The Bahrain-China relationship has rarely garnered much interest – that is, until recently. At the China-Arab States Cooperation Forum in May, the two countries agreed to form a comprehensive strategic partnership. The agreement skipped over a strategic partnership designation and placed the small Gulf country in the same category – at least on paper – as regional heavyweights, such as Saudi Arabia, Iran, and the United Arab Emirates. Bahrain’s Mumtalakat sovereign wealth fund and the China Investment Corporation signed a memorandum of understanding to explore investment opportunities during the adjoining state visit to China by Bahraini King Hamad bin Isa al-Khalifa. In April, the Bahrain-based global alternative investment firm Investcorp and China Investment Corporation launched a $1 billion investment platform.

A Shift in the Bahrain-China Relationship?

In the past, the tiny country of Bahrain had seemingly registered minimal strategic and economic significance for Chinese government and business actors. At the same time, the Bahraini government was investing heavily in relations with the United States: Bahrain has been home to the U.S. Navy’s 5th Fleet since the 1990s; the country became a major non-NATO ally of the United States in 2002; Bahrain signed a free trade agreement with the United States in 2004; and the U.S. Department of Commerce and Bahraini Ministry of Industry, Commerce and Tourism established a U.S. Trade Zone in 2021. Might Manama’s recent engagements with Beijing signal a shift in the calculations underlying the Bahrain-China relationship?

A major shift is unlikely. However, Chinese influence in Bahrain, especially in the economic domain, is poised to grow upon its modest foundations. New forms of engagement ultimately represent lower-risk, higher-reward activities with differing incentive structures for Bahraini and Chinese actors. Even a drastic increase in the scale and scope of Bahrain’s ties with China would pale in comparison to those of neighboring Gulf countries, such as Saudi Arabia and the UAE, which enjoy deep and multifaceted relations with China. Yet attracting a larger sliver of Chinese trade, investment, and tourism flows could have an outsized impact on Bahrain. For its part, China has offered Bahrain little beyond paper commitments, but Beijing can boast of deeper partnerships in a country with which the United States has long enjoyed strong ties and shared interests.

Light Economic Foundations

Bahrain-China ties are likely to accelerate most in the economic domain, though past collaboration has unfolded in fits and starts. King Hamad’s recent state visit involved pledges to “expand cooperation in various areas and push for more results in Belt and Road cooperation,” according to China Daily. Bahrain and China signed an initial memorandum of understanding to cooperate on the Belt and Road Initiative during a China-Arab States Cooperation Forum in July 2018. Later in 2018, the Bahrain Economic Development Board signed a flurry of memorandums of understanding with Chinese companies covering artificial intelligence, esports, and financial technology.

Government efforts to strengthen bilateral economic ties preceded BRI-oriented cooperation. In 2010, the Bahrain Chamber of Commerce and Industry and the China Council for Promotion of International Trade launched a Bahrain-China Joint Investment Forum to encourage more business partnerships between the two countries. A small number of prominent Chinese companies have operated in Bahrain for some time. China’s Huawei entered the market in the early 2000s, launched a regional headquarters in Bahrain in 2009, and expanded the headquarters in 2017. While Bahraini partnerships with Huawei and China Telecom to help roll out 5G mobile network infrastructure and connectivity services created friction with U.S. officials, this sensitive issue did not become a major sticking point in Bahraini-U.S. ties.

Other prominent companies active in Bahrain include the Bank of China, heating, ventilation, and air conditioning company iCOOL, and China Machinery Engineering Corporation (a subsidiary of China National Machinery Industry Corporation). In 2019, China Machinery Engineering Corporation and the Power Construction Corporation of China both launched construction projects valued at a combined $1.42 billion in Bahrain’s real estate and utility sectors. In January, Bahrain’s crown prince, Salman bin Hamad al-Khalifa, inaugurated the first phase of China Machinery Engineering Corporation’s housing project in Sitra, where plans to construct nearly 3,000 housing units are underway. In May, the Bahraini minister of industry and commerce met with the management of China Machinery Engineering Corporation to discuss greater collaboration in the development of industrial and economic zones. Meanwhile, Dragon City, a $100 million wholesale and retail trading center developed by Chinamex, is home to many Chinese manufacturers and trading companies.

The trade partnership between the two countries is weighted heavily toward Bahraini imports of Chinese goods. In 2022, the value of China-Bahrain trade reached $2.36 billion. Bahrain’s exports to China that year only amounted to $110 million, with raw aluminum accounting for nearly half of all exports and energy commodities playing a negligible role. These trade flows are modest by regional standards. For comparison, in 2022, the volume of trade between China and the UAE reached $109.8 billion, and trade between China and Qatar stood at $26.2 billion, according to the International Monetary Fund.

Investing in Growth Areas

The recent memorandum of understanding between Bahrain’s sovereign wealth fund, Mumtalakat, and China Investment Corporation to “explore potential investment opportunities” won’t immediately produce concrete investment deals. A small number of holdings and investments account for much of Mumtalakat’s $18 billion in assets under management, and the fund has a strong focus on local impact. Nevertheless, some of the “strategic investments” in the fund’s 2022 annual report demonstrate a clear connection to Chinese markets, such as those in the Spain-based electronics manufacturer Premo Group and Aleastur Group, which specializes in manufacturing metals. Premo established a production facility in Wuhu City, China, and Aleastur’s facility in Bahrain “expands and reinforces its production capacity and commercial activities” in China and other fast-growing markets.

Other Bahrain-based investors beyond Mumtalakat are exploring opportunities in China or with Chinese partners. The May deal between Investcorp and China Investment Corporation to form an investment platform follows previous investments; Investcorp has been active in Chinese markets for several years. Investcorp initiated its debut private equity investment in China in 2018 through a partnership with China Everbright Limited. The Bahraini asset manager also launched a China-focused health care investment platform and an Asia Food Growth Platform, enabling several investments in these sectors from 2020-21. Various other investment funds in Bahrain, such as Al Waha Fund of Funds, have partnered with Beijing-based MSA Capital.

Bahrain’s tourism sector, which relies overwhelmingly on Saudi tourists, offers another opportunity to strengthen ties between Bahrain and China. For a country that welcomed 12.4 million tourist arrivals in 2023, better connectivity with China – the world’s largest outbound tourism market – offers significant promise. The Bahraini minister of tourism described the Chinese market as a key target in the country’s “Tourism Strategy 2022-2026.” The strategy aims not only to boost the sector’s contribution to Bahrain’s gross domestic product to 11.4% by 2026, up from around 7% in 2021, but also to increase tourism flows from more countries. Bahrain’s national carrier, Gulf Air, began its first nonstop flights to China in May.

Bahraini and Chinese officials also signaled a willingness to work more closely on the media and space portfolios. During the Bahraini king’s state visit to China in May, Bahrain’s National Communication Centre and the China Media Group agreed to enhance communication between the two countries, while Bahrain’s National Space Science Authority and the China National Space Administration planned cooperation on space initiatives, including those related to satellites. In June, the Chinese ambassador to Bahrain indicated potential avenues for future cooperation, including opening a branch of a leading Chinese bank, which would help facilitate bilateral trade, collaboration in the electric vehicle industry, and even a visa waiver program.

Future Trajectories

Rather than an inflection point, the China-Arab States Cooperation Forum in May was largely an opportunity to showcase and build upon initiatives already underway in Bahrain-China relations. There have been flurries of bilateral engagement in the past – notably in 2018 with BRI-related agreements and other partnerships involving Bahrain’s Economic Development Board. Bahrain also joined the Chinese-led Asian Infrastructure Investment Bank as a member in 2018. Past efforts to strengthen Bahrain-China ties established a light foundation for continued collaboration but have yet to materialize into robust linkages with significant momentum.

Nevertheless, the Bahraini government appears determined to generate more value out of the bilateral relationship. Bahrain has a strong incentive to tap into China-driven trade, investment, and tourism flows. It appears that Bahraini officials have read the writing on the regional wall: There is plenty of room to work with Chinese counterparts while posing minimal risks to their strong relationship with the United States. For example, Bahrain officially became a dialogue partner in the Shanghai Cooperation Organization in July 2023. Greater cooperation with China, especially in economic realms, is unlikely to spell big trouble for little Bahrain.

Partnerships, however, are a two-way street. Following the announcement of elevated status agreements for Bahrain and Tunisia, Jonathan Fulton wrote that China’s partnership agreements “may just be items on a checklist.” Beyond niche areas for cooperation and some relatively small-scale commercial contracts, it is unlikely that Chinese economic actors will ever perceive Bahrain as a key trade and investment hub. Nor do Chinese government and business actors necessarily need a gateway to the Gulf, as Bahraini officials often portray their country. Bahrain’s king assumed the presidency of the Arab League in May, but otherwise, the country has not undergone a major shift in its geopolitical or strategic significance relative to Beijing. This latest flurry of activity in the Bahrain-China bilateral relationship may be less alignment and more coincidence of interests: Manama is seizing an opportunity to generate economic momentum, while Beijing is seeking to keep a wary Washington on its toes.