Monday, January 25, 2016

Developing Egyptian-Chinese Relations
Ahmed El-Sayed Al-Naggar
Sunday 24 Jan 2016

Mutual presidential visits between Egypt and China in the last two years indicate a convergence of potentials for mutually beneficial enhanced relations between the two countries

If principles shaped Egypt’s outlook in challenging the West and establishing diplomatic relations with blockaded China in 1956, relations between the two countries developed into a mixture of principles and common interests, especially that their respective civilisational heritages are based in both countries on fair and peaceful cooperation.

But successive presidential visits in the last two years reveal a profound perception among both parties of the compatibility between their economic capabilities in a way that enhances opportunities of moving their relationship towards comprehensive strategic cooperation; especially where lie enormous opportunities between the two parties for an exchange of benefits in an equitable manner.

China articulated its focus on consolidating its relations with countries of the southern hemisphere through its initiative to revive the symbolic value of the old Silk Road. This has formed a frame reference for international economic relations based on peaceful cooperation and exchange of benefits without inclination towards hegemony of one country over others.

Because there are huge opportunities for Egyptian-Chinese economic cooperation, it is important to draw the salient features of the Egyptian and the Chinese economies’ volume and performance, the realities of their economic relations, and the chances of developing them into strategic relations between the two countries.

Although I have tackled these matters before in the pages ofAl-Ahram, strategic changes in the relation between the two countries warrants focus on the huge opportunities for cooperation, the great hopes attached to developing cooperative relations, and on the results of mutual presidential visits.

The Egyptian economy’s performance and potentialities

Egypt’s Gross National Product calculated in dollars according to the prevailing exchange rate was $273.1 billion in 2014, while the same GNP in dollar terms reached in accordance with purchasing power parity between the dollar and the Egyptian pound about $919.2 billion in the same year.

Agriculture’s share was 14 percent of the Gross Domestic Product in 2014 while the processing industries’ share was about 16 percent, the extractive industry’s share around 24 percent, and services 46 percent.

According to the International Monetary Fund in its 2014 Direction of Trade Statistics Yearbook, Egyptian commodity exports value reached about $28.9 billion while Egyptian imports value reached $65.2 billion in the same year. The trade deficit reached $36.3 billion.

Official figures state that Egypt’s services exports reached around $22 billion in the fiscal year 2014-2015 and its services imports were $17.3 billion dollars in the same year. The services trade surplus reached around $4.7 billion while expatriate Egyptians’ remittances were around $19.3 billion in the same year.

The Egyptian market comprises about 90 million consumers, who are the entire population inside Egypt. Among them, 28 million constitute the workforce with varying levels of skills, whose wages are even lower than their counterparts in China and all rising economies. There is also more than eight million Egyptians working and living abroad and visiting it annually. If expatriates are added to Egypt’s population, the total population will rise to 98 million people.

Egypt has free trade agreements with the EU, Arab countries and East and Southern Africa regions, as well as several trade liberalisation agreements with a number of countries on bilateral bases.

This means that any company working in Egypt can obtain raw materials, initial and intermediate goods from these countries without customs, or with limited customs. Moreover, the product of any company in Egypt can enter all those markets without customs, if it meets the required percentage of the Egyptian component.

Egypt has an exceptionally distinguished geographical location where it lies in the middle of the three Old World continents. This site brings great advantage in the field of foreign investment. The expenses of transport and trade insurance with different world markets will be lower than that of any investment in like products in other countries.

Egypt also has a significant base of mineral and quarry resources that can constitute a foundation for developing giant processing industries. It also has a big surplus in vegetables and fruits that may form the base for conservation and canning industries.

Egypt lies in the middle between countries exporting mineral, agricultural and raw materials, and oil and natural gas in Africa and the Arab region. All this provides the Egyptian economy — and investment within it — great advantages.

China's economy and the historic achievement of global primacy

World Bank statements indicate that China’s GDP has risen from $354.6 billion, equivalent to 1.63 percent of the world output in 1990, to $10.069 trillion, equivalent to 12.9 percent of the world output, which became $78.259 trillion in 2014. If China’s GNP is measured in dollars according to the purchasing power parity between the dollar and the Yuan, then it would reach $17.919 trillion in 2014, equivalent to 16.5 percent of world output calculated in the same way in the same year.

History will record that the year 2014 is the first year that Chinese GNP in dollars, calculated according to purchasing power parity, surpassed its American counterpart calculated in the same way (which reached $17.813 trillion dollars). According to the World Bank’s 2015 report on World Development Indicators, Chinese GNP surpassed that of the United States by around $106 billion in 2014.

IMF reports, referenced in the Direction of Trade Statistics Yearbook, point out that Chinese exports value has risen from around $62.1 billion, equivalent to three percent of world exports in 1990, to around $2.276 trillion dollars, equivalent to 12.2 percent of world exports in 2013, continuing to lead the world and surpass the US, whose exports valued $1.492 trillion, equivalent to eight percent of world exports in 2013.

Chinese commodity exports exceeded its American counterpart starting from 2005 when it reached $998 billion in comparison with $959 billion. It has not left first position since then.

China has the biggest financial reserves in the world, exceeding $4 trillion. It has accumulated such financial reserves from surpluses of combined external balances, especially from its giant trade surpluses that continue until now. It has also become the second largest source for direct investment in the world.

The United Nations Conference on Trade and Development (UNCTAD) mentioned in the 2015 World Investment Report that China pumped $116 billion in direct investment in different countries of the world in 2014.

There is a high degree of compatibility between the potentials of the Egyptian and Chinese economies regarding exports and imports, and also regarding direct investment where Egypt is a net importer of capital services while China is a gigantic exporter of capital, especially in light of its accumulated reserves that exceed $4 trillion. Moreover, the Suez Canal is a main passageway for Chinese trade destined for Europe and the Arab region. Furthermore, the two countries have huge touristic potentials that constitute a base for possible extensive development in this field.

Horizons of developing Egyptian-Chinese economic relations

Although Egyptian-Chinese relations were founded on principles and solidarity among peace loving peoples, exchanging economic and political benefits on a fair basis constitutes a salient feature in these relations, especially in the present time.

In the light of successive changes in the international political and economic environment, it seems that countries believing in fair cooperation, peace and integration into the international economy on fair and equitable bases should be gathered and consolidate their cooperation to the benefit of their peoples. This cooperation will strengthen their position and stature in the international economy and in any negotiations concerning the governing policies of international relations.

Egypt seeks to achieve justice, parity and fair exchange of interests in its international economic relations. China seeks diligently, in a way that deserves respect, to develop relations with developing and rising countries, whether through forming the BRICS group or presenting an initiative to revive the old Silk Road for enhancing economic cooperation between concerned countries, or through calling for a new international reserve currency under IMF supervision instead of the dollar, which the US misuses it for its own benefit at the expense of the whole world.

It seems that China’s practical behaviour in international relations is based on respecting countries’ respective sovereignty, and peaceful and fair integration in international relations, in contradiction to Western hegemony and centralisation. This Chinese approach sides profoundly with Egypt’s national independence and will after the 2011 revolution and its second gigantic wave on 30June 2013.

In this context, China seems to be the perfect partner for Egypt with whom developing economic and political relations, especially in light of their economic potentialities and compatibility, match or converge in standpoints towards the hottest spots in the world in general, and in the Arab region in particular, especially in Syria, occupied Palestine and concerning religious extremism and terrorism.

Commodity trade between Egypt and China witnessed great developments during the last 30 years. According to different editions of the IMF’s Direction of Trade Statistics Yearbook, Egyptian commodity exports’ value to the whole world was $3.215 billion in 1983 and to China reached around $29 million dollars in that year — i.e., less than 0.9 percent of total Egyptian exports in the same year. China ranked 20th among the most important markets Egyptian exports head to.

In the year 2000, Egyptian commodity exports’ value was around $6.332 billion dollars, from which $93 million headed to China — equivalent to 1.4 percent of the total of these exports. China ranked 15th among the most important markets Egyptian exports head to.

In the year 2013, Egyptian commodity exports’ value was around $28.9 billion dollars, from which $568 million headed to China — equivalent to two percent of the total. China ranked 15th among the most important markets Egyptian exports head to.

As for Egyptian imports from China, they valued around $59 million 1983, less of the 0.6 percent of total Egyptian commodity imports that reached $10.275 billion in that year. China ranked 31stamong markets from which Egypt obtains its imports.

In the year 2000, Chinese imports’ value to Egypt was about $886 million, equivalent to four percent of Egypt’s total imported commodities in that year, which reached around $22 billion. China ranked fifth among the most important importing countries to Egypt.

In the year 2013, Chinese commodity imports’ to Egypt were around $6.811 billion, constituting 10.5 percent of the total of Egyptian imports, which reached $65.2 billion in that year. China came first among the most important importers to Egypt.

Egyptian-Chinese trade is characterised by disparity where the Egyptian trade deficit with China is about $6.243 billion in 2013 — i.e., nearly 85 percent of the total trade value between the two countries. It is a general trend continuing through the last three decades. Consequently, Egypt is in need for activating its exports to China, in order to realise a better level of parity and balance in its trade with China.

This activation can be achieved through existing Egyptian commodity production, and within existing limits. However, its biggest development opportunities are linked to new investment, which can produce industrial and agricultural commodities that the Chinese market needs. This matter puts a burden on the shoulders of Chinese capital, so as to direct its sights towards the Egyptian market and establish new investment.

This is to be done with the aim of developing a production base that can export to the Chinese market part of its products. Thus, this can contribute to reducing the Egyptian trade deficit with China, or reaching a balance in trade between the two countries.

Despite the fact that China became the second biggest source of capital in the world, where it pumped $116 billion as direct investment in other countries in 2014, Egypt is still a marginal country with respect to direct Chinese investment.

Official Egyptian statements (from the Egyptian Central Bank Monthly Statistics Bulletin) mention that direct Chinese investment flows to Egypt reached $60.5 million in 2014-2015, equivalent to only 0.9 percent of foreign net investment to Egypt, which reached $6.371 billion in that fiscal year.

Direct Chinese investment flows to Egypt constituted about 2.2 percent, 1.8 percent, 1.8 percent and 0.2 percent in the fiscal years 2010-2011, 2011-2012, 2012-2013 and 2013-2014 respectively.

China ranked 15thamong countries pumping direct foreign investment into Egypt, while Britain, the US, France, Germany and Belgium came at the top of the list of countries pumping direct foreign investment into Egypt.

As a consequence of the special advantages gained from pumping Chinese investment into Egypt, one of the most important fields for developing Egyptian-Chinese economic relations is direct Chinese investment flows for the benefit of the two parties. Vast investment opportunities lie in phosphate fertiliser industries in the light of Egypt’s having gigantic reserves of raw phosphate, stretching from the Uweinat area and the New Valley up to the Red Sea coast.

Similar opportunities lie in the industries of cement, urea fertiliser, talcum powder, limestone, gypsum, quartz, marble, basalt, gold and other mineral and quarry raw materials. Egypt also has a great reserves of glass sands, especially in southwest Sinai, which may constitute a gigantic base for developing the manufacture of glass and mirrors.

There are very rewarding investment opportunities in manufacturing paper out of rice straw and sugar cane waste, and from manufacturing agricultural commodities, especially juices and concentrates, and preserving and canning vegetables and fruits.

There are also big investment opportunities in fish farming in the seas, and in the consequent fish processing and canning industries.

Egypt is heading towards developing automobile manufacturing — which has outstanding opportunities — in cooperation with international companies concerned with the Egyptian automotive, market where more than 300,000 cars are sold annually, and concerned with investing in this sector in Egypt aiming at exporting products to Arab, European and African markets.

There are distinguished investment opportunities in ship building and maintenance in Egypt, through which more than 18,000 ships pass via the Suez Canal, carrying around one tenth of global trade. With the new parallel channel, the Suez Canal’s market share in international trade transit will increase gradually to the extent of doubling during a number of years.

In addition, Egypt has a distinguished opportunity in oil refining and petrochemical industries, especially for its proximity to the world’s largest oil reservoirs lying in the Arab Gulf and Libya, and also near to the biggest oil products consumption markets in Europe and in Egypt itself. Egypt currently imports oil products due to the inability of Egyptian refineries to meet local demand.

On another field, China has become the largest importer of tourism services in the world. About 98.2 million Chinese tourists travelled to other parts of the world in 2014. Chinese touristic expenditure abroad has increased 10 times since the year 2000 to reach $138.3 billion in 2014, equivalent to 10.9 percent of the world’s total tourism expenditure in 2014.

On the other hand, Egypt is considered a large exporter of tourism services in all its forms. However, the flow of Chinese tourists to Egypt is extremely limited in comparison to their flow to all other parts of the world. Although geographical distance is a hindrance for expanding the tourism industry between the two countries, developing tourism potentials will secure greater yields.

For instance, some Russian, German and Italian tourists buy hotel apartments in Egypt, especially in the Red Sea area. Elderly pensioners spend long periods in these apartments, which are also used by family members.

Tourist village administrations rent these apartments on behalf of their owners for the rest of the year. Thus, it becomes a source of income for them. This model can be repeated with Chinese tourists, especially elderly ones and their families.

Despite the negative effects the tourism sector in Egypt suffered following the 25January Revolution in 2011, the number of tourists who visited Egypt reached 12.2 million in the year 2012-2013. They spent 142 million tourist nights in the same year.

In spite of the decline in the number of tourists to about 7.5 million tourists in the year 2013-2014, after the 30 June 2013 revolutionary wave, the number increased in the year 2014-2015 to 9.3 million in the direction of a rapid recovery. Although the Russian airplane crash over Sinai in November 2015 has negatively affected this sector, it will recover from this crisis, as it did from previous crises.

The above illustrates to great potentialities for developing comprehensive economic relations between Egypt and China in the fields of commodity trade, investment and services trade, at the forefront of which is transport through the Suez Canal after developing its capacity with the new parallel channel.

Fields of cooperation also include sub-sectors of cultural tourism and resort tourism, where Egypt has massive potential and superb tourism infrastructure. There are also great potentials in scientific, technological and military cooperation between the two countries. These are fields where cooperation is based on high degrees of mutual trust, which already exists.

In light of Egyptian and Chinese political compatibility and the profundity of the culture of peaceful cooperation in foreign relations in both countries, the two countries are strong candidates for developing comprehensive strategic relations, at the heart of which are economic relations where the potentials of the two countries are compatible and form an objective base for distinctive and mutually beneficial development.

The writer is chairman of the board of Al-Ahram Establishment.

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