OREANDA-NEWS.  November 07, 2012. The impetus underlying China's manifold interests in the Middle East remains a topic of close scrutiny. The dramatic social and political changes that are taking root in the region portend a vastly different geopolitical cartography in contrast with previous arrangements.

These circumstances yield important implications for the people of the Middle East and foreign powers, such as the United States with longstanding strategic interests in the region.

Owing to its notable inroads into the Middle East in recent years, China also is watching regional events unfold with great interest. Due to its increasing demand for Middle Eastern oil and natural gas and growing diplomatic and economic profile on the world stage, Beijing is consumed justifiably with the potential

repercussions of prolonged regional instability on its position.

A series of quiet yet important developments emanating from China's relationship with Qatar - one of the region's smallest countries in both population and area - is emblematic of the growing complexity of China's role in the Middle East.

In early October, the China Securities Regulatory Commission and State Administration of Foreign Exchanges announced they had approved Qatar's request to attain Qualified Foreign Institutional Investor (QFII) status to operate in China. Under the auspices of Qatar Holding (QH), the overseas investment arm of its sovereign wealth fund (SWF) the Qatar Investment Authority (QIA), Qatar formally submitted a request to Beijing in June to invest up to USD5 billion in Chinese stocks, bonds and other securities.

Being afforded QFII status will make Qatar the largest foreign investor in Chinese capital markets [1]. The QFII program was launched in 2002 to govern foreign investor access to yuan-denominated stocks and other assets. China has decided to implement a plan it devised earlier this year to increase the current investment quota allocated to foreign investors to invest in its capital markets from USD 30 billion to USD 80 billion; the current quota for individual investors is USD 1 billion.

China's decision to relax its restrictions over investment quotas on its capital markets and the flow of foreign exchange into and out of the country is designed to encourage more investment in China. China has granted 188 foreign entities QFII licenses. These licensed-entities then are able to apply for an individual investment quota set by Chinese regulators. Taken into the context of the peculiarities of Qatar, a financial powerhouse that is exerting disproportionate influence well beyond its size in world affairs, this latest chapter of Sino-Qatari relations warrants further examination.

Natural gas

When judged against its ties with major players in the Middle East such as Saudi Arabia or Iran, China's relationship with Qatar tends to be overshadowed. China's pursuit of energy resources, particularly natural gas, underpins Sino-Qatari relations. Qatar is the world's largest producer and exporter of liquefied natural gas (LNG) and third-largest holder of natural gas reserves. Qatar is also a major producer and exporter of crude oil.

Qatar is an important source of China's LNG needs, satisfying around 20% of Chinese demand for LNG. Chinese imports of Qatari crude, in comparison, are negligible.

Qatargas and the China Natural Offshore Oil Corporation signed a sales and purchase agreement in 2008 for Qatar to supply China with 2 million tonnes (m/t) of LNG annually over a 25-year period. The first shipment of Qatari LNG was delivered to China in October 2009. In September, a Q-Max LNG vessel, the world's largest class of LNG carriers, delivered a shipment of Qatari LNG to China's LNG Terminal in the port of Ningbo in the eastern Zhejiang province. China and Qatar marked this milestone as an important breakthrough in Sino-Qatari energy and trade relations.

Chinese energy majors also have forged a number of collaborative ventures with their Qatari counterparts. In July, PetroChina, the largest energy company in Asia and, according to some estimates, the world's largest oil producer, signed an agreement with Qatar Petroleum (QP) authorizing it to obtain a 40% stake in exploration and production rights for natural gas from GDF Suez, a French concern. The agreement is governed under Qatar's exploration and production sharing agreement (EPSA) for Block 4, an offshore bloc north of the emirate.

The deal was concluded after PetroChina joined QP and Royal Dutch Shell in another EPSA in May for natural gas in Block D, China's first investment in Qatar's energy sector. Qatargas also engaged Sinopec in talks to supply it with deliveries of LNG.

The extent of Sino-Qatari cooperation in the energy sector extends beyond Chinese imports of Qatari LNG and joint upstream development projects in Qatar. In October 2011, QP, Royal Dutch Shell and PetroChina agreed to build a petrochemicals and refining complex in Zhejiang province with an initial investment of USD 12.5 billion.

As Qatar places a heavy premium on satisfying the rapidly growing demand for LNG across Asia, Doha and Beijing continue to look for ways to further develop energy ties. This is the case even as questions surround future LNG demand in China due to a growing reliance on natural gas supplies delivered by pipeline and heightened interest in developing domestic shale gas reserves. Qatar serves as a major source of LNG and crude oil for Japan, South Korea, Taiwan, India and other consumers in Asia.

The centrality of energy to Sino-Qatari relations was not lost during Chinese Premier Wen Jiabao's official two-day state visit to Doha on January 18-19. During a press conference, Wen stressed the strategic significance of Qatar to China's energy security paradigm, saying: "Establishing a long-term, stable and comprehensive cooperative partnership with Qatar on natural gas is an important topic between us."

Wen's meetings with Qatari Emir Sheikh Hamad bin Khalifa al-Thani and other political, diplomatic and business leaders also touched on other economic matters, including a proposal by China to manufacture downstream oil products in Qatar.

Significantly, the two sides also appeared to lay the foundation for China's decision to grant QFII status to the QIA during their exchanges. According to Wen, "I do want to add one more important point. In order to address investment issues, we need financial support. Therefore, we reached another agreement, a cooperation agreement linking finance with investment. Qatar also proposed the use of local currency in trade settlement and even a specific ratio. I think this proposal can be studied."

Wen's visit to Doha also resulted in a series of agreements governing formal cooperation between the People's Bank of China and the Qatar Central Bank as well as between the China Banking Regulatory Commission and the Qatar Financial Center. Both sides also signed agreements outlining future cooperation in science and technology, environmental matters, and fostering closer cultural exchanges.

Geopolitics of Qatar

Qatar's geopolitical influence far exceeds its diminutive stature, a reality that poses an interesting set of dynamics for Chinese foreign policy. Qatar's ascent to the world stage in recent years represents one of the most important trends in Middle East affairs.

On the surface, the tiny emirate's rise to international prominence occurred as a result of its energy prowess and strategic alliance with the United States and other critical US allies in the Middle East. This assessment is incomplete. Indeed, Qatar is a member of the Organization of the Petroleum Exporting Countries. Qatar is also a member of the Gulf Cooperation Council (GCC), the association of pro-US Arab monarchies that includes Saudi Arabia, and the Arab League.

Like its GCC partners, Qatar plays a critical role toward advancing US strategic military objectives in the Middle East. Qatar is host to the forward headquarters for US Central Command (USCENTCOM), including key military installations such as Camp al-Sayliyah and al-Udeid Air Base. Qatari soil serves as the largest prepositioning base for US forces outside of the United States.

Qatar's role as a base for US military forces has proved indispensible toward executing and sustaining the US-led wars in Iraq and Afghanistan and other military operations in the region. Qatar would be instrumental in any potential US attack against China's ally Iran.

Qatar has leveraged the massive revenues it derived from its energy exports to branch out into other fields, including media, culture, business and global finance. There are only about 300,000 Qatari citizens; a large majority of Qatar's 1,800,000 inhabitants are foreign nationals who comprise its labor force.

On account of its energy riches and small population, Qatar boasts the world's highest per capita gross domestic product. When adjusted for purchasing power parity, Qatar's per capita income exceeds USD 88,000, making it the world's richest country.

The Qatari royal family owns and operates the al-Jazeera satellite television network, an enterprise that has revolutionized media in the Middle East and pushed the boundaries of political discourse in the Arabic-speaking world. Similarly, through its English-language programming, al-Jazeera has succeeded in capturing a global audience. Qatar also fashions itself as a global business and investment hub.

Just as important, Qatar has channeled its economic influence effectively through the QIA and other state-led investment mechanisms. The QIA purports to hold more than USD 100 billion in assets, including interests in China. In August, QH purchased a 22% stake in Citic Capital Holdings, a Chinese private equity firm, for an undisclosed figure. The QIA owns USD 2.7 billion in shares of the Agricultural Bank of China, the third-largest Chinese bank.

Through initiatives such as its Qatar Foundation (QF), the emirate also has set out to fashion itself as an advocate for technological and scientific innovation, social and economic development, political liberalization, philanthropy, cross-cultural dialogue, women's rights and other worthwhile goals in the Middle East and around the globe [2].

The popular Doha Debates and Education City are among the QF's most widely cited success stories. The QF also has helped build bridges between Qatar and China through cultural and educational exchanges. For example, a delegation of Chinese Muslims attended the QF's Faculty of Islamic Studies conference on Islamic Economics and Finance last December.

Despite its formidable economic influence and effective application of soft power, it is Qatar's foray into regional geopolitics that has perplexed Middle East analysts. The Qatar that bestows a contemporary and cosmopolitan image is replete with contradictions.

Qatar is a leading proponent of the militant Salafist and Wahhabi ideologies that have helped guide al-Qaeda-style radical Islamists. A onetime vocal proponent of the Palestinian cause, Qatar also hosted an Israeli trade office before shutting it down in response to Israel's invasion of Gaza in 2008. It also was widely criticized for its alleged exploitation of al-Jazeera to advance its foreign policy goals.

Despite Qatar's alliance with the United States, al-Jazeera provided a platform for dissenting positions on US foreign policy and authoritarian regimes to be aired across the Middle East - actions that led to numerous closures of its offices by angry governments. China already has confronted al-Jazeera over its coverage of Chinese affairs. A documentary titled Slavery: A 21st Century Evil produced by al-Jazeera English and aired in May examined the issue of forced labor around the world and devoted a segment to Chinese prison labor. In response, China refused to renew the visa of al-Jazeera English's only correspondent in the country, prompting the station to shut its office. Al-Jazeera's Arabic bureau in China, however, was not affected by the decision.

Qatar has interjected itself into the diplomacy between the United States and the Taliban by allowing the Taliban to open a diplomatic mission in Doha - possibly giving Beijing an alternative to working through Pakistan to deal with the Taliban.

Qatar has traversed a fine line that divides the United Sates and its Arab allies, especially the GCC, on one side and their rival Iran on the other. In a general sense, Qatar's stance toward Iran benefits China. Beijing depends heavily on imports of Iranian oil and is exploring ways to exploit Iran's natural gas reserves. As a result, China is loath to see the United States (or Israel) attack Iran.

In contrast to Saudi Arabia, for example, Qatar has taken a much softer line toward Iran overall - a position reflected in al-Jazeera's coverage of Iran's nuclear program. With the onset of popular unrest in the Arab world, al-Jazeera's editorial line is widely seen as having shifted in tone to accommodate Doha's interests, damaging the network's credibility for many.

Qatar has been on the forefront among its fellow Arab League members, namely Saudi Arabia, in lending financial and military support to the political and violent strains of the Syrian opposition. It even has called for military intervention in Syria.

A contingent of Qatar's tiny army and air force fought alongside the insurgency and North Atlantic Treaty Organization forces that eventually toppled Libyan Colonel Muammar al-Gaddafi. Despite official denials, Qatar is also believed to have doled out millions of dollars to the numerous Islamist political parties and movements that have contested elections in countries such as Libya, Tunisia, and Egypt, particularly entities competing with foreign-supported factions.

Qatar also has exploited the regional tumult to further enhance its image as a bastion of political and economic stability for foreign investors and members of the international community wary of the ongoing instability in the Middle East.

Conclusion
The dynamics behind Sino-Qatari ties in the energy and financial sectors suggest both countries stand to gain a great deal by further cooperation. At the same time, their respective positions on key issues diverge, including on the uprisings in the Middle East and the crisis in Syria. China's principled advocacy of non-intervention in the affairs of other nations clashes with Qatar's activist foreign policy and call for armed military intervention to oust the Syrian regime.

Sheikh Yusuf al-Qaradawi, an Egyptian Islamic cleric based in Doha who is best known for his weekly television program on al-Jazeera, called on Muslims to boycott Chinese products to protest their continued support for the Ba'athist regime at the United Nations.

China and Qatar were also on opposing sides during the conflict in Libya. Qatar does not shy away from exercising its clout by defying more powerful actors and recalibrating its foreign policy to further its own objectives. These aspects of Qatar's behavior in recent years will present China with an interesting set of dilemmas should their mutual interests deteriorate down the line.