• 17:34
  • Tuesday ,30 December 2014

Egypt-China: Meeting of civilisations, principles and interests

By Ahmed El-Sayed Al-Naggar, Ahram Online



Tuesday ,30 December 2014

Egypt-China: Meeting of civilisations, principles and interests

Egyptian recognition of China in 1956, entailing a challenge to the West on Taiwan, viewing it as a Chinese province, was one of the reasons behind the criminal colonial attack on Egypt by France, Britain and Israel the same year. Egypt was akin to an ambassador for China, gathering recognitions from various African and Arab states that Egypt had helped gain independence. In return, China was a supporter and champion of all just Egyptian and Arab causes on the world stage through direct relations.

In China, Gamal Abdel Nasser became the symbol of national independence and solidarity with peace-loving people. Meanwhile, Mao Zedong and Zhou Enlai followed by Deng Xiaoping and other Chinese leaders became symbols of the values of national liberation, development and justice that is highly respected and appreciated in Egypt.

Translated Chinese literature became part of world culture that influenced the Egyptian and Arab conscience, especially the works of Lao She, Kuo Mo-jo and Bing Xin. And the giant Yangtze River that pours into the East China Sea towards the islands that are geographically and politically separated from the Chinese mainland seems very close and kin to the River Nile that gathers the spirit of Africa and passes through the Arab land of Egypt, then pours into the Mediterranean Sea where the Ancient Egyptian civilisation sparked the dawn of human conscience 7,000 years ago.

El-Sisi’s visit to China: Embodying bilateral deep compatibility

Although Egyptian-Chinese relations were built on principles, mutual and just economic and political interests are a main feature of these ties today. In light of successive shifts in world politics and economics, it is important for countries to partner in fair cooperation, peace and merge with the world economy on the basis of justice and equality, and to gather and cement its cooperation in the interest of the people. This cooperation will strengthen their positions and stature in the world economy and negotiating policies regulating international relations.

The visit by Egyptian President Abdel-Fattah El-Sisi to China where he met with Chinese President Xi Jinping is part of the compatible approach and policies of both countries and presidents regarding political, economic, regional and international issues. China is on an admirable path to form relations with developing and emerging countries, whether by forming the BRIC (Brazil, Russia, India, China) bloc or launching an initiative to revive the old Silk Road to promote economic cooperation with these countries. Also, a just call for relying on a new international monetary reserve under the supervision of the IMF, instead of the dollar, which the US misuses to serve its own interests at the expense of the world.

China’s pragmatism in international relations based on respecting national sovereignty, peaceful and fair integration of international relations contradicts the tendencies of hegemony in Western centralism. This approach directly feeds into Egypt’s determination for national independence after the great January 2011 revolution, and its giant second wave on 30 June 2013. Egypt, which is deeply and genuinely integrated in its regional and international setting, is focused on developing relations with countries that respect its sovereignty and the choices of its people, and statutes of justice and equality in international relations. Accordingly, China is an ideal partner for Egypt for developing bilateral economic and political relations, especially since their positions are similar on the hottest issues in the international arena in general and the Arab world — most notably Syria, occupied Palestine, and the war on religious radicalism and terrorism.

Egypt and China’s economies: Opportunities for developing relations

Alongside vital political and cultural relations between Egypt and China, economic relations hold great potential for development and benefits for both peoples and countries, in light of the compatibility and accord of economic potential between them. In order to understand this compatibility, we will quickly review the reality of the Egyptian and Chinese economies and the extent of their compatibility today.

In Egypt, GDP was $295 billion in 2013/2014, and estimated to reach $335 billion in 2014/2015. According to figures in the World Bank’s report on world development indicators, Egypt’s national product reached $240 billion in 2012 and the average share of each citizen is $2,980. Since the Egyptian pound is pegged much lower than its actual value, the World Bank noted that the dollar value of GDP in Egypt based on purchasing power parity between the dollar and pound reached $521 billion in 2012. The average share of the individual of this GDP was $6,450. It is expected that Egypt’s GDP estimated on purchasing power parity will reach nearly $600 billion in 2014.

As well as this GDP, there is a very large informal sector and there are efforts to integrate it into the formal economy and calculations of GDP. When this happens, it will be a large addition to Egypt’s GDP.

World Bank figures indicate that China’s GDP was $7.731 trillion in 2012, or nearly 32 times as much as Egypt’s calculated by the same method. The average share of the individual in China of GDP was $5,720, which is almost twice their Egyptian counterparts.

The dollar value of China’s GDP calculated by purchasing power parity between the Yuan and the dollar is $12.205 trillion, or 23 times the size of Egypt’s GDP calculated in the same manner. The average share of individuals is $9,040 or 1.4 times as many as their Egyptian counterparts. China’s GDP was only $335 billion in 1990, which means that in 2012 it had multiplied by 22 times the figure in 1990, whether because of rapid growth of this GDP by an average 10 percent during that period, or because of a climb in the exchange rate of the Yuan accompanied by a jump in the value of China’s GDP calculated in dollars.

Ten years ago I wrote a study on future shifts in the order of world economic powers based on the value of GDP and expected average growth rates. The result was that China’s GDP’s will overtake the US’s by 2022 at the latest, making China the largest economy in the world in terms of size. The British magazine The Economist predicts this will happen in 2017.

China’s share of Gross World Product (GWP) is 15.4 percent compared to the US’s 19.3 percent. It is also the world’s leading exporter owning 10.5 percent of world exports, compared to nine percent for the US, which China overtook four years ago. Chinese high-tech exports reached $406 billion or 25.8 percent of the world’s high-tech exports in 2010, compared to $146 billion of US high-tech exports or 9.3 percent of world high-tech exports for that year.

Egypt has a consumer market of 88 million — the population inside the country — and more than eight million expatriates around the world. Egypt also signed free trade agreements with the EU and Arab countries, as well as East and South Africa, and trade liberalisation agreements with many others on an individual basis. This means that any firm operating in Egypt would be able to buy raw, primary and intermediary materials from these countries without taxation, or very low tariffs that are gradually being eliminated. Good from companies in Egypt can enter these markets without tariffs if they meet the Egyptian component ratio criteria.

Egypt is at a unique geographic location at the centre of the continents of the Old World, which is an attractive spot for foreign investors. The cost of transportation and insurance on trade in world markets are much lower compared to other countries. For example, if a Chinese company built a car factory in China and wanted raw or intermediate materials, or to export its production to Egypt, Europe, the Arab world, Africa and the US northeast coast, it would be very costly to transport and insure to these markets that are very close to Egypt. It would also benefit from the cost of cheap labour in Egypt and free entry to markets where Egypt has signed a free trade agreement.

Economic compatibility between Egypt and China includes direct investments since Egypt is an importer of capital services and China is a leading exporter of these services. According to the world investment report issued by UNCTAD, direct foreign investment (FDI) in Egypt reached $5.6 billion in 2013. The report added that the value of direct investments from China around the world was $101 billion for the same year. Chinese investments in Egypt are very low and do not reflect China’s financial potential or the investment opportunities in Egypt. China is ranked number 15 among FDIs in Egypt, while Britain, US, France, Germany, Belgium, Saudi Arabia and UAE are the top FDI sources in Egypt.

Based on special privileges for Chinese investments in Egypt, one of the key ways to boost Egyptian-Chinese economic ties is increasing Chinese direct investment in Egypt for the benefit of both sides. There are immense investment opportunities for phosphate fertilisers, since Egypt has huge reserves of phosphate rock from Oweinat to the Red Sea coast. There are similar opportunities in the production of cement, urea fertilisers, talcum powder, limestone, gypsum, quartz, marble, basalt, gold and other mineral ore and quarries. Egypt also has large reserves of glass sand, especially in southwest Sinai, that are a giant resource for developing glass and mirror industries.

There are also very rewarding investment opportunities in agricultural production, especially juice concentrates, fish preservation, preparation and canning. There are also unique opportunities in auto production, which Egypt aims to develop in partnership with international companies focused on the Egyptian automobile market that uses one quarter of a million cars every year, and those interested in investing in this sector to export to Arab, European and African markets. There are also special investment opportunities for ship building and maintenance in Egypt, where more than 18,000 vessels cross the Suez Canal carrying nearly one tenth of world trade. With the new Suez branch, its share as a corridor for world trade will gradually double in a few years.

Egypt is also a unique opportunity for oil refineries and production of petrochemical products, especially since it is close to the world’s largest oil reserves in the Gulf region and Libya. It is also close to one of the largest consumers of oil products in Europe and in Egypt itself. Currently, Egypt imports oil products because Egyptian oil refineries are unable to meet domestic demand for these products.

As for trade in merchandise between Egypt and China, Egyptian exports to China amounted to $488 million in 2013/2014 and China came tenth among the top markets for Egyptian exports, preceded by Italy, US, UAE, India, France, Britain, Saudi Arabia, Turkey and North Korea. Egyptian exports to China are mostly construction materials, chemicals, fertilisers and leather.

Meanwhile, Egypt imported from China goods worth $4.986 billion in 2013/2014, and China is the third largest exporter to Egypt after the UAE ($6.4 billion) and Saudi Arabia ($5.8 billion). Egypt suffers a serious trade deficit of $4.498 billion with China, which is a main component of Egypt’s large trade deficit with the world that has reached $33.7 billion in 2013/2014. Egypt must restore its trade balance with the world and China.

China has also become one of the largest importers of tourism services in the world. Chinese tourism spending abroad has increased tenfold since 2000, to reach $128.6 billion in 2013 or 10.7 percent of overall world spending on tourism for that year. Egypt is a major exporter of tourism services of all kinds; however, the flow of Chinese tourists to Egypt is very limited compared to their travels to other world countries. Although the physical distance between Egypt and China is an obstacle to expanding tourism between the two countries, the potential of developing this tourism is much higher than today’s levels. For example, some Russian, German and Italian tourists buy hotel apartments in Egypt, especially in the Red Sea, and retired seniors spend long periods in these lodgings that are also used by their families. The management of tourist resorts where these apartments are located rent them out throughout the year as a source of income for the owners. This model can be copied with Chinese tourists, especially the elderly and their families.

Despite the negative impact of the January 2011 revolution on tourism in Egypt, some 12.2 million tourists visited in 2012/2013 and spent 142 million tourist nights in Egypt that year. This sector will quickly recover because of Egypt's advanced tourism infrastructure capable of accommodating large numbers of tourists.

All of the above indicates the great potential for developing comprehensive economic ties between Egypt and China in the fields of goods trade, investment and investment trade, and most notably tourism.

China’s economic achievements: Significant to the world

Before looking at all the types of economic cooperation between Egypt and China, the latter gives Egypt and the world a shining model of economic ascension that should be closely studied and pondered. China achieved its incredible economic rise over a long period by relying on itself primarily. World Bank figures show that China’s economy grew an average of 6.4 percent annually between 1965 and 1980. This enabled it to build an immense economic base and a high level of education and training for its labour force, and the scientific elite that made civil and military achievements that enabled China to enter the nuclear club in the 1960s. It also enabled it to gradually transform into a major economic and military power. The country’s economic infrastructure enabled it to expand its merger into the world economy and relied on its high competitive standards to quickly and qualitatively increase its exports. Since 1980 until 2014, China achieved impressive constant economic growth rates at about 10 percent annually on average. While China’s economic growth rates dropped to 7.7 percent in the past year and will reach 7.4 percent this year, it still remains the highest in the world among major countries.

This growth is closely linked to high rates of domestic savings and investments. For example, World Bank figures in the 2014 report on development indicators show that China’s domestic savings rate was 51.2 percent of GDP, while investment rates in China hover around 45 percent of GDP for many years. This allowed a great leap in growth rates and accumulation of the world’s largest reserves in China’s Central Bank. These reserves, which China diversified, are a key tool in influencing action in the world currency market. China’s tendency to settle its trade exchanges with various countries using local currency promotes the opportunity to remove the dollar as the world’s reserve currency to be replaced by a basket of currencies or a new currency that is supervised by the IMF.

It is notable that the US has abused the status of the dollar as the world’s reserve currency by excessive monetary issuance without gold or production coverage. In the end, this means that it receives world products and services in return for paper printed with the dollar sign without any coverage. This type of abuse of the dollar’s status as the currency of international reserve is similar to stealing from the rest of the world, or a mechanism of attrition from the people of the world in return for US paper.

China’s economic growth focused on manufacturing and advanced services for 35 years, which led to a qualitative change in the structure of China’s economy. In 1965, agriculture’s share of GDP was 44 percent, which dropped to 32 percent in 1988 until it reached 10 percent in 2010. Meanwhile, industry’s share of GDP rose from 39 percent in 1965 to 46 percent in 1988 and then 47 percent in 2010. The services sector rose from 17 percent of GDP in 1965 to 22 percent in 1988 and reached 43 percent in 2010. These figures were released by the World Bank in its report on development in the world.

The structure of Chinese exports also followed changes in production. In 1965, primary materials, fuel, minerals, metals and food constituted 54 percent of Chinese exports, but they dropped to 27 percent in 1980 and less than five percent in 2010. Meanwhile, exports of industrial goods rose from 46 percent in 1965 to 73 percent in 1980 to 94 percent in 2010, according to World Bank figures.

As much as China has impressed the world with its fast growth and incredible economic accomplishments, it is also impressive for its great success in reducing the number of citizens living in abject poverty of less than $1.25 a day per person or less than $2 a day.

World Bank figures show a drop in the number of poor who live with less than $2 a day from 972 million citizens in 1981 to 395 million in 2008. Those living with less than $1.25 a day dropped from 835 million in 1981 to 173 million in 2008. Although there are no world figures on this after 2008, it is estimated this figure has dropped below 100 million citizens.

These statistics clearly show the successes of China in confronting poverty in comparison to the rest of the world. China’s accomplishment relied on continued and rapid growth of the national economy and distributing the positive returns of this growth among all social strata. Nonetheless, China needs vital improvement in income distribution to ensure the continued effectiveness of local medicine that is the primary incentive for economic growth, and is of key importance during the current world economic crisis and accompanying protectionist measures.

The Chinese model of development based on self-reliance through rallying domestic savings and investment, and being wide open to the world with reasonable conditions and decisive treatment of poverty to stimulate domestic demand, is a model worth studying and learning for Egypt and the rest of the world.