Economic developments first and politics later? The new paradigm in China-Palestine relations

Since Chinese President Xi Jinping presented a ‘four-point’ proposal to resolve the Israel-Palestine conflict in 2013, the prospect of China becoming a viable player in the “peace process” has drawn heightened attention. Though a more positive political role is welcome, sceptics remain unsure, citing China’s rhetoric as compelling but still lacking a genuinely new approach or tools for implementation. A political resolution of the conflict remains the priority and contributions towards this from China warrant the most attention, but it is important not to sideline other components of Beijing’s relations with each party.

The issue of China-Palestine economic relations or Chinese efforts towards Palestinian economic development is rarely considered. Indeed, as China rolls out its landmark “One Belt One Road” (OBOR) initiative, Beijing’s contribution towards regional development is still informed by an ideology that prioritises “economic development” with limited “political intervention”. President Xi reinforced this position in his updated “four-point” proposal in July during Palestinian President Mahmoud Abbas’s visit to the Chinese capital.

China’s economic ties with Palestine developed in the wake of the 1994 Paris Protocol between Israel and the PLO. However, it was only in 2005 that a formal economic agreement between China and Palestine was signed in Beijing. This document was designed to facilitate trade, grounded in the principle of offering “Most Favoured Nation” access to each other’s markets. However, neither side showed commitment to any concerted implementation of the agreement; a Joint Committee never officially met; and the agreement soon after bore little significance. Chinese import tariffs on Palestinian goods remained high whilst the Palestinian market continued to be inundated by predominantly cheap Chinese consumer goods, often with negative effects on local industry. The steady increase of Palestinian traders sourcing Chinese imports formed the predominant facet of economic relations.

Read: Palestine seeks role for China in peace talks

However a step change may be on the horizon. After increased diplomatic engagement in recent years, the groundwork has been laid for a revitalisation of the economic agreement. In the coming months more concerted discussions will begin, including a planned Palestinian delegation to China to conduct the first Joint Committee meeting. Notable issues on the agenda will include a re-evaluation of bilateral trade relations and potential Chinese investment in both an Industrial Park and Palestinian infrastructure. It is unclear if this delegation will coincide with President Xi’s recently proposed trilateral peace symposium.

A rebalance of trading relations is an important step. In 2015 China exported $360 million to Palestine whilst its imports from Palestine barely registered. However, one walk through a Palestinian market place would indicate that the gap is unquestionably higher. A combination of traders undervaluing goods and indirect imports from Israel are amongst the reasons why the true figure cannot be known. A conservative estimate exceeds a billion dollars.

This issue will form a key component on the agenda of a follow-up Chinese delegation expected to visit Palestine later in the year. The delegation will commence an early stage feasibility study for a more comprehensive trade agreement that may ultimately include a Free Trade Agreement (FTA). This is particularly relevant, as China has already been discussing an FTA with Israel since 2013. The potential impact on the Palestinians of a China-Israel FTA is almost never discussed, but could include encouraging Palestinian traders to further import “indirectly” through Israel whilst not being entitled to more favourable export conditions that Israel may receive. Hence, it is important that the Palestinian Authority pre-empts this by establishing its own agreement in parallel.

A second revelation would be Chinese involvement in a Palestinian industrial park. Foreign partners, including the Japanese, Germans, Turkish and French, have supported the establishment of industrial parks in the West Bank and Gaza. The possibility of a Chinese-backed park could be significant for the Palestinian industrial base with the prospect of China facilitating domestic companies as well as Chinese enterprises setting up operations in Palestine. Chinese investment in other countries in the region has on occasion drawn criticism and Palestine can already draw upon controversies in existing industrial parks. It is, however, hoped that Palestine’s highly qualified but heavily under-utilised workforce will be appealing, especially as Chinese firms are unlikely to send a large labour force to Palestine, as they do elsewhere. The Israeli authorities have already approved a proposal to establish an industrial park in Tarkumia near the city of Hebron. This is likely to be the main target for Chinese participation in such a project.

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Chinese companies may also find unique advantages of locating themselves in Palestine even if the market itself is limited. Though the Paris Protocol formally tied Palestine’s import regime to Israeli trade policy, it did give the Palestinian Authority the capacity to develop international trade agreements to favour its export sector. This includes deals with countries that represent attractive commercial opportunities. For example, Palestine is a member of the Greater Arab Free Trade Area (GRAFTA). If Chinese investors were to manufacture goods in Palestine they could benefit from this access.

Finally, could one of the cornerstones of China’s OBOR strategy, infrastructural upgrading, be part of future collaboration? China has built modern cities seemingly overnight and in a matter of years has established the largest network of high-speed railways in the world. Chinese engagement in Israel reveals the potential of what its infrastructural investments could do. In 2015 a Chinese firm facilitated the expansion of the Tel Aviv light rail system whilst the ambitious Red-Med rail line that will connect the ports of Eilat and Ashdod is being eyed by Beijing. Earlier in the year an agreement was signed to bring an additional 6,000 Chinese construction workers to Israel.

A fragmented West Bank bound by Israeli checkpoints governing both internal and external movement has limited sovereign infrastructure. Connectivity between the West Bank and the Gaza Strip scarcely exists, reinforced by the Israeli imposed siege on the coastal enclave. China is pre-eminently qualified and financially capable to support infrastructure projects as it has shown in its other OBOR investments. A recent announcement by Palestinian business tycoon Munib Al-Masri to establish a $100 million company dedicated to projects in Gaza — as part of the OBOR programme — could be a game changer in China’s contribution to Palestinian economic development.

Read: Palestinians must have an independent state says China

As such, there is much that may be on the horizon between China and Palestine. However it will be a shame if “economic development” becomes China’s only tangible contribution towards supporting the Palestinian people. China is in a unique position of leverage, not just as a global power, but also due to its increasing economic ties with Israel. Sadly, though, Beijing has already shown through its official proposals that it is increasingly toeing a line like the international community that has preceded it.

China’s focus on economic development also plays towards the strategy of “economic peace” without fully challenging the fundamental issues that continue to mitigate Palestinian economic and broader political development: Israel’s occupation policy. Beijing’s efforts to support economic development are well received but they should not detract from its need to abide by its responsibilities as a UN member and a global power to seek a just resolution to the Palestinian issue. This is the far greater and more important goal, and one towards which China is increasingly in a unique position to contribute.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.