China emerges as potential investor as Lebanon runs low on options

Jul 24, 2020

As the crisis-hit country continues to seek financial assistance from the international community and the Gulf without signs of promise, Lebanon is looking east at investments from the People’s Republic of China.

Hezbollah leader Hassan Nasrallah suggested in a televised address June 16 that Lebanon should welcome Chinese investments in key infrastructure projects. Nasrallah also blamed Washington for the dollar shortage and implied that China could offer a vital counterweight. 

Discussion of the idea’s feasibility made headlines in the Lebanese media. Al-Akhbar newspaper claimed that Chinese firms and state-owned institutions are interested in investing $12 billion in ports, railroads, electricity and waste management.

Speculation over Chinese assistance has increased as negotiations with the International Monetary Fund have faltered in recent days. The breakdown follows a dispute between the Lebanese government and the Central Bank over financial losses as well as the resignations of two members of the government’s negotiating team on the grounds that the government lacks the political will to implement reforms. The last meeting with the IMF, attended by Energy Minister Raymond Ghajar, was held July 17. Since then the talks have stopped, according to a member of the Lebanese negotiating team speaking to Agence France-Presse on condition of anonymity.

Last month, discussion over the possibility of Chinese aid escalated into a shouting match between the embassy and David Schenker, a former US assistant secretary of state for Near Eastern affairs. In a statement to the Lebanese press, Schenker said that Nasrallah’s calls for Chinese assistance were a ploy and criticized China for pressuring vulnerable states into signing contracts that benefit Chinese interests over their own. The Chinese Embassy in Lebanon replied in a statement, “We sincerely hope that the American officials … strive to find solution to the chronic problems of American society … and take care of their own affairs instead of interfering of other countries.”

Trade relations between China and Lebanon date back to the second half of the 1950s. At that time, the People’s Republic of China had little interaction with Western countries. The first Chinese delegation came to Lebanon in 1955, establishing business offices in 1956.

Lebanon imported $2.05 billion worth of goods from China during 2018, according to the United Nations’ COMTRADE database on international trade.

“Chinese companies have visited northern Lebanon and they are ready to take part in infrastructure projects including the expansion of Tripoli port and Qlayaat Airport in addition to the constructions of railways, roads and bridges,” Wang Kejian, the Chinese ambassador to Lebanon, said at a conference held at the Syndicate of Engineers in Tripoli in 2019.

As the Syrian war has waned since 2019, international investors are looking for opportunities in the reconstruction of the war-ravaged country. Tripoli, which is very close to the Syrian border, could be an optimal site for possible Chinese investments in Syria.

On June 17, the United States invoked the Caesar Syrian Civilian Protection Act to impose sanctions on the Syrian regime and its backers. Analysts warn that the Caesar Act will increase the division in Lebanon over ties with Syria and Hezbollah’s external relations.

Delegates from the Chinese Embassy in Lebanon including the Chinese ambassador met with Prime Minister Hassan Diab and other ministers earlier this month. According to local news outlets, the Chinese delegates said that they are ready to “activate cooperation between the two countries.”  

But Lebanon is currently dealing with an economic collapse. The country defaulted on its Eurobond payments in March in a first for the country. Its local currency has lost 85% percent of its value in addition to a monthly inflation rate that has reached 56%. Prices are increasing dramatically and the Central Bank is gradually removing subsidies on essential products like wheat and manufacturing supplies. Lebanon is also distressed by major electricity cuts all over the country of nearly 20 hours of blackout per day including in the capital Beirut, discouraging investment. 

 “Lebanon’s situation, as bad as it seems, has great potential in the future for both local and foreign investors,” said economist Hassan Moukalled, editor of Construction and Economy Magazine.

“Any person who knows how investments work already knows that countries and companies invest in times of crisis in countries. Besides, Lebanon is in the middle of a region that will witness two of the greatest reconstruction projects in the world, which are Iraq and Syria,” Moukalled told Al-Monitor.

“So besides getting profit from Lebanon, it can also be a doorway to other countries in the region, especially Iraq and Syria,” he added.

Moukalled, who has visited China several times in 2018 and 2019, said, “The negotiations between the governments of China and Lebanon over investment are still very basic. However, the negotiations between the Lebanese companies and the Chinese companies that are willing to cooperate in Lebanon are advanced — even negotiating the percentage of Lebanese opposed to Chinese workers in their projects.”

Though the Caesar Act could be used to impose sanctions on China if it participates in projects in Syria, analysts wonder if China would go to battle with the United States over Syria. The recent Chinese-Iranian progress toward an economic and security partnership shows that China has no problem defying American policies in the region.

Asked if the United States would impose sanctions on Lebanon, Moukalled said, “China is the main investor in the Arab region, surpassing the US and the UAE. It is the main investor in the US itself if we include debt. The US certainly will not pick on Lebanon and impose sanctions just because it dealt with the Chinese.”