Syria and China Trade

Syria - China - trade partners

Syria looks to the East for better deals

Few people are more welcome in Damascus these days than Chinese businessmen packing large amounts of Chinese investment dollars. Syrian officials are working overtime to deepen economic relations with the emerging superpower and proposals for a joint Syrian-Chinese investment bank, a Chinese Industrial Zone, a Chinese Telecom Park — not to mention billion dollar oil deals — are all on the table. Syria’s new found interest in her far eastern neighbor is fuelling much talk of a new Silk Road.

China has become Syria’s number one supplier. While figures from Syria’s Bureau of Statistics put the value of Syrian imports from China at $691 million, Syrian officials have said the real figure is more likely to be close to double that at around $1.2 billion. What is not in doubt is that China easily outstrips Syria’s other major suppliers Egypt ($553 million), South Korea ($441 million), Italy ($356 million), Turkey ($338 million), Japan ($317 million) and Germany ($308 million). Bilateral trade surged to a record high of $1.4 billion in 2006 and Syrian officials are predicting it will double by 2011 — a far cry from the paltry $170 million trade balance the two countries chalked up at the turn of the millennium and a 55% increase since 2004. Trade volume is also likely to be higher than official figures show, given that Chinese products are re-exported to Syria from centers like Dubai and are therefore recorded as Gulf imports.

Investment is following a similar trend. China was the second largest non-Arab investor in Syria in 2006, accounting for $100 million out of the $800 million in non-Arab investment funds which flowed into the country last year (Iran easily took first place with $400 million). By the end of 2006, Chinese companies had signed project contracts worth $819 million and this amount is virtually guaranteed to be superseded this year with a billion dollar oil refinery deal near completion.

Bashar Nouri, Chairman of the Syrian-Chinese Businessmen Council, said interest from Chinese companies was growing and an investment conference to be held in the country’s oil capital Deir Al-Zor in November would be attended by 30 Chinese companies — their bill being picked up by the Syrian Ministry of Economy. “There are many Chinese companies asking about Syrian laws and economic openness in Syria,” Nouri said. “Big Chinese companies are planning to establish branch offices in Syria, since Syria is considered the northern gate of the Arab World.” Nouri said joint Syrian-Chinese projects in the textiles and IT industries were expected to be launched in the near future.

Syria’s decision makers see the burgeoning economic relations as a natural fit, citing a shared economic history dating back to the Silk Road which saw goods transported to Europe from China via Damascus. Syria was one of the first Arab countries to establish diplomatic ties with the People’s Republic of China in 1949, following Mao Zedong’s victory.

Despite the signing of a number of trade agreements, including the Accord of Trade Payment in 1955, Agreement of Trade and Agreement of Economic Technology Cooperation in 1963 and the Agreement on Encouragement and Protection of Investment in 1996, bilateral trade remained nominal during the last half of the 20th century.

Economic relations began to improve in 2000, following a number of government trade delegation visits, with total trade rising by 28 percent from $174 million in 2000 to $223 million in 2001, according to figures from China’s Economic and Commercial Counselors’ Office in Syria. The signing of an Agreement of Trade and Agreement of Economic Technology and Cooperation in 2001 — redefining the Syrian-Chinese trade framework — saw total trade jump by 66% to $371 million by the end of 2002. The exemption of double tariffs on trade between the two countries in 2003 provided further momentum, with total trade increasing an additional 37% to $507 million.

Syrian President Bashar al-Assad’s visit to Beijing in 2004 — the first visit to China by a Syrian President — cemented the country’s interest in China and the Syrian-Chinese Businessmen Council was established, charged with the task of fostering deeper economic integration between the two countries. Since then the trade balance’s skyward trajectory has only steepened, dominated by Syrian imports of machinery, textiles, electrical goods, communications equipment and hardware, as well as mineral products. Chinese imports from Syria are little more than oil and crude oil products.

Syria’s newfound interest in Chinese markets is also redefining relations with her traditional trading partners, particularly the EU. Syria’s share of imports from the European bloc has fallen by around 15 percent in recent years from 50% of all imports in 2003 to now less than 35%. The country’s share of exports has followed a similar trend, falling by 17% over the same period. The decline in trade has many political analysts prophesying that Syria has given up on the West and is now turning East to secure its economic and political future.

While tensions between Syria and the West have not helped trade, simple market forces over political master plans remain the main drivers of Syrian trade, economist Samir Seifan said. He points to a strengthening euro, which has increased by close to 30% since the start of 2003, as the primary reason behind the rise in Chinese imports.

“Syria is certainly importing more from China, but the main driver is a strengthening euro which has made Chinese imports very competitive,” Seifan said. “At the same time, you’ve had China trying to suppress the prices of its products and given that Syria is not a market for expensive products, Syrian traders have taken advantage of the lower prices.”

Not that Syria’s trade is without political overtones. In 2004, when the US rolled out a new wave of sanctions against Damascus, Bush officials were predicting that prohibitions on US technology would near cripple Syria’s oil and gas sector. They have no doubt had an effect, but countries like China, India and Russia are increasingly getting the job done. “China is becoming one of the key economic players and there is opinion in Syria that the country can benefit from China’s technological capabilities,” Seifan said. “Countries like China, Russia and India don’t share the same level of technological capability as the US, but it is still high enough to cover the needs of Syria.”

Syrian officials have admitted as much. Announcing the finalization of a $1 billion oil refinery project with China’s major oil player the China National Petroleum Corporation (CNPC), Syrian Deputy Prime Minister for Economic Affairs Abdallah al-Dardari said: “If some countries do not want to share technology with us, others will.” Construction of the 70,000 barrel per day oil refinery at Deir Al-Zor is expected to start in 2008 and curb the country’s massive fuel imports. The deal will also see Syria import oil exploration and mining equipment from CNPC, using preferential loans from China. CNPC has also been awarded a contract to upgrade five existing oil fields to improve productivity, and China has being invited to conduct oil exploration in 5,000 square kilometers of Syrian waters.

The latest deal — which will be signed after technological and feasibility studies are completed — builds upon China’s already strong presence in Syria’s oil industry. In late 2005, CNPC joined forces with its usual rival, India’s Oil and Natural Gas Corporation (ONGC), to buy a $573 million stake in the Al-Furat oil and gas fields.

“When sanctions exist from the US it is natural for Syria to look towards other sources,” Seifan said. “Certainly there are political intentions to have good economic and political relations with emerging powers like China, India and Russia who can provide raw materials, as well as the all important technological and intellectual know-how.”

Syria has hinged much of its economic development on attracting foreign investment, with al-Dardari recently announcing that the country needs to obtain $15 billion of foreign investment over the next 3 years to sustain current growth rates. If Syrian authorities have their way, China will be a major component of the much anticipated river of foreign funds. Energy, electricity, infrastructure, communications, education, textiles and tourism have all been singled out by Syrian officials as areas in which they would like to see increased Chinese investment.

Damascus has also moved to recognize China’s market economy status, in which Syria accepts China has minimized state intervention into its economy. The move not only boosts Beijing’s standing in the international trade community, but protects China from anti-dumping claims, a frequent accusation from trade rivals.

Not that it’s all smooth sailing. The one-way nature of Syrian-Chinese trade — Syrian imports making up the lion’s share of a $1.4 billion trade balance — is causing concern. Damascus aims to restore balance to the trade relationship by promoting Syrian goods and services in China, while Beijing has committed to easing tariff and non-tariff barriers for Syrian imports.

Just what opportunities Syrian companies can eke out in China remains to be seen. Many in Syria’s business community remain doubtful. Daaboul Industrial Group CEO Mohammad Daaboul, who was part of a recent Syrian business delegation to Beijing, said considerable obstacles — namely price — stood in the way of Syrian companies exporting to China. “Until now, Chinese costs are lower than our costs so to enter the Chinese market is not easy,” Daaboul, who heads up one of Syria’s largest construction materials companies, said. “Furthermore, there is no indication that the Chinese consumer is willing to pay for quality. If the Chinese consumer is presented with the opportunity to buy a higher quality product from outside or a cheaper version made in China, they will purchase the cheaper version.”

Daaboul said the only Syrian companies likely to succeed in China were those offering a product or service that is not available locally. “In the areas of certain raw materials, cotton and olive oil there are opportunities. Syrian can increase the volume of imports to China, but in my opinion not by too much.”


The new Silk Road is up and running. For the time being, however, traffic is likely to remain all one way.

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