Where Is the China-GCC Free Trade Agreement?
China’s pursuit of a free trade agreement with the Gulf Cooperation Council is in its third decade, and Beijing is ramping up calls for Gulf states to help close the deal.
Speaking in Abu Dhabi on Friday (Dec. 12), Chinese Foreign Minister Wang Yi urged his Emirati counterpart, Sheikh Abdullah bin Zayed Al Nahyan, to help in “advancing negotiations for an early conclusion” to the long-stalled free trade agreement (FTA) between China and the Gulf Cooperation Council (GCC). Since 2004, the China–GCC trade deal has nearly closed more than once, then stalled again over market access and domestic protection. External shocks, including the 2017-2021 GCC diplomatic crisis and the COVID-19 pandemic, have made matters worse. Wang’s remarks suggest impatience on China’s part and a recognition that Abu Dhabi, with its outsized diplomatic reach and centrality in Gulf politics, may be better positioned than Riyadh to break the impasse. Whether that hope is well placed is another matter.
From Conception to (Almost) Execution
At the time of its announcement in 2004, China was the Gulf Cooperation Council’s (GCC) third-largest trading partner, with trade between China and the bloc projected to exceed $20 billion that year. By 2020, China had replaced the European Union (EU) as the GCC’s largest trading partner, with exchanges valued at over $161 billion. China, a net importer of energy since 1993, has become heavily reliant on hydrocarbon exports from the Middle East to fuel its rapid economic development and modernization. The Gulf countries, economically and politically stable compared to many others in the region, have become crucial partners for China in this regard.
What’s more, as the Gulf countries seek to diversify their economies away from rentier models supported by hydrocarbon exports, they have emerged as an attractive destination for Chinese exports and partnerships. The Middle East at large received an oversized flow of Belt and Road Initiative (BRI) construction engagement in 2024 on the back of a 360% increase in Chinese investments into the region, despite a significant reduction in China’s foreign investments at the global level from the 13th Five-Year Plan (2016-2020) to the 14th Five-Year Plan (2021-2025).
National development strategies in the Gulf, such as Saudi Vision 2030 and Kuwait Vision 2035, call for the development of sectors such as healthcare, tourism and hospitality, finance, and retail, among others. Gulf leaders, like Saudi Crown Prince Mohammed bin Salman, have not been shy about their eagerness to align their own national development endeavors with China’s BRI and the benefits therein. China and the GCC countries have consistently affirmed their enthusiasm to cooperate and expand bilateral ties, which now include Comprehensive Strategic Partnerships (CSP) with Saudi Arabia, the United Arab Emirates (UAE), and Bahrain. Qatar, Oman, and Kuwait enjoy Strategic Partnerships, the second-highest designation in China’s diplomatic repertoire.
This agreement is not stopping short due to a lack of interest from either side. Following a suspension of talks in 2009, the two parties, in January 2016, stated their ambitious intent to hash out the agreement within that same year. Clearly, that did not play out as planned. In January 2024, Saudi newspaper Asharq Al-Awsat quoted China’s ambassador to the Kingdom as saying terms were 90% settled, though more “flexibility on both sides” was needed. With that in mind, what is the remaining 10% that has proven so difficult to wrap up that the process has dragged on for 21 years?
Trade-Offs of Free Trade
At the simplest level of analysis, FTAs look to lower barriers to trade, such as tariffs, and facilitate economic exchanges that align with a growing relationship between the involved parties. In a less-than-nuanced, somewhat generic imagining of the proposed agreement, this would involve a surge in GCC firms entering the Chinese economy and vice versa. The implications of this, however, have left both sides feeling hesitant about opening their economies to one another.
The expansion of GCC access to the Chinese energy market would, naturally, mean higher levels of competition facing China’s domestic hydrocarbon industry. There is a clear theme of China’s desire to protect these domestic producers being cited as a major roadblock for the proposed FTA. In reaction to China’s insistence on protecting its domestic producers by maintaining tariffs on GCC hydrocarbon imports, the GCC has “unilaterally stalled” negotiations in the past. While China can seek energy security from Russian crude oil or Australian liquefied natural gas (LNG), the GCC countries remain critical suppliers and indispensable to Chinese energy security.
Gulf leaders are likewise concerned for the long-term well-being of their domestic industries. Talks once again stalled in May 2024 when Saudi Arabia expressed worry over China’s proposed list of duty-free exports. This concern, in totality, is as much to do with troubles in domestic diversification as it is to do with Chinese demands. Across the GCC, progress in diversifying economies away from a reliance on energy exports has been far from linear.
While the UAE, for example, has positioned itself as a regional hub for trade destined for the Middle East, Europe, Africa, and Asia — and even imports more goods from China than it exports — the trend across the GCC remains a major reliance on hydrocarbon exports. As Gulf states continue looking to reduce their reliance on energy sales, protecting domestic industries will be critical to developing properly diverse economies. As U.S. tariffs tighten around the world, Gulf leaders have to weigh whether Chinese exports blocked elsewhere will be redirected into GCC markets. Such an influx of Chinese goods could undermine local companies and bring about a slowdown in regional localization.
GCC Collective Action
Assuming terms could be reached on the above issues of contention, a path toward finalizing and implementing an agreement would be less than obvious. While the bloc can negotiate collectively and constituent interests certainly overlap in several areas, domestic concerns remain. Free trade deals are signed abroad, but they are fought over at home. Among the GCC states, there is meaningful divergence in both domestic and foreign policy priorities, and the gains from trade are clearly asymmetrical.
Saudi Arabia, with by far the largest population of the GCC countries (32 million), is particularly concerned about ensuring that its citizen population is employed and can contribute to the Kingdom’s economy. Whereas the UAE, whose population of 11 million are almost 90% foreign workers, does not share the burden of answering to a large citizenry when it comes to policies that affect the economy. As such, the UAE has emerged as a particularly liberal trade partner for outside powers such as the EU and China, with re-exports playing an outsized role in the Emirati economy.
While it has been noted that the GCC states tend to act in unity when confronted with major crises, such as the Sept. 9 Israeli strike on Doha, FTA negotiations are an area where the Gulf monarchies can afford patience. President Trump has made clear that he places great importance on relations with the GCC countries — Saudi Arabia and Qatar in particular — and all six of them remain firmly under the American security umbrella.
In Qatar, where there is a less robust history of cooperation and solidarity with the rest of the GCC, the most consequential pillar of economic cooperation has been secured at the bilateral level. With deals in place, such as two 27-year agreements for China to purchase a cumulative 8 million metric tons of LNG from the small state each year, a bloc-wide agreement becomes less crucial from Doha’s seat.
With differing interests and areas of concern held by the three major GCC powers of Saudi Arabia, the UAE, and Qatar, bilateral agreements become more attractive and attainable, even if a common interest in the conclusion of the China-GCC FTA persists among all parties involved.
Breaking the Impasse?
Meaningful progress toward the conclusion of a China-GCC FTA is less than likely in the near future. Chinese calls for Gulf partners to help accelerate the agreement are nothing new, and the one-sided nature of these statements, where China calls and the GCC countries echo, suggests China sees the lag in concluding the talks as more frustrating than the Gulf states do. As the Gulf states remain strategically aligned with the U.S., which maintains a large military presence in the region, an aversion to aggravating Washington by agreeing to free trade terms with China may also be incentivizing the GCC states to bide their time.
On the other hand, free trade with China is not clearly beneficial for many countries. Among the G7 states, none of which hold bilateral FTAs with China, the latter’s nonmarket practices have raised concerns of overcapacity, which could harm domestic industries on top of concerns about reciprocity in market access. The GCC already runs a major trade surplus with
China, so a new deal raises a hard question: what does the Gulf gain that it cannot already secure? As things stand, the Gulf states have more domestic interests to protect than it has to gain from tariff liberalization.
On the current trajectory, there will almost certainly be further calls from China to accelerate talks at both the China Arab States Summit and the China-GCC Summit in 2026. However, if such calls remain one-sided and formulaic, meaningful progress is not likely. If elements of protection for specifically sensitive sectors, for example, start appearing in official readouts, the agreement can be seen as having entered a different phase. Until then, however, the China-GCC FTA will remain an ambitious but elusive objective: a headline commitment that signals continued momentum in China-Gulf ties, but stops short of the domestic trade-offs required to make it real.
The views and information contained in this article are the author’s own and do not necessarily represent those of The Asia Cable.