02 September, 2018

Chinese loans to Middle East projects grew 10-fold in two years

Chinese policy lending into the Middle East touched $3.5 billion in 2016, says Baker McKenzie

Image used for illustrative purpose. gas, oil, gasoline, pipes, petrochemical, engineer

Image used for illustrative purpose. gas, oil, gasoline, pipes, petrochemical, engineer

Istock
02 September 2018
The value of loans from Chinese lenders to energy and infrastructure projects in the Middle East and North Africa (MENA) increased nearly 10-fold from 2015 to 2016, according to global law firm Baker McKenzie.

The firm said in a press statement that its research showed Chinese policy lending into the MENA increased from $368 million in 2015 to $3.5 billion in 2016, reflecting the Asian giant's vision for an enhanced relationship with the countries of the region.

The research has defined Middle East as Jordan, Oman, Saudi Arabia and the United Arab Emirates (UAE).

The statement noted that MENA energy sector, particularly power, as well as oil and gas, were the major recipients of Chinese policy loans since 2014, with activity seen more recently in the transport sector.

It said the UAE was the most attractive target in MENA for Chinese policy lenders in the last two years, with $2.3 billion of loans, including financing towards the expansion of both Dubai International and Al Maktoum airports. Jordan came in second place with total lending valued at $1.7 billion, followed by Saudi Arabia with $977 million and Egypt with $890 million.

For the Middle East and Africa (MEA) region as a whole, the total loan value soared from $300 million in 2014 to $8.8 billion in 2017 led by policy lenders China Development Bank and China Exim, the press statement said.

Sandeep Puri, Partner and UAE Head of Banking & Finance at Baker McKenzie Habib Al Mulla said in the statement that the total value of loans to energy and infrastructure projects in the MEA region more than doubled between 2016 and 2017.

"Although the total lending in 2016 is higher than in 2017, a more diverse range of sectors benefited from Chinese lending last year," he said.

The statement noted that in addition to China's recent pledge of $20 billion in loans and $106 million in financial aid to Middle East nations over the next few years, a new financial consortium would be established by Arab and Chinese banks with a fund of $3 billion to promote cooperation on oil and gas, nuclear, and clean energy.

"What we are witnessing is just the beginning of long-term collaboration between China and Middle East nations in a bid to shore up China's geostrategic footprint in the region," said Puri.

According to the press statement, over the next five years, China plans to import goods worth over $8 trillion from the Middle East, providing Arab countries with huge investment opportunities. Moreover, negotiations to establish a free trade agreement (FTA) between China and the Middle East has already begun, which in turn would pave the way to more investments being poured across all industries.

The research was carried out by Baker McKenzie in partnership with IJGlobal, a provider of market intelligence to global energy and infrastructure finance industry.

(Writing by Anoop Menon) (anoop.menon@thomsonreuters.com)

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