The increase in economic activity in the emerging Asian countries has increased demand for energy considerably, making the emerging Asian states increasingly important partners of GCC states. Since 1990, the United States, Europe and Japan imported 45% of total GCC exports, while Asia imported 15%.
Twenty-three years later, the percentages have changed significantly. While the group of three (US, EU and Japan) import only 23% of total GCC exports, Asian states’ imports have risen to 43%.
This phenomenon is caused by a number of factors, including the shift of industrial activity to Asia, the increase in US dependency on local energy resources and the huge increase in developing Asian infrastructure, as well as the growth of the size of the middle-class sector of society there.
According to a report by researcher Kamil Aqqad on behalf of Asia Investment, which specializes in investment in emerging Asian markets, this is not the only development, because the world has seen a change in the structure of global trade. The sources of imports to the Gulf have also changed, with the emerging Asian states becoming the main suppliers to the GCC states.
Twenty years ago, the GCC imported only 15% of its goods from Asia, while it imported more than half from the US, EU and Japan. Today, the GCC states import more from Asia than they do from the US, EU and Japan, while their imports from Asia exceed 35% of their total imports. This trend has grown in the last decade, which has seen GCC imports from Asia rise by 15%, and imports from the group of three dropping by 12% of the total.
There are a number of factors why GCC states decided to import goods from Asia in increasing quantities. Gulf economies have their own specific nature. They have very little agricultural and industrial activity, while they rely on extracting resources to support their exports, and this gives them a surplus which they can use to import all kinds of goods.
There are three main categories of imports: manufactured goods, machines, and transport equipment, which make up 77% of all Gulf imports. These include different goods, such as, clothes, electrical equipment, motor vehicles and so on, and they tend to come from Asia these days.
Technologically advanced products are still manufactured in the US, EU and Japan, and in China, where the Gulf buys 12% of the total imports in that sector.
This phenomenon becomes clearer when we look at the previous decade. The proportion of Chinese labor working in the manufacturing of high quality goods has increased from 38% to 50%, while their proportion in the computer and electronics sector has has quadrupled.
China also beat Japan in the number of patents in 2010, and is the world leader in the export of manufactured goods, totaling 43% of the world’s export market. The US boasts 20% of that total and the share of the top four European economies is 26%, while Japan’s share is 19%.
Machines and motor vehicles make up 47% of Chinese exports. When all these goods are considered, we find that Chinese exports cover the three main import categories needed by the GCC states.
This shift in the source of GCC imports was not caused by a change in its needs, but by developments in Asian industries. The economic and financial consequences of these changes are substantial.
Trade between the GCC and Asia is on the increase, which in turn increases the dependency of both regions on each other. This relationship is not based on competition, but on economic integration. With the shift of industrial activity to Asian states, these states have become the main suppliers of GGC imports. With the drop in US demands for energy, the Asian demand for Gulf exports has become more important, and the GCC states will benefit from this huge demand on oil in the next decade at least.
Investments are also getting stronger, with a flow of direct foreign investment between the two regions and the number of industrial projects won by Asian companies in the region has increased noticeably.
These events are not temporary, and there are many incentives encouraging the continuation of this trade partnership.
The next two decades will see further change, with more Asian states shifting from a dependence on exports to an increasing reliance on domestic demand to drive economic growth. The Asian trade surplus will begin to drop, which will offer states with large savings in the bank, such as the GCC states, the chance to play a major role in funding Asian growth in the future, and guarantee a sustainable global demand for oil.