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The economic partnership between the Middle East and Asia is rapidly evolving into one of the world’s strongest and most intricate. Experts have begun to refer to bilateral and regional cooperation under the acronym CHIME (China and the Middle East). Coordination in the Middle East has been bolstered by the establishment of the Gulf Cooperation Council (GCC), which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates and boasts Dubai as the jewel in its crown of economic prosperity. Economic growth rates in GCC member countries match or exceed those of the BRIC countries (Brazil, Russia, India and China).

As an indicator of the closeness of the CHIME relationship, the past few years have seen a 25% increase in oil and trade flow between the Middle East and Asia. The new Silk Road is producing huge capital outflows from CHIME countries. Asia and the Middle East provide more than 50% of total net capital to the world. There are also a number of global economic giants that are based in the Gulf region, such as Emirates Airlines.

Although the development of the new Silk Road is still in its early stages, there remains potential for growth. In addition to energy exports from the Middle East to Asia, the demand for infrastructural projects and investment in the Gulf region is massive. Saudi Arabia has $650 billion in infrastructural plans over the next decade and China will need $1 trillion in infrastructure capital in the next five years. Capital flows to the Gulf region are expected to rise to $300 billion by 2020 as markets for FDI develop. The need for growth is pressing: The Middle East has a rapidly growing population and high unemployment.

Despite the potential that the new Silk Road holds, many obstacles remain. McKinsey interviewed 60 CEOs from China and the Gulf region. According to respondents the great obstacles for investment between CHIME countries have no instant solution: language and cultural differences, legal barriers and poor infrastructure. Although the region is a priority for most CEOs who replied, there is still a long way to go before the potential is fully harnessed. To strengthen the trade between Asia and the Gulf States, special economic zones should be set up and the human capital exchange between companies in China and the region should be increased, thereby strengthening the cultural links.

The slideshow below was presented by John Turner on May 10, 2007 at the second Atlantic Lunch Club, hosted by the Atlantische Initiative, in cooperation with the German Council on Foreign Relations (DGAP). The supplementary text above was prepared by Julia Meuter and Maximilian Müngersdorff based on Turner’s May 10 presentation.

View the slideshow on full screen to see all details

John Turner is an Associate Principal in the Dubai office of the management consulting firm, McKinsey & Company. John took a leave of absence from McKinsey after receiving the prestigious International Affairs Fellowship from the Council on Foreign Relations in the United States. As part of this fellowship, John served as the Special Assistant for the Middle East to the Under Secretary of State for Economic Affairs, Alan Larson.