Opinion: Dubai is to the region what Hong Kong is to China

Why Dubai occupies a key position along the new Silk Road

The rise of a new Silk Road has captured popular imagination. But it is also a change with real economic implications.

The rise is certainly evident in the region’s main trade hubs: busy container ports, full airline flights, and the growing number of professionals shuttling between Dubai, Hong Kong and Singapore testify to the region’s rising trade flows.

The changes in the trade data are indeed stunning. The Silk Road countries now export 45 per cent of their total exports to other Silk Road nations, an increase of 10 percentage points over the past decade, as more drivers in Beijing fill their petrol tanks with Saudi oil or consumers in Mumbai buy Chinese toys.

For Dubai the changes are especially important: whereas Hong Kong is a gateway to mainland China’s huge economy, Dubai serves as a much larger bridgehead for the rest of the region, linking up East Asia, West Asia and Central Asia, and even as far as Africa.

Whereas Hong Kong is a gateway to mainland China’s huge economy, Dubai serves as a much larger bridgehead for the rest of the region, linking up East Asia, West Asia and Central Asia, and even as far as Africa

The distinction is important, for while it is easy to get excited about Dubai’s opportunities as part of a new Silk Road, it is also important to recognise where the greatest opportunities lie; is it with neighbouring countries in South Asia, or even further afield? Where should Dubai focus its commercial diplomacy? Which financial hubs are most critical?

With this in mind, it is important to recognise East Asia’s dominance of the new Silk Road, the region accounting for nearly 80 per cent of intra-regional trade. East Asia’s export factories – whether in China’s Dongguan or Thailand’s Eastern Seaboard – partly explain the share.

But, equally, the region’s increasingly wealthy consumers are a growing force for trade, as Koreans buy plasma TVs from China and the Chinese, in turn, buy baby clothes from Vietnam. And this matters for Dubai. East Asia’s ageing populations and rising production costs mean some export factories are looking for cheaper alternatives, whether in East Asia itself or further afield. Indeed, the possibility of Chinese factories one day producing in Africa is not far-fetched.

To be sure, China will remain the world’s largest exporter for years to come. But even a marginal shift in the country’s manufacturing base to other Silk Road countries could benefit Dubai, as component parts are traded around the region, and as companies look to set up regional headquarters.

The latter is especially critical. Even if Chinese factories do not relocate, other Chinese companies are finding opportunities abroad, from construction to engineering. Most are looking for a stable place to base their regional headquarters, ideally in a city with a concentration of other Chinese companies.

In short, Dubai must focus on profiting from the structural changes in East Asia’s domestic economy and growing engagement with the rest of the Silk Road.

The good news is that Dubai is already adapting. A short eight-hour flight from Beijing, the emirate is emerging as a major hub for Chinese companies. Chinese banks with Dubai-branch offices, for instance, are reporting robust business, as they provide Chinese companies with financial services.

There is, meanwhile, reason to also focus on South Asia’s trade with the rest of the Silk Road. To be fair, South Asia’s exports (US$240bn) are just a fraction of those from East Asia (US$3,400bn). But exports to other Silk Road countries account for 52 per cent of total exports, a similarly stunning increase of 20 percentage points over the past decade.

Dubai is already well positioned to act as a hub for India’s trade with West and Central Asia. The emirate also benefits from the fact that India has invested less in its own trade infrastructure than has China, meaning Dubai can play a similar role for India to the one Hong Kong plays as a gateway to mainland China. At stake for Dubai is positioning itself to what are rapid changes taking place across the Silk Road. Sure, the region is rising, but its economic structure is also changing rapidly, whether it is China’s ageing population, India’s growing middle-class, or the region’s strengthening links with Africa.

That requires Dubai to remain nimble and aware of the changes taking place around it: no easy task, given that the emirate sits at the centre of the Silk Road, a region that includes over 50 other countries, including some of the world’s largest. But its success in adapting to these changes will guarantee the emirate’s prosperity for decades to come.