singapore.
It is also worth remembering, amid all of the hoopla surrounding the China and India visits, that Japan and South Korea have been long-time partners of Saudi Arabia, major oil buyers since the 1970s and significant investors in the Kingdom. These are not new relationships, but ones built as all three countries were rising and developing. Saudi Arabia is the number one destination for South Korea’s foreign investment worldwide and, more recently, Saudi Arabia has made high profile investments in South Korean companies, including a $1.1 billion deal to acquire 38% of steelmaker POSCO.
As for South Asia, Saudi Arabia’s managerial ranks in banking, consulting, and major enterprises are heavily stocked with senior executives from Pakistan, while India has been a major oil buyer for at least a decade.
Still, while Saudi Arabia’s economic relations with key Asian countries have been growing ever since the rise of Asian economies (The Asian Century will be fueled by Arabian oil), the visit of the Crown Prince might be seen as a tipping point or at least a high octane accelerator of the Eastward shift. The kind of language used throughout the visit from all sides went beyond the usual diplo-speak toward talk of long-term strategic engagement laced with effusive praise. And the numbers and nature of the deals signed and agreements reached provide substance to the many bear hugs and smiling shots of the Crown Prince with senior Asian leaders.
Here’s a round-up of some of the key deals, quotes and MOUs signed during the three nation Asian tour.
Protocol: The Crown Prince arrived in Islamabad escorted by six Pakistani fighter jets and landing to a 21 gun salute. Pakistani Prime Minister Imran Khan broke protocol by personally driving Prince Mohammad bin Salman from the air base to the PM’s palatial complex, as seen in this video from Pakistan’s SAMAA TV. The Crown Prince received Pakistan’s highest civilian honor, the Order of Pakistan.
Investments: Saudi Arabia pledged $20 billion in investments in Pakistan. The biggest investment and the most fully baked project seems to be the some $10 billion project to build a refinery and petrochemical plant in the port city of Gwadar on the Arabian Sea. The 300,000 b/d refinery and petrochemical complex will be a major boost to Pakistan’s energy security and will also boost the growth of Gwadar port, heavily financed by Chinese state enterprises.
People-to-People: The Crown Prince ordered the release of more than 2,000 Pakistani prisoners in Saudi jails, and he also announced the establishment of a hospital in Khyber Pakhtunwa in honor of the Pakistani hero, Ali Khan, who died while saving lives in flash floods in Jeddah in 2009.
Quotes of Note:
“Pakistan is going to be a very important country in the future and we want to be sure that we are a part of that…We believe in our region and that’s why we are investing in it and we believe that one day we are going to have a great Middle East surrounded by Pakistan from the east side…our commercial relationship will grow every month and every year.” Crown Prince Mohammad bin Salman
Protocol: Prime Minister Narendra Modi broke protocol by personally receiving the Crown Prince at the airport. Normally, the PM would send a senior official to receive a foreign dignitary like the Crown Prince. A Foreign Ministry spokesman declared on Twitter that the Modi move heralded “A new chapter in bilateral relations” and boasted of “breaking protocol” accompanied by a photo of the two leaders clasping hands. India’s Congress Party blasted the Indian PM for the reception of the Saudi Crown Prince shortly after his Pakistan visit. “By breaking protocol and welcoming Saudi Crown Prince Mohammad Bin Salman with such abundance – only hours after he promised billions to Pakistan – PM Modi has shown the country, the martyrs and every soldier in India what he thinks of their service [and] sacrifice,” the Congress Party tweeted.
Investments: Saudi Arabia announced a potential $100 billion in investments in India, signing accords on tourism, housing, broadcasting, and infrastructure, among others. Of course, the $100 billion figure is largely aspirational and time will tell if it comes anywhere close, but the most fully baked project in the pipeline is again from Saudi Aramco. The state oil giant has joined hands with Abu Dhabi National Oil Company (ADNOC) and several Indian oil companies to invest up to $44 billion to build a refinery in the western Indian state of Maharashtra. The deal has hit some political hurdles as the Chief Minister of Maharashtra state has called to relocate the refinery and some analysts are suggesting that the deal’s fate could be tied to upcoming national elections in India. Saudi Aramco officials also held talks with Indian refining giant Reliance Industries for future investments.
People-to-People: Saudi Arabia’s General Entertainment Authority signed deals with Indian entertainment companies to host Bollywood-style concerts in the Kingdom in 2019 as part of efforts to expand entertainment offerings. A few months earlier, an Indian cinema chain, Carnival Cinemas, announced plans to open multiplexes across the Kingdom.
Quotes of Note:
“The time has come to convert our energy relationship into a strategic partnership. The biggest refinery in the world (the proposed Maharashtra refinery) and Saudi participation in India’s strategic petroleum reserve elevate our relationship from a mere buyer-seller relationship…This visit has given new momentum to our age-old relationship.” Prime Minister Narendra Modi
“The ties between India and Saudi Arabia goes back in history and flows in our blood… The relationship between India and Saudi Arabia is in our DNA…He (Modi) is the elder brother and I am the younger brother.” Crown Prince Mohammad bin Salman
Protocol: Unlike Pakistan and India, China chose to maintain correct protocol in receiving the Saudi Crown Prince. He was received according to his rank. I did not detect anything above and beyond.
Investments: Saudi Arabia has long been one of China’s top oil suppliers and has been the Middle Kingdom’s leading trade partner in the Middle East and Africa for 18 years. The two sides have engaged in strategic investments in the past, including Saudi Aramco’s 25% stake in the Fujian Refinery and Petrochemical Complex, dating back to 2007. On this visit, the two sides announced a new strategic investment in a similar vein: a 300,000 b/d refinery and petrochemical complex in Panjin City in the northeastern province of Liaoning. The new company formed to build the complex will be called Huajin Aramco Petrochemical Company and will be 35% owned by Saudi Aramco, and the remaining shares owned by Chinese state enterprises, Norinco (36%) and Panjim Sincen (29%). According to reports, Aramco will provide 70% of the crude feedstock for the complex that is expected to begin operations in 2024. In other news, Saudi Aramco announced that it will join hands with Chinese enterprises North Huajin and Liaoning Transportation Construction to form a marketing joint venture by the end of 2019 aimed at developing retail fuel stations across China and beyond.
People-to-People: In a far-reaching move with substantive long-term implications, the Crown Prince declared that all Saudi schools will begin teaching Mandarin as a mandatory language requirement along with English.
Quotes of Note:
“Saudi Arabia’s strategy involves moving from beyond a buyer-seller relationship to one where we can make significant contributions to China’s economic growth and development.” Amin Nasser, CEO, Saudi Aramco
An advertisement in the latest physical issue of the Journal of Commerce, the leading global logistics magazine that is part of the IHS Markit group of publications, caught my eye. It’s an ad for China Ocean Shipping Company (COSCO), the world’s 3rd largest shipper, according to Marine Insight magazine. It’s an effective ad because it simply lays out the facts, and the facts show that COSCO is a behemoth. Here are some of the vitals:
- 3.6 million TEUs (though Marine Insight magazine publishes a lower figure; whatever the number, it’s massive. See the hyperlink if you don’t know what a TEU is)
- 361 Container vessels
- 356 International and Domestic Routes
- 227 International and Feeder Services
- 43 Domestic Services
- 86 Yangtze River and Pearl River Services
- Calling at 267 Ports in 85 Countries
And…Here’s a Top Ten List of the World’s Biggest Container Shipping Companies
- APM-Maersk (Denmark-based)
- MSC – Mediterranean Shipping Company (Switzerland-based)
- COSCO – China Ocean Shipping Company (China-based)
- CMA-CGM (France-based)
- Hapag-Lloyd (Germany-based)
- One – Ocean Network Express (Singapore-based, set up in Japan)
- Evergreen Line (China-based)
- Yang Ming Marine Transport (Taiwan-based)
- Hyundai Merchant Marine (South Korea-based)
- PIL – Pacific International Line (Singapore-based)
Get Smart: Korean Shipbuilding and The Hyundai Heavy Industries Bid To Take Over Daewoo Shipbuilding in 5 Articles
The South Korean shipbuilding industry, once a lodestar of the country’s industrial development, continues to be battered by lower cost Chinese competition and an oversupply of vessels on the market. Only three of South Korea’s majors still stand on the world stage – Hyundai Heavy Industries, Samsung Heavy Industries, and Daewoo Shipbuilding and Marine Engineering.
Now, Hyundai Heavy Industries is on the verge of buying out Daewoo Shipbuilding, potentially creating a shipping behemoth that would have a combined order backlog of 21.2% of the global market. The lesson here is simple: if you want to compete with low-cost Chinese shipyards in the cut-throat world of shipbuilding, go big or go home.
Hellenic Shipping News, my go-to source on all matters shipping, notes that “the combination of the two shipbuilders would create an unrivaled player in the sector.”
- Korea’s Mega-Merger of Shipyards Set to Dominate Global Shipbuilding (By Costas Paris, The Wall Street Journal., February 6, 2019)
- Hyundai Heavy to Sign Formal Deal to Take Over Daewoo Shipbuilding (Korea Times, February 12, 2019)
- Samsung Heavy Refuses Korea Development Bank Invitation to Buy Daewoo Shipbuilding (Nikkei Asian Review, February 12, 2019)
- Daewoo Shipbuilding workers OK strike against Hyundai Heavy’s Takeover (Hellenic Shipping News, February 19, 2019)
- Hyundai Heavy-Daewoo Shipbuilding to Double Combined Orderbook for LNG Ships: Data (Hellenic Shipping News, February 19, 2019)
Legendary emerging markets investor Mark Mobius is bullish on India, and interested in Turkey and Brazil – Posted February 18, 2019 (from Bloomberg, January 24, 2019)
“I just came back from a two week trip to India and I was amazed at the changes that are taking place. It’s quite incredible.” – Mobius
The New Silk Road Numbers – February 18, 2019
The number of China-Europe freight trains launched in 2018, 6.4 times the number in 2017, transporting a total of 1.2 million tonnes of goods with a value of $1.72 billion, according to China Daily.
The total amount of yuan (US$8.97 billion) that flowed into the China A-share market through northbound trading under the connect mechanism between the mainland and Hong Kong bourses. This marked the first time that the monthly net inflow topped 60 billion yuan since the mechanism debuted in 2014, according to Shenzhen Daily.
< 300 million
For the first time since 2013, Samsung smartphones sold less than 300 million units, according to Korea Times. Still, Samsung remains the best-selling smartphone in the world, with 18.6% of global market share, though under increasing pressure from Chinese smartphone makers.
Economic growth in Thailand for 2018, the Bangkok Post reports
The number of smartphone users expected in India by 2022, doubling its current rate, as reported by Abu Dhabi-based The National. All told, there are about 1.19 billion mobile subscribers in India, according to India’s Brand Equity Foundation, making it the second largest telecoms market after China.
The Highly Regarded Indian Foreign Affairs Columnist C. Raja Mohan Sees a New Dawn in the Arabian Peninsula and Wants Delhi to See it Too
C. Raja Mohan is one of India’s leading foreign policy thinkers and perhaps its preeminent foreign affairs columnist. What Mohan writes matters, and his columns are read widely among India’s political elite. That’s why it’s worth diving deep into a series of Mohan’s columns about the Middle East region over the past six months because he challenges policy-makers in Delhi to shed old prejudices and predilections and see the region for what it is today: deeply divided, strategically vital, and heralding a promising opportunity in the Arabian peninsula. Forget the non-Aligned movement, Pakistan-driven paranoia of the past and look deeper at the strategic shifts taking place, he seems to be saying. Those shifts spell opportunities for Delhi.
The old Non-Aligned mentality in Indian foreign policy that saw U.S allies as part of “Western imperialism” has taken a long time to die in Indian foreign policy circles, and still resonates among some. The other aging attitude that views Middle East allies through the Pakistan lens has also taken too long to die, particularly given the evolving nature of Pakistan’s ties to several Middle East states. What Indian foreign policy elites need, it seems, is an update of their hard drives.
As Mohan notes in one of his columns, “India’s emphasis was on solidarity with Arab nationalism and against neo-colonialism and Western imperialism. Given its preference for ‘secular republics’ in the Middle East, an element of defensiveness inevitably crept up in India’s relations with the religiously conservative monarchies, especially Saudi Arabia.” He argues now that it is in India’s national interest to support reform efforts led by Saudi Crown Prince Mohammad bin Salman and has noted that Riyadh has increasingly de-hyphenated its relations with Delhi, away from a Pakistan first vision.
Mohan is urging Delhi to see the region for what it is today, rather than live with old slogans. Mohan specifically cites the United Arab Emirates as a place of transformative change that can push the broader region in a direction that would be beneficial to India. He also notes “civilizational” bonds between the Arabian peninsula states linked to India via the western Indian Ocean, Arabian Sea, and the Persian Gulf.
This strikes me as a new way of looking at relations that, in the past, were more transactional. “Civilizational bonds,” in Indian strategic thinking, tended to be reserved for old civilizations like Iran, but Mohan has added a civilizational layer to a growing strategic one between India and key Gulf states UAE and Saudi Arabia.
It often struck me as odd that few Indian Prime Ministers would visit the United Arab Emirates regularly until Narendra Modi broke that pattern in 2015, the first Indian PM to visit the UAE since 1981 (he visited again in 2018, and even Congress party leader Rahul Gandhi has made a UAE pilgrimage recently). This lack of attention to the UAE felt to me like a case of foreign policy malpractice given the dynamic commercial relations between the UAE, principally Dubai, and India, not to mention the huge numbers of Indian expatriates — from laborer to senior executive — living and working in the UAE.
For a run-down on the UAE-India commercial relationship, see my piece in Reuters last year – India’s Most Vital Hub City Isn’t in India. I’m also at work on a monograph on UAE-India geo-economic ties, and during the course of research, I’ve often been startled by how deeply these economies are intertwined. More on that coming in these pages soon.
In one of Mohan’s most important columns, entitled “Rethinking the Gulf,” he points to the emerging growth of a “moderate Arab centre” led by the UAE as one that “should resonate deeply with India’s natural ethos and its traditional empathy for modernising forces in the Arab world. Helping the construction of a moderate Arab centre envisaged by Abu Dhabi, then, is very much in India’s interest.”
Critically, he places the movement to push back against political Islam, centered in Abu Dhabi, as not simply an interesting development in the Muslim world, but vital to India and the broader subcontinent’s future. In a column about the visit of Pope Francis to Abu Dhabi, Mohan notes that “the story, arguably, is less about the Pope and more about the United Arab Emirates that is hosting him.” He describes the invitation to the Pope as “very much part of UAE’s surprising charge for religious tolerance, inter-faith harmony and separating religion from the state in the Middle East.”
“No one is betting that the relatively new federation of seven small sheikhdoms…can change the political narrative in and about the Middle East,” Mohan writes but “few countries have a bigger stake in UAE’s success than India.”
“For the decline of the forces of moderation and modernisation in the Middle East, the inevitable export of radical ideologies and the mobilisation of religious identities for political purposes has had a devastating impact on the Subcontinent’s politics — internal, intra-regional and external. The success of the UAE’s project for a moderate Arab centre would hopefully make it easier for India and its neighbours to revitalise the great Subcontinental tradition of inter-faith harmony. Arabia’s embrace of the Pope, paradoxically, is also about the virtue of separating religion from state, a principle that India has been dangerously tempted to devalue.”
Mohan also points to “the growing impact of the Gulf countries in the Indian Ocean region. Nowhere is this more evident than the Horn of Africa. The recent success of the UAE and Saudi Arabia in brokering peace between Ethiopia and Eritrea who had been locked in a prolonged conflict underlines the positive role of the Gulf in Africa.”
“The Gulf states have relied in the past on the Anglo-Americans for their security. As America and Britain gaze at their own navel, the Gulf states are taking greater responsibility for managing the regional order. The conditions under which India could afford to take a purely bilateral approach to the Gulf nations are beginning to disappear. India needs an integrated regional strategy to secure its ever-rising stakes in the Middle East and the Western Indian Ocean.”
All of his Middle East (or, as they say in Delhi, “West Asia”) columns are worth reading, and I have linked them all below:
The South China Morning Post reports on February 14, 2019 that Hong Kong continues to slip below other Asian port rivals in terms of container traffic, falling to seventh place for 2018, according to Drewry Shipping Consultants.
Hong Kong held the title of the world’s busiest shipping port until 2004, when it was eclipsed by Singapore. Today, it ranks seventh, falling behind Gaunghzhou in China and Busan in South Korea in 2018, according to 11 month figures and December estimates.
With some 90% of world trade carried by maritime shipping, let’s take a look at the top ten busiest ports in the world, according to Drewry Maritime Research.
- Ningbo (China)
- Shenzhen (China)
- Guangzhou (China)
- Busan (South Korea)
- Hong Kong
- Qingdao (China)
- Tianjin (China)
- Jebel Ali (Dubai, UAE)
Andy Rothman is, in my view, one of the sharpest observers of China’s economy. His work is always a must-read. In the latest issue of Sinology, published by Matthews Asia where Andy works, he asks the question on many minds: when will the oft-discussed China collapse finally arrive? His conclusion: No collapse is imminent. Among the reasons: China’s economy has made significant steps toward rebalancing its growth story toward consumption (76.2% of GDP growth last year came from final consumption of goods and services) and away from state-led investment, and is far less reliant on net exports for GDP growth. In fact, in 2018, according to Rothman, the contribution to GDP growth from net exports was -8.6% (yes, negative!). He also points out that growth was not bad, but market sentiment was battered by US-China trade wars and policy uncertainty within China. That will likely change by the 2nd half of 2019, he says.
So, consumption is driving growth, net exports are less important to future growth, and state-led investment is no longer the key driver. This is a new structural China story that has been in the works over the past few years, but has crystallized last year, and Rothman lays it out very well.
Some excerpts from Rothman’s excellent newsletter below:
Has the China Collapse Finally Arrived?
“China has been on the verge of a hard landing for many years, according to some analysts. Will they finally be right in 2019? In this issue of Sinology, I explain that in the fourth quarter of 2018, China’s economic deceleration was not significantly sharper than I expected, and several policy changes should lead to stronger activity and market sentiment in the second half of this year. A hard landing is still not on the horizon.
There was not a sharp slowdown in the last quarter
Everyone paying careful attention to China should have expected the year-on-year (YoY) growth rates of almost every aspect of the economy to slow a bit last year, as that has been a consistent pattern for about a decade. The economy has become so large, and growth rates were so fast for so long, that this deceleration is inevitable.
What has worried many observers, however, is the perception that in the last quarter (4Q18), China’s growth rate slowed much more sharply than expected. With final data for 2018 now in hand, let me explain why that perception is not accurate.
Still the world’s best consumer story
Let’s start by examining the largest part of China’s economy—consumption.
Income growth is, of course, the foundation of consumer spending, and in 4Q18, inflation-adjusted (real) income growth slowed a bit, to 6.2% YoY, down from 6.9% in 4Q17. That degree of slowdown was within my expectations, and it is worth noting that last quarter’s pace was roughly the same as the 6.3% recorded in 4Q16.”
To read the full newsletter, go here
Happy Chinese New Year 2019 to all New Silk Road Monitor readers! Chinese New Year is big business for national and foreign firms. Here’s a round-up of some Chinese new year “Year of the Pig” business coverage.
- Year of the Pig: in Muslim Malaysia, brands tread carefully for Chinese New Year, from the South China Morning Post
- Lunar New Year holiday to be litmus test of Chinese shoppers’ resilience, from the Japan Times via Bloomberg
- Three Things Foreign Companies Should Know About Chinese New Year – from China Briefing
- More clicking, but touch and feel still matter for the Lunar New Year – from Business Times, Singapore
- Chinese New Year set to give luxury retailers in London a sales boost – from the Evening Standard, London
To understand what the Chinese new year means to the national economy and to broader East Asia, check out this piece from CNBC last year
Some highlights from the CNBC piece below:
- Lunar New Year, popularly known as Chinese New Year, means major spending across Asia on food, red packets and travel.
- Red packets, which are gifts of money from married to unmarried people, have propelled the growth of China’s tech companies like Tencent.
- The week-long holiday is a time for Chinese travelers to go on vacation, and 6.5 million Chinese holidaymakers are expected to travel abroad this week.
There’s a great piece in the Abu Dhabi-based English daily, The National, that explores the rise of China’s tech players in the UAE. The piece quotes extensively from my friend, Sam Blatteis, who is one of the sharpest analysts and consultants on the New Silk Road beat with a Middle East/North Africa (MENA) focus. Some striking highlights from the piece:
- 1.3 million Chinese tourists visited the UAE last year
- Alibaba announced a $600 million “Tech Town” investment in Dubai “which would one day house 3,000 firms developing robotics, artificial intelligence, and mobile apps. It’s slated to be five times the size of the Pentagon and built near Dubai’s Jebel Ali port.”
- Sam Blatteis notes the distinction between the Chinese firms that chose UAE as their HQ versus those that chose Egypt: “The Chinese tech titans are accelerating at different speeds in the UAE. Those that have chosen to headquarter in the country (Alibaba, Huawei) for the Arab world are well ahead of those that have not: China’s answer to Google, Baidu, for instance, which headquartered in Egypt with about 40 employees at its height – seem to have left the Middle East approximately 18 months ago,” Blatteis says.
- The National writes: “The UAE’s smartphone penetration is the highest in the world at 73.8 per cent, with more than 90 per cent of the population having access to the internet. This has laid fertile ground for Chinese smartphone conglomerates to come knocking. Many of them were drawn to the UAE, in particular, for the focus on fifth generation connectivity, which is due to arrive in the UAE this year. Technology analysts estimate 5G connectivity will boost the GCC economy by $269bn over 10 years with cheaper, faster internet access and connecting devices through the Internet of Things.”
- Sam Blatteis again: “The intense competition coming from the Far East has left western companies fighting for attention. “Nearly every large Chinese tech company is cementing long-term ties with the UAE tech sector, looking at the Emirates as a hub for finance and technology investments, not simply a customer for ads, marketing and users. Simply put, China is rewriting the rules on how to rise in influence in the Middle East. Because of the UAE’s goliath-sized ports and the country’s geographic position almost sandwiched between Saudi Arabia to its West and Iran to its East, the UAE is thinking at-scale too about how to contribute to both Silk Road routes.”