By Lukas Fiala
China is on China’s side. That was the verdict of a GCC China expert cited in Jonathan Fulton’s excellent China-MENA newsletter this week. Despite Beijing’s veto of Bahrain’s UNSC proposal and reports of Chinese shipments of sodium perchlorate to Iran, Chinese behavior would not shift perceptions much among Gulf countries, given that China is generally seen as a transactional and self-interested actor.
But whose side is that really?
The simple answer is, of course, that Chinese foreign policy ultimately reflects the objectives of the CPC’s political elite and President Xi Jinping’s preferences.
From this perspective, China is managing competing interests, its deep economic ties to the GCC on the one hand, and its longstanding diplomatic relationship with Iran on the other, much as Beijing has attempted to straddle the line on Russia’s war in Ukraine.
And yet, for me, that’s not the whole story. Earlier this week, I was sitting in a room full of talented China watchers with a range of backgrounds and extensive on-the-ground experience in China. Many of us had just been to China recently, and many seemed to share a similar feeling about the contradictions that characterize China’s current economy and foreign policy.
Indeed, the same industrial policy that produces BYD and other high-tech export champions reflects profound structural imbalances, the consequences of which have become all too visible in recent years: overinvestment in manufacturing capacity, chronic deflation, high youth unemployment, and a cut-throat job market, especially for recent graduates.
For those of us who recently traveled to China, the gap between the external image of China’s ascendancy and the internal mood of a certain degree of disillusionment was hard to miss. And the ensuing consequences may well shape China’s international role.
As political economists have long pointed out, one of the main adjustments the CPC leadership could make is to rebalance China’s growth model and enable households to capture a large share of domestic savings to boost consumption. And in the context of the 15th five-year plan, there are signs that boosting consumption is increasingly seen as a priority.
If such a domestic rebalancing ever occurred, it would reduce China’s capital account deficits and with them the financial firepower behind its overseas development programs. Given China’s record trade surpluses and BRI-related investments in 2025, however, such developments seem at most a distant prospect.
With the CPC hosting both its next Party Congress and FOCAC in 2027, probably in close proximity, the leadership will face the challenge of reconciling ambitious messaging vis-à-vis African counterparts and the Global South at large with a domestic audience that may well feel they are looking at the tail end of China’s economic boom that lifted so many out of poverty.
The key contradiction at the heart of China’s international role is thus that the country’s capacity to act as a major player across the Global South is built around a domestic political economy and ensuing imbalances that fuel disillusionment at home.
Understanding a China that appears at times internally fatigued but also externally formidable certainly complicates our understanding of who benefits from China’s foreign policy in the Middle East and elsewhere.
Lukas Fiala is Head of China Foresight at LSE IDEAS
