Opinion and Editorial

UAE-Sino ties: Full of energy for synergy

Dr N Janardhan (Gulf Angle)
Filed on November 5, 2007

THE meeting of the World Economic Forum on ‘New Champions’ of the global economy in September couldn’t have had a more apt host — China, which continues to amaze the world with its phenomenal economic growth.

Attending the inaugural annual meeting in Dalian, among others, was another country that fits the bill of a new champion —the UAE, which has witnessed meteoric growth in a short span, and recorded 9.4 per cent GDP growth in 2006, not too far behind China’s 10.7 per cent.

The event, attended by Vice-President and Prime Minister of the UAE and Ruler of Dubai Sheikh Mohammed bin Rashid Al Maktoum , helped showcase the unique development model of the country and the investment opportunities to the world gathering. It also served as an opportunity for the UAE and China to intensify bilateral trade that has surpassed expectations in recent years and set ambitious targets for the years ahead.

A recent statement envisages a $100 billion business between the two countries by 2015 —a phenomenal increase during the next decade from the $14.2 billion bill in 2006, which itself is a six-fold jump since 2000. The UAE is China’s second largest trade partner among the Gulf Cooperation Council countries and the largest market for Chinese exports in the region.

The fact that Chinese President Hu Jintao visited the UAE in January this year and UAE Minister of Economy Sheikha Lubna Al Qassimi visited China three months later bears testimony to the current level of bilateral engagement between the two countries.

The growing ties are anchored in complementarity of economic interests and driven by a rediscovery of ‘East-East’ relations. While China is looking to guarantee energy supplies for its robust economy and expand the market for its manufactured goods, the UAE is seeking investment opportunities abroad following high oil prices, as well as looking to attract Chinese investment, opportunities for both being plentiful in China.

Tapping into China is important because it will account for 19 per cent of the world GDP by 2050, which is equal to that of the US, Europe and Japan combined.

China currently imports 32 per cent of its oil, which is likely to double by 2010. China’s gas consumption is rising at an even faster pace, with imports projected to increase from zero in 2000 to 20-25 million cubic meters by the end of the decade. To meet the demand, China has adopted a strategy of diversification by investing in oil/gas fields in more than 20 countries around the world.

Interestingly, UAE-China trade ties are limited only to the non-oil sector, which is both good and bad. On a positive note, it indicates the strides made by the UAE in diversifying its economy away from oil. On the flip side, however, excluding the energy sector has dented the volume of bilateral trade.

Realising this, the UAE and China entered into an agreement in 2005 aimed at bolstering bilateral relations in the energy and oil sector. Chinese companies could acquire a fair share in the mega oil and energy projects in the UAE. In April 2007, the UAE and China signed an MoU to set up a joint team tasked with boosting bilateral relations. The two countries have also reviewed ways of developing joint industrial cooperation with emphasis on renewable energy sources.

Several non-oil sector partnerships in the recent past also reflect the growing synergy between the two countries. Real estate giant Damac entered the Chinese market with a $2.7 billion mix-use development in Tanggu district; Jumeirah Group secured management rights for hotel development of the HanTang Jumeirah Shanghai, which is expected to open next year; and Emaar Properties opened an office in Shanghai with a plan to roll out a number of real estate projects.

Emaar Industries and Investments —a private equity firm 40 per cent owned by Emaar Properties --- intends to set up an automobile-related plant in China with an investment of $200 million. On the other hand, Zhongon Construction Group is keen on investing about $100 million in real estate projects in Dubai, in partnership with Fkamber Holdings; and Dubai’s retail sector is likely to receive more than $200 million in investments from Dalian-based retail giant Dashang. Abu Dhabi-based petrochemicals maker Borouge has just announced that it will build its first overseas plant in China to take advantage of high demand for plastics in the automobile industry.

The polypropylene facility is set start production with an initial capacity of 50,000 tonnes. Abu Dhabi National Oil Company and Vienna-based petrochemical company Borealis have a 60:40 share in Borouge, and already have a marketing office in Shanghai.

Dubai Ports World (DPW) and Tianjin Port Group Company Limited announced in June 2006 that they will build a container terminal in Tianjin at a cost of $500 million. The UAE company already operates container berths at six ports in China. Since China is becoming the “factory of the world” and many foreign companies are moving their production there, DPW is positioning in China is strategic.

Joint ventures abroad include: Emirates Power Co and Sichuan Machinery Equipment Import and Export Corp announcing plans to build two 610-megawatt coal-fired power plants in the Dominican Republic; Emirates Building Systems, a subsidiary of Dubai Investments Industries, signing an agreement with China Jingye Construction Engineering Contract Company for the construction of high-rise buildings, stadiums and aircraft hangars in the Middle East and North Africa.

Since the UAE is within easy reach of two billion potential consumers in the Middle East, the Indian subcontinent, Russian Federation and Africa, Chinese firms are being encouraged to use the UAE to penetrate this vast market.

Apart from the fact that there are over 3,000 Chinese companies registered in the UAE, the Chinese Commodities Fair Sharjah, held annually since 2002, has served as an effective forum to promote trade. Last year’s event featured over 600 enterprises, as well as 10,000 products and services from more than 29 provinces and municipalities of mainland China, Hong Kong and Macau. The total value of deals during the first four editions of the show is estimated to be $4.6 billion.

Similarly, Canton Fair has also been playing a key role in spurring the growth of Sino-UAE trade. In 2006, the fair attracted more than 5,500 businessmen from the UAE, who conducted business valued at $1.16 billion.

There has also been a sharp increase in demand for air services since the UAE and Chinese governments signed a MoU to facilitate travel for Chinese tourists to the UAE. An estimated 63 million “big-spending” Chinese overseas travellers at present, and expected to increase to about 100 million by 2010, is good news to the UAE’s tourism industry, which is being seen as a major revenue earner in the non-oil economic diversification plan. To accommodate growing demand, Emirates airlines will begin a second daily service to Shanghai from February 2008.

All these indicate that there are opportunities and scope for synergy. Both countries are “culturally similar being family-oriented, value-driven and knowledge-focussed.” With China leveraging its strength in basic processed products, the UAE could position itself as a logistics hub. With the GCC having completed four rounds of FTA talks with China, its fruition sooner or later is bound to expand Sino-UAE ties further with benefits for both sides to reap.

Dr N Janardhan is a UAE-based analyst on Gulf-Asia relations

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