The Modern Silk Road

The fund-raising offers benefits for both sides: Gulf capital markets get new listings and liquidity, while Chinese companies, frustrated at the red tape that delays public offerings at home, have new sources of money in an equally dynamic economy. "There are about a half-million Chinese companies waiting to list their shares on local markets, and it's taking too much time," First Eastern managing director Elizabeth Kan said between sessions at a conference hosted at the opulent Emirates Palace in Abu Dhabi. "If we can list some of these companies in the Persian Gulf, we can get higher multiples."

If developing countries are indeed maturing into a web of largely self-sustaining regional blocs, as some economists believe, then the epicenter of the process is the Sino-Arab convergence. While both sides have larger trading partners in Europe and the United States, the heat from those commercial links have given way to much lower rates of growth (two-way trade between the U.S and China is growing at its slowest rate since the late 1990s). Deals between China and Africa are robust and growing fast, but the money flows in one direction only. Resource rich Latin America is an increasingly important target for Beijing, but this trade channel is still minor, at $30 billion last year.

It's possible, of course, that the renaissance of Sino-Middle East trade will collapse if oil prices do, cutting off the funds that are making the Gulf states a serious partner for China. Financial accounting in China and the Middle East is notoriously murky, so no one really knows how much money is sloshing about the New East, which still lacks adequate debt markets to harness it. Inflation is reaching perilous heights, fueled by high spending levels and a weak dollar, to which the Chinese and Gulf currencies are fixed. And while the Asian-Middle East combine continues to hum, it may yet feel the undertow of a sharp plunge in U.S. consumption, still the bunker oil for global growth.

Fortunately for China and its partners in the Gulf, the emerging Sino-Arab bloc is largely protected from the global credit crunch because neither side is heavily in debt. Most private- and state-owned companies in China and the Arab world are debt-free, and the vast majority of consumers have no bank accounts, pension funds or stock positions, much less exposure to the exotic derivatives behind the credit crisis. A share-market crash in the GCC and China is harrowing for speculators: with relatively few players, price swings can be wild. Since 2006, Arab stock exchanges have plummeted from record highs to record lows—twice. But since the markets are small, they have had little impact on the real economy, which continues to grow strongly in both regions.

The tendency in post-9/11 America is to regard anything it can't control as a threat. Already, the commercial integration of China and the Middle East, two regions with which Washington has complex relations at best, is being looked upon with alarm in Washington. If anything, the United States should welcome the addition of a spare growth engine for a global economy that has relied for generations on the once irrepressible, now fatigued American consumer.

With Quindlen Krovatin in Beijing

© 2008