As the U.S.-Iran war continued to take its toll on the global economy, Chinese President Xi Jinping arrived in Cairo on September 1. With more parties becoming involved in military escalations, Cairo is one of a handful of capitals where diplomatic and economic cooperation remains, particularly in the realm of manufacturing and investment.

Since 2023, the region has undergone a series of conflicts that have brought both challenges and opportunities for Egypt. The most recent conflict between the United States and Iran has fueled a spike in the price of energy supplies and other essential commodities, thereby tightening Egypt’s already-strained public budget. However, the prolonged instability around the Strait of Hormuz has nonetheless made the Red Sea corridor, and the Suez Canal at its northern end, a more critical lifeline for global trade than at any point in decades. 

Beyond highlighting its role as a global trade corridor, the war in the Gulf has also drawn attention to the potential benefits of expanding the Suez Canal’s industrial capacity. A manufacturing base at Suez shortens the distance between Asian capital and European demand. It also serves Washington’s interest in supply chains that depend less on China by adding Suez as a second node, making them more resilient.

The Suez Canal: Beyond Shipping and Logistics

The Suez Canal is an extremely important thoroughfare for global trade, transiting goods from markets in the East (primarily Asia) to the West (primarily Europe). These goods include energy products (both refined and unrefined), consumer products (electronics, toys, and apparel), bulk raw materials (cereals/grains, ores, and metals), and agricultural products (manufactured fertilizers and oilseeds). The Suez Canal handles about 12-15% of the world’s trade. Its status as a global highway is important, but it also has the opportunity to lift its importance further by improving its local industrial capacity.

The Egyptian government has been attempting to increase the Suez Canal’s logistical position and manufacturing capacity for over a decade through the Suez Canal Economic Zone (SCZone). Placing manufacturing at the midpoint of Asian and European markets means components can be brought in from anywhere, built into finished products across textiles, electronics, and automotive, and then transited through the Canal and sold to foreign markets at a higher value. By building their products in the SCZone, Asian companies prove that the origin point doesn’t have to be in Asia. 

This push for industrialization is being led by China; in the past six years, cumulative Chinese investment in Egypt has risen by roughly 50%, from $6.8 billion in 2020 to over $10 billion this year. More than 2,800 active Chinese companies were counted as operating in the country by the General Authority for Investment and Free Zones (GAFI) as of 2025. This trajectory is championed by the China-Egypt TEDA Suez Economic and Trade Cooperation Zone, which alone hosts around 200 companies with investments exceeding $4.7 billion. By June 2026, it had generated more than $7.3 billion in cumulative sales and roughly $350 million in local tax revenue.

According to Rhodium Group, an authoritative tracker of Chinese outbound investment, Egypt ranks first in the Middle East and Africa for announced Chinese investments since 2022, and lands second only to Hungary once Europe is included in the study. The continued growth is significant, as many other investors have pulled back on their investments over the past few years, suggesting that China is committed to supporting Egypt’s manufacturing in spite of regional challenges.

Chinese investment in Egypt includes a number of global industrial champions. Jushi operates Africa’s largest fiberglass base there, with roughly 360,000 tonnes of annual capacity on about $1 billion of investment. Midea and Haier are present in appliances, OPPO, ZTE and Huawei in electronics and telecoms, GAC Motor and Brilliance Auto in vehicles, Xinfengming in petrochemicals. Zhongtian Steel’s $300 million tire-materials plant is slated to send roughly 30% of its output to the Middle East, Europe and the Americas. These investments are the result of Chinese calculations that improving Egypt’s industrial capacity will be a win-win situation for both countries. 

The Case for Investment

For Egypt, increasing its manufacturing capacity at the SCZone should help the country address its sharply unbalanced trade relationship with China. Egypt’s Commercial Service reported two-way trade at roughly $20.8 billion in 2025, of which Chinese exports to Egypt accounted for $19.9 billion and Egyptian exports to China for $819 million. Purchasing this amount of imported products strains Egypt’s foreign currency reserves, exacerbating the deficit in the country’s balance of payments. Being able to manufacture more products locally, whether by sourcing the components domestically or importing them at a lower price than finished goods, should help alleviate this strain. China seems amenable to increasing imports from Egypt and Africa as a whole, since it enacted a zero-tariff policy with the continent in May 2026. 

In the meantime, China has been attempting to offload its lower-value manufacturing capacity, as it pursues its own industrial upgrading. This scheme includes several countries, including Egypt, and has two benefits. First, it allows Chinese companies to focus on high-value, technology-intensive manufacturing domestically by outsourcing the low-value production for a lower price. Second, Beijing itself has grown increasingly wary of concentrating its own supply chain in East Asia, as recurring geopolitical disruptions across the world threaten its access to both resources and markets.

Egypt, which has remained remarkably stable throughout the past three years of regional conflict, became an attractive alternative, especially since it naturally fits within China’s trade logistics map. The Suez Canal carries roughly 60% of Chinese exports to Europe, with Chinese traffic accounting for about a tenth of its annual volume. This explains why Chinese firms invested roughly $2.4 billion in a logistics and commercial zone at Ain Sokhna and a further $400 million in a container terminal with two million TEU (twenty-foot equivalent unit) of design capacity in the same area.

More importantly, the contemporary investments go beyond the unsustainable play of tariff avoidance. Trump’s April tariffs—nicknamed “Liberation Day”—placed Vietnam, Myanmar, and Cambodia under heavier duties than China itself, and brought Indonesia to roughly the same rate as Beijing. The reason behind that was their receipt of the first wave of Chinese relocation with limited added value, reinforcing the impression that they are conduits for rerouted Chinese-origin goods. However, Chinese manufacturers investing in Egypt now operate with that precedent in view, so transshipment arbitrage carries real and rising risk rather than offering a reliable hedge. What sustains Chinese interest in Egypt going forward is genuine diversification of excess production capacity away from a single region in East Asia.

Why China and not the United States?

Chinese engagement in the Middle East, and Egypt specifically, is often portrayed as a zero-sum game; in other words, if China is “winning”, the United States must concurrently be “losing”. This frame, viewed through the lens of “great-power competition”, is overly simplistic. It obscures the way Egypt has been deliberately diversifying its partnerships (with many countries, not just China), and the way the United States stands to benefit from this diversification. 

First, Egypt is neither wholly reliant on the United States nor on China. Cairo is building the El Dabaa nuclear plant with Russian financing and technology, while developing green hydrogen and renewable energy projects in partnership with the European Union. It borrows from the IMF and the European Bank for Reconstruction and Development, sits on the board of the Asian Infrastructure Investment Bank as a founding member, and joined BRICS in January 2024 without altering the terms of its American security relationship. It conducts military drills with India and Pakistan and maintains economic cooperation with both countries simultaneously. It has reconciled with Ankara, while nurturing its cooperation on Mediterranean gas with Athens and Nicosia. Thus, examining Chinese investment in the SCZone only through the lens of the U.S.-China competition ignores the other ways Egypt is diversifying its foreign partners. 

Second, China is offering Egypt support that the United States cannot, even if it wanted to. U.S. manufacturing capacity is limited to high-value, technology-intensive production, such as semiconductors, advanced batteries, and AI infrastructure. In contrast, China has vast manufacturing capacity in low- and medium-value sectors. That makes the distance across the value chain between Egypt and the United States greater than that between Egypt and China, making the latter better suited to lend its capabilities to Egypt. Therefore, the United States is not simply being displaced from part of Egypt’s market; instead, China is filling a gap that the United States has never occupied. 

Third, Washington’s biggest concern is likely not the fact that China is investing in Egypt, but that Egypt relies on China for 20% of its imports. That gives Beijing an uncomfortable amount of leverage over Cairo, from Washington’s perspective. Improving Egypt’s manufacturing capacity, however, should lower that power imbalance by allowing Egypt to build more of its products locally.

Suez as a Mutual Shoring Destination

For many years, the United States has pursued the mechanisms of relocating production lines—known as friend-shoring and near-shoring—while many American business executives have called for a “China+1” strategy to make their supply chain more resilient. 

Friend-shoring and near-shoring came out of a recognition that global supply chains had grown too dependent on a small number of distant, often rival, manufacturing hubs. The logic behind them varies slightly. Near-shoring relocates production physically closer to the end market, typically to Mexico or Central America for U.S.-bound goods, while friend-shoring prioritizes political alignment, moving production to allied or trusted economies. Both approaches were promoted during the COVID-19 pandemic, which showed that a disruption in one country could freeze an entire supply chain with no alternative in place.

Similarly, corporations came up with their own versions of solutions to reduce reliance on China specifically. The “China+1” strategy is a way for manufacturers to keep their existing Chinese operations while adding a second production base elsewhere. Vietnam, India, and Mexico became renowned answers, while Egypt has rarely been part of that conversation. Egypt is less familiar to Western manufacturers and less integrated into existing supply chains. Even if these U.S. companies were not initially looking at Egypt as an option for this strategy, it should be on the table now.

As the country continues to absorb the economic and humanitarian costs of wars in almost all directions, Suez’s industrialization could be its stabilizer, mitigating its chronic external financing pressure. And as the Trump administration continues to emphasize the need for U.S. partners to become more self-reliant, improving manufacturing capacity should help Egypt lean less on external support, since its regional partners might grow exhausted from the war. Additionally, the Suez Canal can become the hub that catalyzes regional growth amid stagnation in the oil and oil-related industries.

An Agreement Without an Agreement

The convergence at Suez is real, as China, the United States, and Egypt want the same thing, even if their reasons differ. These structural drivers are a more durable foundation than an explicit agreement would usually rest on. Egypt wants the industrial base its own economy has been unable to build alone, while China wants a market-access route it does not have to build from scratch, and a hedge against concentrating its own production in one place. Meanwhile, Washington wants its supply chains scattered further from East Asia, and can get that in Egypt without having to design or pay for it.

Nevertheless, this implicit arrangement remains vulnerable. Egypt is competing for Chinese commitments in a queue that includes other economies aspiring to similar industrial objectives. Beijing’s enthusiasm is tied to the resilience of its capital and the accompanying diplomatic efforts in an unstable region. What moves safely through Suez matters more to Washington than who is moving it there.