Between the desert and the dragon

China is one of Dubai’s most important business partners, with bilateral trade between the two set to grow four-fold to US$100bn by 2015. Vision explores the trajectory of this increasingly special relationship

Dubai’s relationship with China is fast becoming one of the emirate’s most meaningful. It’s a warm welcome (or ‘huān yíng’, as the Chinese might say) to tourists travelling to, through and from the emirate, of course, but also to an increasing amount of business and trade.

The Red Dragon, already the world’s second largest economic powerhouse, is predicted to become the world’s largest economy by 2030. And while India remains Dubai’s largest direct trade partner, China is already second on the list of countries exporting to the emirate.

‘While India remains Dubai’s largest direct trade partner, China is already second on the list of countries exporting to the emirate’

Dubai Multi Commodities Centre (DMCC), a government entity established in 2002, promotes the free trade of commodities, including gold, diamonds and tea. According to DMCC’s Chief Executive Malcolm Wall Morris, this year more than 740 companies have already registered at DMCC, outpacing last year’s record. One of the most promising developments, adds Wall Morris, is the UAE’s expanding business ties with the Middle East’s oldest trading partner to the north.

“We have seen a dramatic increase in the interest of Chinese companies,’’ he says. That’s hardly surprising, since China is also now among the world’s biggest importers of commodities, from oil to iron ore, and cotton to copper.

As China booms, so do business, trade and tourism with the UAE. Dubai is emerging as a crucial hub along the New Silk Road, a multi-trillion dollar trading highway that links Asia to Africa and Latin America directly through the Middle East. The emirate is not only providing an important regional base for Chinese state companies and private businesses, but also offers Gulf companies fresh opportunities to invest and market their Asian services.

“The Middle East glory days were always as a trading hub,” says Ben Simpfendorfer, Managing Director of Silk Road Associates, a Hong Kong-based economic and political consultancy. “That changed once goods started to be shipped around the tip of Africa by sea instead of land. Dubai is grabbing that back.”

For China and the Gulf countries, hydrocarbons continue to drive the relationship. China has gone from being a net exporter of oil in the early 1990s, to importing more than 55 per cent of the oil it consumes today, about half of which comes from the Middle East.

That trend is expected to continue. Trade between China and the UAE surpassed US$25bn last year, with oil traffic comprising about half of the total. Bilateral trade may increase four-fold to $100bn by 2015, according to UAE estimates, again with oil powering growth. Abu Dhabi has committed to doubling its exports to China from just under 100,000 barrels per day (bpd) to 200,000 bpd starting in 2014.

Trade, however, is moving to other commodities and consumer goods. The Emirates’ total non-oil foreign trade jumped 14 per cent in 2010 to US$205.4bn. Its non-oil commodity trade is dominated by gold, diamonds, cars, and telephone sets; and Chinese participation is on the rise.

There are presently about 3,500 Chinese companies and more than 200,000 Chinese residents in the UAE, mainly in Dubai, Abu Dhabi and Sharjah, according to the China’s consulate-general in Dubai. Smaller Chinese companies, particularly businesses trans-shipping manufactured goods, have been building in the Emirates for years, spurred by the Emirates’ favourable location, tax regime and visa access, says Robert Wan (Wan Chanqing), Executive Vice-Chairman of the Chinese Business Council in the UAE.

Dubai’s location, superior infrastructure, and transportation links to regional and international markets are part of the reason why Chinese companies are turning to Dubai, says real estate brokers Cushman & Wakefield, which published a survey of business attitudes last year.

That infrastructure is also being utilised by Chinese companies that are choosing Dubai as a base from which to develop African ties and gain access to the continent’s mineral wealth. Total Sino-African trade flows have doubled over the last five years and were estimated last year to be worth more than US$115bn.

“Africa has become strategically important,’’ says Mark McFarland, Emerging Markets Economist with Emirates NBD in Dubai. “We see this in the consumer durables sector, where Korean and Japanese electronics companies already are setting up their GCC and Africa headquarters in Dubai and Abu Dhabi to mastermind their expansion into new markets.”

Wan, of the China Business Council, established his company METCO (Middle East China Engineering & Trading Co) more than 20 years ago. It imports construction vehicles – bulldozers, excavators, graters, mounted cranes – from Chinese manufacturers and distributes them to the Middle East, Africa and Central Asia.

METCO isn’t the only vehicle trading firm looking to capitalise on the trans-shipment trade. More than 100 Chinese automobile vehicle and parts manufacturers participated in the Automechanika Middle East trade show held at the Dubai World Trade Centre in June. Consumer electronics manufacturers are also expanding their presence as more Middle East and African customers turn to Dubai to make bulk purchases.

Yet the UAE’s relationship with China is now moving beyond vehicles and consumer goods. Chinese companies are arriving in the UAE to take advantage of massive rail and road building investment now underway in the region. The UAE alone plans to spend US$11bn on a railway project linking the seven emirates. In 2007, China National Petroleum Corporation, one of the country’s three largest state oil companies, secured a US$3.3bn contract to build a strategic pipeline from Abu Dhabi to the Fujairah coast on the Gulf of Oman. Today that pipeline allows half of the capital’s oil to bypass the Strait of Hormuz.

Financial opportunities are abundant too. In 2006, the Hong Kong-based investment firm First Eastern Investment Group, which helped to pioneer direct private investment in the mainland, became the first Chinese investment bank to be established in the Dubai International Financial Centre.

“The firm acts as a co-investment bridge connecting Gulf capital to Chinese projects, as well as helping Chinese companies extend into the Gulf, particularly in the areas of engineering, construction and infrastructure,’’ explained First Eastern Chairman Victor Chu in an interview at the time.

UAE businesses also are turning to China for commercial opportunities that extend beyond hydrocarbons and infrastructure.  For example, in March, Jumeirah Group, the Dubai-based luxury hotel company, opened its first five-star luxury hotel in China in Shanghai’s Pudong District. The Jumeirah Himalayas Hotel, part of the Pudong district’s landmark new arts and cultural hub, the Himalayas Centre, is just one of a series of hotels the group has earmarked for China.

Emirates businessmen are exploring service opportunities, too. In July, TECOM Investments Education Cluster, a consortium between the free zones of Dubai Knowledge Village and Dubai International Academic City, organised a networking event for Chinese education companies in Shenzhen, the Chinese special economic zone that straddles the border with Hong Kong. The event identified Chinese education companies seeking to expand their course offerings with imported expertise and franchise foreign brands, explained Dr Ayoub Kazim, a TECOM Managing Director.