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Published: August 8, 2011
 / Autumn 2011 / Issue 64

 
 

The New Web of World Trade

The Gulf economies of the Middle East are forming partnerships with other emerging markets, redefining the ancient trade routes that once linked East and West.

When King Abdullah bin Saud, the current ruler of Saudi Arabia, came to power in August 2005, he wasted little time in demonstrating his vision for the country’s future. His first official overseas visit, in January 2006, was not to U.S. president George W. Bush, U.K. prime minister Tony Blair, or German chancellor Angela Merkel — but to Chinese president Hu Jintao.

The meeting reflected both countries’ desire to forge closer economic ties. Before King Abdullah went on to other emerging markets, including India, Malaysia, and Pakistan, he and President Hu signed an agreement of cooperation in oil, natural gas, and minerals. This agreement built on existing relationships between the countries’ national energy companies, Saudi Aramco and Sinopec, which had formed a partnership in 2005 to construct a US$5 billion oil refinery in eastern China’s Fujian province. In 2011, they signed a memorandum of understanding to build a refinery in Yanbu, on the west coast of Saudi Arabia. Sinopec is also engaged in a joint venture with Saudi Arabia’s petrochemicals giant SABIC; in 2010, they began producing various petrochemical products in a $3 billion complex in the city of Tianjin in northeast China, and have recently announced that they will build a $1 billion–plus facility there to produce plastics.

The rise of emerging markets in the global economy has sparked a great deal of discussion, particularly in the wake of the worldwide financial crisis. The implications are often framed in terms of the potential impact on the economies of the U.S. and Europe — for instance, business leaders discuss whether emerging nations’ consumers might be interested in purchasing American products, or whether European telecom operators can counter stagnation in their own markets by investing in new mobile networks in Asia.

But a closer look reveals a separate trend that could shift the economic focus away from the West. Emerging markets are building deep, well-traveled networks among themselves in a way that harks back to the original “silk road,” the network of trade routes between East Asia, the Middle East, and southern Europe, some dating to prehistoric times and others to the reign of Alexander the Great. Most of these routes were central to world commerce until about 1400 AD, when European ships began to dominate international trade.

Today’s new web of world trade is broader and more diverse than the old silk road. It is a network among emerging markets all over the world, including China, the Middle East, Latin America, and Africa. It is a path not just for expanded trade in goods, but for short-term and long-term investment and the transfer of technological and managerial innovation in all directions. Witness, for example, China’s investments in Africa, where the construction of roads, railways, and communications infrastructure provides revenue to China’s state-owned enterprises and also facilitates China’s access to the continent’s natural resources and its consumers. Or consider the fact that in 2009, China surpassed the U.S. to become Brazil’s primary trading partner; bilateral trade between the two countries grew more than 600 percent between 2003 and 2010, from $8 billion to $56 billion. Also in 2009, the Korea Electric Power Corporation, a state-owned South Korean firm, won a $40 billion contract to build nuclear reactors in the United Arab Emirates (UAE), beating out French and U.S. companies that had bid on the opportunity. And in 2010, Russia and Qatar announced that they would work together to develop gas fields on Russia’s Yamal Peninsula.

Such developments remain largely separate activities in the global economy, but taken together, they are early evidence of a pattern that public-sector and private-sector leaders in every part of the world should take into consideration.

 
 
 
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Resources

  1. Ian Bremmer, The End of the Free Market: Who Wins the War Between States and Corporations? (Portfolio, 2010): The potential power of state capitalism.
  2. Economist Intelligence Unit, “GCC Trade and Investment Flows: The Emerging-Market Surge,” 2011: Presents research on the strengthening economic ties between the GCC and other emerging markets.
  3. Gideon Rachman, Zero-Sum Future: American Power in an Age of Anxiety (Simon & Schuster, 2011): A zero-sum approach to global economics, in which one country’s gain is another country’s loss, is undermining attempts to restart the world’s growth engines after the recession.
  4. Joe Saddi, Karim Sabbagh, and Richard Shediac, “Oasis Economies,” s+b, Spring 2008: Overview of the GCC’s growing economies and the nature of their development.
  5. Joe Saddi, Karim Sabbagh, and Richard Shediac, “The Challenges of Balance,” s+b, Summer 2009: Analysis of the difficulties confronting the GCC’s rapid economic growth.
  6. For more on this topic, see the s+b website at: www.strategy-business.com/global_perspective