Towering Ambitions: Egypt and China Building for the Future

This essay is part of the series “All About China”—a journey into the history and diverse culture of China through essays that shed light on the lasting imprint of China’s past encounters with the Islamic world as well as an exploration of the increasingly vibrant and complex dynamics of contemporary Sino-Middle Eastern relations. Read more ...

Egypt’s 80-storey Iconic Tower is one of 20 commercial and residential buildings planned for the Central Business District (CBD) of the country’s New Administrative Capital — part of a massive project undertaken by the China State Construction Engineering Corporation (CSCEC). Construction work on the CBD, which is expected to inject new vitality into Egypt’s economic and social development, has continued uninterrupted since the onset of the coronavirus pandemic. The commitment that China and Egypt have displayed in seeking to complete the project on schedule attests to their desire not just to protect their financial and political investment but to showcase their achievement and reap dividends from the possible further expansion of economic cooperation.

Indeed, over the past decade, Egypt and China — the former a traditional US partner and the latter America’s strategic competitor — have forged ever-deeper ties. During that time, Beijing has sought to leverage its relationship with Egypt to advance the Belt and Road Initiative (BRI), while Cairo has looked to China as a critical partner in the revitalization of the Egyptian economy. Bound together by mutual economic self-interest, Egypt and China elevated the bilateral relationship in December 2014 to a “comprehensive strategic partnership.”[1]

Entering 2020, Egypt was one of the fastest-growing emerging markets, and the Sino-Egyptian economic relationship was thriving.[2] However, since the onset of the covid-19 pandemic, the key pillars of the Egyptian economy have been wobbling: the tourism sector has collapsed, gas prices have plummeted, remittances from expatriate workers in the Gulf have slowed, and revenue from the Suez Canal (the main source of foreign revenue and a major employer) have fallen. The fallout from the pandemic could undermine Egypt’s recent success in restoring growth and regaining investor confidence. It could also test the resilience and delay the further expansion of Sino-Egyptian economic ties.  

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In August 2012, then-president Mohamed Morsi of Egypt traveled to China — his first official trip outside the Middle East. Meeting with then-President Hu Jintao in the Great Hall of the People, Morsi secured credit for economic development. The state visit and its results underscored China’s growing role in the region and revealed Beijing’s determination to strengthen ties with Egypt, despite having been reluctant to support the Arab Spring uprisings that had swept Morsi and others into power.

The next year, though, widespread national protests followed by a popularly-backed coup ended Morsi’s turbulent presidency and the country’s short-lived experience of democracy. Morsi’s successor and Egypt’s current president, Abdel Fattah el-Sisi, inherited a daunting set of challenges, including an Islamist insurgency and an economy teetering on the abyss. In December 2014, seeking to enhance bilateral ties and increase Chinese investment so as to help resuscitate the Egyptian economy, Sisi made the first of six visits to Beijing, where he found in Chairman Xi Jinping a willing and welcome partner.  

By the fourth quarter of fiscal year 2016-2017, there were clear signs that Egypt’s economy had begun to recover from the severe contraction triggered by the country’s political turmoil. Egypt’s GDP growth rate climbed, reaching 5.6% in 2019 (up from 5.3% a year earlier), driven by vigorous implementation of broad-based economic reform programs and gas extraction from the Zohr field.[3] These signs of improvement in Egypt’s economic situation were accompanied by  clear evidence that Sisi’s outreach to China had borne fruit.

Here, it is important to emphasize that China’s economic engagement in Egypt is not new. Citing just one example, the previously mentioned China State Construction Engineering Corporation (CSCEC), which has constructed many of the country’s landmark buildings, including the Cairo International Conference Center, has been in business in Egypt for well over three decades. More than 1,500 other Chinese firms are currently registered in Egypt, many of them having established their foothold before the Arab Spring uprisings.[4] However, over the past several years, Sino-Egyptian economic cooperation has expanded in scope and climbed to new heights.

With Sisi at the helm, Egypt has entered a new period of state-led capitalism[5] that combines neoliberal reforms with the state’s centralized control over the economy; envisions national mega-projects as the locomotive of development; and is marked by the emergence of the defense establishment[6] as an autonomous economic actor with assured access to public procurement contracts and a central role in managing government-funded initatives. [7] The basic thrust and priorities of Egypt’s economic strategy under Sisi have dovetailed with China’s  Belt and Road Initative (BRI). As a result, infrastructure construction and the enhancement of manufacturing production capacity have emerged as the most prominent features of Sino-Egyptian economic cooperation.

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The Chinese business presence in Egypt is concentrated in industrial zones, free trade zones, and financial centers. Since the late 2000s, Chinese firms have shown interest in Egypt serving as a regional manufacturing hub.[8] This is not surprising, given that the Suez Canal is China’s primary shipping route to its largest market, Europe. Nor, therefore, is it surprising that China is the largest investor in the Suez Canal Corridor, an industrial zone comprising four sections and six ports.  

The flagship project of China-Egypt cooperation within the BRI framework is the Suez Economic and Trade Cooperation Zone (SETC-Zone), which, established in 2008, has been assigned high priority by President Sisi and has been strongly promoted by Chairman Xi. The SETC-Zone was constructed in the Sokhna District of Suez Province, bordering the Gulf of Suez along Egypt’s Red Sea Coast and about 120 kms from Cairo. In this choice of location, the SETC-Zone closely resembles China’s Tianjin Technological Development Area (TEDA) — China’s largest and longest-running manufacturing and logistics hub. The SETC-Zone also resembles TEDA in the large role the government plays as an enabler, both at the national and the industrial park level.[9]

TEDA Investment Holding Co. Ltd — a state-owned enterprise based in Tianjin — was one of the earliest investors in, and has succeeded in attracting new tenant factories to the SETC-Zone.[10] The first phase of SETC-Zone expansion project, begun in 2016, was completed in under a year; the second phase includes plans for the launch of nine industrial zones.[11] TEDA’s involvement in the SETC-Zone under the stewardship of Xi and Sisi represents the strategic intersection of China’s BRI and Egypt’s Suez Canal Corridor Plan. In a broader sense, TEDA’s role in the development of the SETC-Zone is but one example of the proliferation of Chinese overseas industrial parks and thus the transplantation of the mode of Chinese development areas across the Middle East, Africa, and elsewhere.

Indeed, Chinese firms have been flocking to Egypt to establish production bases from which to tap into the African and European markets. Within the SETC-Zone, industrial clusters in public transport and passenger vehicle manufacturing as well as in new building materials have been rapidly taking shape.[12]  Chinese government-owned Ningxia Mankai Investment Company has spearheaded the effort to support the four-phase development of Egypt’s largest textile industrial park, located in Sadat City, which could provide a base for Chinese apparel manufacturers to export clothes duty-free into the European Union (EU) and the United States.[13] Similarly, TCL Multimedia has teamed up with Egyptian consumer electronics distributor and maker Elaraby Group to set up a joint production facility.[14] China’s leading TV manufacturer Konka Group has followed suit, recently announcing the inauguration of its LED TV factory in Beni Suef Province, south of Cairo.[15]

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The development of integrated land and maritime transport and trade infrastructure, a priority of Egypt’s “Vision 2030” and an integral element of the BRI, has been a key feature of China-Egypt cooperation. Chinese enterprises are engaged in revamping Egypt’s ailing railways and upgrading port facilities. In 2017, for example, China Railway Group reached agreement to build a light rail network connecting Cairo with surrounding districts and, importantly, linking industrial cities with seaports, including the Suez Canal.[16] More recently, the government of Egypt awarded a contract to an Egyptian-Chinese consortium to design, finance, construct and operate a high-speed electric railway that can accommodate passengers and cargo between Ain Sokhna and El Alamein, thereby connecting the Red Sea to the Mediterranean.[17] This past August, the Egyptian government signed an MoU with Hong Kong-based Hutchison Ports, which currently operates the ports of Alexandria and El Dekheila, to develop and operate a container terminal inside the Abu Qir Naval Base, on the central Mediterranean coast.[18] Complementing the efforts to augment transport infrastructure, Chinese and Egyptian companies have forged partnerships to jointly manufacture and assemble buses and train coaches.[19]

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The adoption of Egypt’s Integrated Sustainable Energy Strategy (ISES 2015-2035), which aims at increasing the supply of electricity generated from renewable sources to 20% by 2022 and 42% by 2035, has paved the way for China-Egypt collaboration in green energy development. Chinese enterprises have engaged in various projects that support Egypt’s energy supply source diversification;[20] however, it is their involvement in the development of renewable, especially solar energy capacity that has the greatest growth potential.

In March of 2019, Chinese PV manufacturer and system integrator TBEA Sunoasis completed construction of three solar power stations at the Benban Solar Energy Park in the southern governorate of Aswan.[21] The same year, Yingli Solar forged an alliance with Misr Asset Management (MAM) aimed at establishing a solar plant to sell electricity to the Building Materials Industries Company (BMIC).[22] In January of 2020, China Gezhouba Group (CGGC), a subsidiary of the state-owned energy conglomerate China Energy Engineering Corporation (CEEC), secured a contract to build distributed solar power generation facilities across the country with a combined capacity of 500MW.[23] Looking to extend cooperation in this field, the two countries have established a a joint renewable energy research facility.

In the field of energy, as in other sectors, the ‘build big’ orientation of Egypt’s development approach has given way to ambitious plans for Egypt’s role in trans-regional energy. Less than a decade ago, Egypt was beset by chronic electricity shortages but today has a power surplus. This success has widened the horizon of possibilities. The ability to produce power cheaply has spurred Egypt’s interest in selling it to other countries, thereby becoming an “electricity bridge” to Africa and Europe.[24] Seeking to further develop Egypt’s solar industry to meet local supply demand and to extend its reach abroad has led Egyptian Minister of Military Production Mohamed al-Assar to enter discussions with Chinese companies — including GCL Group, CITIC, China Electronics Technology Group Corporation (CETC), and China Enfi Engineering Corp — to establish an industrial complex for the production of solar panels.[25]

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Burgeoning economic ties between China and Egypt have been underpinned by “strategic synergy” between the former’s Belt and Road Initiative (BRI) and the latter’s “Vision 2030,”[26] bolstered by mutual commitment to non-interference in each other’s domestic affairs, and boosted by strong personal support from both Chairman Xi Jinping and President Sisi.

At the core of Sino-Egyptian economic cooperation have been mega-projects in transportation infrastructure and logistics, along with joint efforts to support the development of Egypt’s manufacturing production capacity in select geographic areas and sectors. The Egyptian defense establishment has figured prominently in these efforts. The National Authority for Military Production and firms affiliated with it such as Benha Electronic Company and Kaha Company for Chemical Industries have been at the forefront in forging partnerships with Chinese companies.[27] Similarly, the Arab Organization for Industrialization (AOI), which supervises factories in both the military and civilian sectors, has joined forces with Shanghai Wanxiang in smart electric transport system development and with China North Industries Corporation (NORINCO) in technology localization.[28] The expanding footprint of the military is evident in other sectors as well, such as in the Egyptian Navy’s container terminal project partnership with China’s Hutchinson Ports.[29]

Although the coronavirus pandemic has taken a toll on the Egyptian economy, it has done little to damage Sino-Egyptian relations or blunt its forward momentum. On the contrary,  reciprocal gestures of goodwill and solidarity[30] have paved the way for the possible extension of cooperation to the health sector, with China recently having selected Egypt to serve as an African hub for manufacturing a Covid-19 vaccine if one is developed by Beijing and proven effective.[31] Neither has the pandemic altered the Egyptian government’s determination to push ahead with major infrastructure projects, notably its plans to construct 14 “fourth generation cities”[32] — projects in which Chinese companies can be expected to participate.

The enactment of economic reforms that are aimed at repositioning Egypt as a global investment destination have received strong international political and financial backing. Prior to and since the onset of the coronavirus pandemic, the International Finance Corporation (IFC), the European Bank for Reconstruction and Development (EBRD), the World Bank, and the Asian Development Bank (ADB) have provided funding to help drive foreign direct investment (FDI) to Egypt.[33] The International Monetary Fund (IMF) has twice weighed in with support, initially with a $12 billion loan (for 2016-2019)[34] aimed at reducing Egypt’s overall debt and recently with $2.8 billion in financing[35] to address the health and social needs of the country’s most vulnerable groups and a 12-month Stand-By Arrangement (SBA) with access to $5.2 billion in financing to help the government preserve the country’s economic gains.[36] Buoyed by a combination of domestic reforms and international support, Egypt has become a more promising business environment for Chinese companies and financial institutions — and a more competitive one.[37]  

To be sure, Egypt appears to be more politically stable and its economic prospects brighter than when Sisi came to power, China’s Belt and Road Initiative was launched, and the Sino-Egyptian comprehensive strategic partnership was forged. Yet, questions remain as to how well Egypt’s economy can withstand the challenges arising from the pandemic and how quickly rebound from it. Even before Covid-19 struck, Egypt had been experiencing persistent dollar shortages, and aid from its Gulf allies had been waning. Egypt’s new version of state capitalism has failed to benefit middle- and lower-income citizens, who have borne the brunt of the reforms and are yet to reap the benefits. The poverty rate remains stubbornly high as do inter-regional income disparities. Private sector investment gains has not materialized.[38] On the contrary, the focus on mega-projects coupled with the expansion of the ‘military economy’ have had the effect of crowding out the private sector.[39] The Chinese companies and foreign competitors seeking to thrive in Egypt will have to hope that such problems can at least partially be ameliorated.

It is also important to put the Sino-Egyptian economic relationship itself into proper perspective. By no means have Chinese companies and state financial institutions come to dominate Egypt’s economic landscape. Egypt’s trade and investment partnerships are diversified.[40] Although Sino-Egyptian trade has grown rapidly, there is a large structural imbalance in China’s favor.[41] Whereas China has emerged as a major source of foreign investment, some Chinese projects have fizzled.[42] Others, such as Huawei’s 5G rollout, have yet to materialize. Additionally, China may find it difficult to avoid wading into regional rivalries such as between Egypt and Turkey and strained relationships as between Egypt and Ethiopia. Finally, Chinese manufacturers can expect more of the kind of third-party resistance they have already encountered from the European Commission to non-competitive business practices in Egypt and elsewhere.[43]

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President Sisi and Chairman Xi have found in each other a partner eager to build a bilateral relationship that serves their towering ambitions for Egypt and China. But what remains to be seen is whether the development model that Egypt has adopted and China has supported will, besides transforming the Egyptian skyline, set the country on a path toward sustainable growth as well as economic and social justice.