Boao countdown: strength in diversity

The Boao Forum, set to take place in Dubai on November 23, embraces China’s growing cooperation with outside territories. Could growing trade ties with the Middle East, combined with an appetite to diversify its capital bases, see the country embrace Islamic finance?

Growing numbers of non-Islamic jurisdictions are making forays into Islamic finance. The UK sold Islamic bonds, also known as sukuk, for the first time in June. Hong Kong followed in September, selling US$1bn of five-year notes, and drawing orders almost five times the amount on offer. This appetite is only expected to grow, with China, in particular, standing to capitalise.

As its capital needs grow, and with the global financial crisis exposing the US dollar and euro markets of the West as vulnerable to crisis and shutdowns, China is recognising the value of diversification to other capital bases, such as the Middle East’s.

“There are two important developments for the global financial market. One is the internationalisation of the yuan… and [the fact that] Islamic finance is getting more prominent in the global market,” said Peter Pang Sing-tong, Deputy Chief Executive of the Hong Kong Monetary Authority (HKMA).

It is a sentiment echoed by Chunyan Cai, Senior Executive Officer of Bank of China’s Middle East branch (BOCME) in Dubai, which is making its own inroads into Islamic finance. “BOCME knows very well that Islamic finance has gained in popularity region-wide, and surely it will be one of the cornerstones of world finance sooner or later.

Indeed, there has been a significant boost to trade between China and countries in the Middle East, particularly the United Arab Emirates (UAE). UAE officials forecast bilateral trade with China will spike 30 per cent over the next two years, increasing from US$46bn in 2013 to US$60bn by 2015.

bank of china
Global Islamic banking assets registered a cumulative annual growth rate of about 16 per cent between 2008 and 2012

China’s growing interest in Islamic banking and the strengthening of its ties with the UAE coincides with the latter emerging as a serious player in the sector. Total Islamic banking assets in the UAE expanded to approximately US$95bn in 2013, compared to US$83bn in the previous year. The Dubai Chamber of Commerce and Industry predicts this trend will continue, projecting around 17 per cent compound annual growth rate (CAGR) for Islamic banking assets between 2013 and 2018. It is no surprise also that Dubai was chosen to host 2014’s World Islamic Economic Forum, one of the global sector’s most prestigious events.

Dubai, the UAE’s tourism and trade hub, is also attracting Chinese investments across different sectors. The Dubai International Financial Centre is home to China’s four largest banks, and China is one of the emirate’s biggest trading partners. And being a hub for many international businesses, thanks to its geographic location that links east and west, Dubai offers Chinese companies access to markets far beyond its borders.

Such credentials have attracted the attention of the Boao Forum for Asia, which chose Dubai as the first Middle Eastern host of the Boao Forum for Asia (BFA) Financial Cooperation Conference, an annual symposium that aims to promote economic integration and cooperation between Asian countries.

Its 2014 gathering, for which Dubai was gearing up as Vision went to press, was slated to explore, among other topics, the future of Islamic finance.

Financial cooperation was also high on the conference’s agenda and other points of discussion were to include the various forms of regional investment banks, smarter management and understanding of capital flow, the balance between financial innovation, reform of the global financial market, currency swap, sovereign wealth funds, and private equity.

There are two important developments for the global financial market.. the internationalisation of the yuan… and [the fact that] Islamic finance is getting more prominent in the global market

Peter Pang Sing-tong, Deputy Chief Executive of the Hong Kong Monetary Authority

“Dubai for many people in East Asia is a very important centre not only for transportation and trade, but also has great potential as a financial centre,” Xiyu Yang, the Executive Vice President of Boao Forum for Asia Institute, told Vision ahead of the conference. “Of course it has been a financial centre in the Gulf and the Middle East, however, it has great potential to become a financial centre that covers wider areas such as Asia, Europe and Africa.”

Another reason BFA chose Dubai is the access it gives to potential capital and financial resources in the emirate and the wider Gulf region. The forum’s invite list included a large number of entrepreneurs, especially from Chinese state-owned and private sectors, Chinese government officials and executives from the finance, energy, infrastructure and construction businesses.

And having Islamic finance on the conference agenda is salient, given Dubai’s ambition to position itself as a centre for Islamic banking and finance as part of the Dubai Capital of Islamic Economy initiative.

“We hope through this conference the participants will get more knowledge about Islamic finance and explore and find ways to combine the Islamic financial capital format into the greater financial cooperations with capitals in East Asia,” BFA’s Yang said. “Islamic finance commands great potential with financial assets that can play a greater role not just in Islamic countries but also in other areas.”