Turkey’s global competition with China

Turkey’s global competition with China

Anti-Chinese tariffs and sentiments are increasing in Turkey as Ankara’s dependence on Chinese imports grows. Despite this, Turkish firms are taking on China in Africa and Central Asia.

Two weeks ago, Turkish President Tayyip Erdogan announced that Turkey would again consider an offer by Chinese defense contractor China Precision Machinery Import Export Corp (CPMIEC) for a $3.44 billion air and missile defense system.

Speaking on the matter, Erdogan stated that “China made an appropriate bid. We would certainly welcome a proposal that would ‘enrich’ the offer.” Several years ago, CPMIEC originally received the contract in a major coup which saw CPMIEC beat offers from EU and US companies to supply a NATO member with advanced weaponry. Despite this, the deal was, until recently, dead in the water due to opposition from other NATO members and disputes over technology transfers.

Turkey as China’s Western gateway

Turkey’s initial acceptance of and suggestion of a “second chance” for CPMIEC’s offer appears to indicate strong bilateral relations between Ankara and Beijing. Indeed, China’s first joint military exercise with a NATO member was at the invitation of Turkey to the 2010 Anatolian Eagle exercise.

China’s invitation was secured following Beijing’s condemnation of Israeli actions during the May 2010 flotilla incident during which nine Turkish citizens were killed. Israel pulled out of the 2010 exercise and Beijing was invited instead.

Favorable Sino-Turkish relations extend beyond defense matters, as China secured its first ever foreign high-speed rail contract in 2006, for a 533km Istanbul-Ankara line, which was completed last year. In 2012, both countries pledged to increase bilateral trade to $100 billion by 2020. The same year also saw China aid Turkey’s space ambitions, launching the SkyTurk-2 satellite from its launch facility in Gansu province.

2012 was also declared the ‘Year of Chinese Culture’ by Ankara, launching a year-long series of cultural events and performances. China reciprocated in 2013, launching the ‘Year of Turkish Culture’.

China is also seeking to gain support for its Silk Road ambitions, with Turkey being a vital linkage connecting Central Asia with Europe. To this end, there has been cooperation between both countries in creating regional collaboration, as Turkey and China are two of the largest investors in Central Asia.

Economic dynamics bring tense relationship into focus

Despite the cooperation cited above, Turkey and China remain competitors with a strained relationship. Specifically, whereas foreign affairs issues such as Turkish support of Uyghurs and Chinese support of the Assad regime in Syria put significant dents in bilateral relations, economic competition between Ankara an Beijing must be taken into account.

Despite pledges to increase bilateral trade, China is by far the dominant partner. China is Turkey’s second largest trading partner and is responsible for 10% of Turkish imports, totaling $24 billion. Conversely, Turkey exports less than $3 billion to China, the large majority of which are mineral exports, notably borate and chromium.

China exports a range of commercial and industrial goods to Turkey and has displaced domestic manufacturers in many sectors. Turkey’s flagship textile industry is facing stiff competition from cheap Chinese imports, with 80% of ready-made garments and toys, as well as 100% of leather goods, manufactured under Chinese control.

Steel imports are also undermining Turkish producers, with Chinese imports jumping by 284% during Q1 2015. Turkey also increased tariffs from 12% to 30-40% for boron-added rods – from 3% to 40%, and imported rebar and bars increased from 15% to 30-40%.

In May 2015, Turkey raised the tax rate of furniture imports from 13% to 50%, citing a flood of cheap Chinese products. Moreover, the Turkish Ministry of the Economy has begun anti-dumping investigations against China.

Turkish agricultural products are also threatened by China, for despite the fact that Turkish garlic production (80,000 tons) is enough to cover national demand, Turkey imports 28,830 tons, 92% of which comes from China. In response to pressures from farmers, Turkey instituted a $2 per kilo and $2000 per ton customs duty on Chinese garlic in 2014.

Perhaps the saddest statement on Turkey’s trade imbalance is the fact that “even traditional Turkish carpets are made in China. If we import even sickles used in agricultural production, we are over the line…we need to reverse this trend,” according to Economy Minister Nihat Zeybekci.

Turkish firms take on China in Africa and Central Asia

Contrary to Turkey’s domestic reliance on Chinese goods, Turkish firms are increasingly out competing Chinese firms on the international stage, especially in the infrastructure sector.

Cavit Dagdas, Turkey’s treasury undersecretary stated that “the African region has extensive infrastructure needs. Many Turkish contractors are working in the region. Chinese companies are also active in the region.” Turkish companies such as Yapi Merkezi are capitalizing on religious and cultural links in Africa, as well as their ability to offer an alternative to Chinese quotes to increase market share.

Yapi Merkezi chairman Emre Aykar describes the paradigm shift: “Only five years ago, Chinese companies got all the contracts…nowadays there is more of a level playing field, as the stream of [Chinese] subsidies has stopped.” Yapi Merkezi is proving this point, having won a $1.7 billion contract for a 500km rail line in Ethiopia, as well as another contract to extend Ethiopia’s rail links to ports in Djibouti.

Elsewhere, Turkish construction firm Summa has built the Conakry Congress Hall in Guinea, and the Diamniadio Congress Centre in Senegal. Moreover, Summa recently stole a $300 million contract from Beijing Construction Engineering Group (BCEG) for the Kigali Convention Centre, following delays and overruns by BCEG.

Turkish firms are utilizing their linguistic, cultural, and religious links to win contracts in Central Asia, a region China is seeking to bring into its orbit. Since the fall of the USSR, Turkish firms have garnered $57.2 billion in contracts in Central Asia, and currently some 2000 Turkish firms are operating in the area. In 2010, Sembol Construction built the $400 million Khan Shatyr Entertainment Centre in Astana.

In 2013, Turkmen president Gurbanguly Berdimuhamedow exclaimed that “I am extremely satisfied with the project that Polimeks is undertaking,” referring to Turkish firm Polimeks Construction’s $2.3 billion project to build Ashgabat’s international airport. Turkish companies are also building a $2 billion seaport and container terminal at Turkmenbashi.

Categories: International, Politics

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Jeremy Luedi

Jeremy is a widely referenced political risk expert and weekly columnist for Global Risk Insights (GRI). Jeremy's writing has been featured in Business Insider, Huffington Post, Nasdaq.com, The Japan Times, MSN Money, and Yahoo Finance. His work also has been quoted and recommended by Time Magazine, Politico, Transparency International, and Greenpeace, among others.