Dubai Inc. in China: A New Vista for Gulf-Asia Relations

When a camel meets a dragon, it would not usually raise eyebrows. If, however, there are huge economic stakes and strategic interests in the interaction between two ambitious growing economies—one being the world’s fastest-growing economy and the other a forward-moving enigmatic desert economy—then it is bound to attract attention, particularly from observers concerned about the geostrategic implications of this emerging tie. This aptly summarizes the recent high profile visit of Shaykh Mohammed, vice president and prime minister of the UAE and ruler of Dubai, to China on March 31, 2008, who met with Chinese President Hu Jintao, Premier Wen Jiabao and Vice-President Xi Jinping. The entourage comprised of a who’s who of Dubai Inc., the investment giant, led by Shaykh Mohammed, reflects the UAE’s reinvigoration in recent years through proactive economic diplomacy in Asia. Apart from bolstering economic and commercial ties with China, this visit should benefit the UAE in more than one way on several crucial strategic and foreign policy fronts. From a broader perspective, the meeting signified the symbolic rebirth of solidarity within the East, which could herald a new era in Gulf-Asia ties.

Since establishing diplomatic ties on November 1, 1984, the political, economic and trade relations between the UAE and China have evolved significantly in both scale and substance. In recent years, UAE-Sino ties have strengthened with burgeoning trade and investment cooperation. Bilateral trade between the UAE and China recorded an impressive growth of 33 percent in the last eight years reaching $20 billion in 2007. In 2007, China exported goods and services worth nearly $17 billion dollars to the UAE, of which nearly 70 percent were re-exported to other countries in the Middle East, Africa and even Europe (Gulf News, March 30). Per the latest data released by the Dubai Port Authority, trade between Dubai and China increased by 47 percent during 2002 and 2007. In fact, non-oil trade increased by 42 percent ($6.2 billion) in the year 2007. Handicrafts, textile products, clothes and apparels, light industrial products, machinery equipments and products made of gold, silver, copper, iron and tin are the major Chinese export items to the UAE. UAE mainly exports products like aluminum ingot, chemical fertilizer, petroleum and petrochemical products—like polythene and polypropylene—to China [1].

Apart from booming trade relations, investment flows between the two countries in recent years point to two-way complementarities. Dubai Ports World’s investment in container berths operation in six Chinese ports, Damac’s investment of $2.7 billion in Tanggu district mix-use development project, Jumeirah Group’s management rights for hotel development of the HanTang Jumeirah Shanghai, are some of the UAE investments in China that are making headlines. Simultaneously, Chinese companies—especially construction, petroleum and petrochemical firms—are increasingly setting up their base in the UAE, which is a strategic transit point for a huge market spanning from the Indian subcontinent to the African shores. There are more than 3,000 registered Chinese companies in the UAE. Dragon Mart, a supermarket vending low-priced Chinese products, is one of the important Chinese business establishments in the UAE. The Chinese Commodities and Trade Fairs, which are held throughout the UAE from Sharjah to Fujairah on a regular basis, have served as an effective forum to promote trade. Additionally, the increasing flow of Chinese manpower to the UAE surpassed the 200,000 mark in 2007, out of which only 30,000 were laborers, the rest being executives and businessmen. Importantly the huge foreign exchange reserves and the sovereign wealth funds in both countries have become a crucial element in global capital flows through strategic investments and acquisition of companies. On April 14, Dubai International Capital (DIC), the investment arm of Dubai Holdings, and the Chinese firm First Eastern Investment Group announced the launch of an investment fund called ChinaDubai Capital (Reuters, April 14). The joint venture will raise a total of $1 billion in capital for prospective investments in a wide range of sectors including infrastructure, resources, healthcare and services across emerging Asian markets, as well as North Africa. This is in line with the vision of the emerging markets division of Dubai Holdings to manage more than $5 billion in assets in Asia, the Middle East and North Africa in the next three years. The partnership highlights the growing interests in the Gulf toward China, with more oil-based sovereign wealth money expected to tap the booming Asian region. On the other hand, Asian countries like China flush with foreign exchange reserves are seeking to boost investment returns by investing abroad.

Recognizing the huge potentials for synergizing complementarities, Chinese President Hu Jintao non-officially visited UAE and deliberated on various issues in January 2007. In April 2007, UAE Minister of Economy Shaykha Lubna Al Qassimi reciprocated and signed a MoU to set up a joint team tasked with boosting bilateral relations during her visit to China. Next followed a high level UAE delegation comprising 15 top rank government officials, 50 prominent businessmen and important media dignitaries, among others, and in the words of His Highness, the trip was “outstanding, historical and vibrant.”

During the visit, Shaykh Mohammad’s delegation concluded a raft of agreements and memorandums of understanding (MoUs) on a whole range of economic, health, cultural and judicial issues between the government as well as private business level dignitaries of both countries. They included an agreement signed by Foreign Minister Shaykh Abdullah Bin Zayed Al Nahyan and his Chinese counterpart on technological and scientific cooperation in the defense industry; Mohammad Abdullah Al Gergawi, minister of cabinet affairs, with the Chinese minister of higher education on cooperation in higher education and scientific research; and an MoU was also signed on cooperation in health quarantine between the UAE Ministry of Health and the Chinese Department of Quality Control and Health Quarantine. At the UAE-China Business and Economic Cooperation Forum, several agreements were signed between the business sectors of both countries. Prominent among them were the agreement for collaborative research and information sharing between Etisalat and China’s biggest telecom equipment maker, Huawei Technologies; Dubai-based Tejari’s agreement pertaining to a joint venture with YinShengTai Group, a leading real estate developer in Qingdao, China, to establish Tejari China and set in motion the opening of over a dozen new offices across China in 2008 and a strategic agreement with ShanghaiMart, China’s first and Asia’s largest permanent international trade mart, to facilitate export promotion and strengthen commercial links for textile trade with the Middle East. Finally, a high-level Sino-UAE public-private partnership in the form of a MoU signed between Emaar Properties with the Shanghai China-News Enterprise Development Limited for mixed-use property and infrastructure development projects in key Chinese cities.

Besides economic aspects, defense cooperation between China and the UAE seems to be gaining strength. With China developing sophisticated weapons and its experience of selling arms and ammunitions to Middle East countries such as Iran, Iraq and Egypt, both can deepen defense ties. Despite Western apprehensions about Chinese military sales and importantly transfer of weapons of mass destruction (WMDs) and nuclear technology to the Middle East, China views such deals as purely commercial [2]. The UAE on the other hand, does not want to put all its eggs in one basket and instead desires to diversify its defense procurements. Hence for the UAE, Chinese arms and ammunitions are not only cheap in comparison to Western imports, but also such deals with China would not threaten its neighbors in general and Iran in particular. Chinese expertise, especially in gathering military intelligence and defense software prowess, is also of crucial benefit to the UAE. Nevertheless, Sino-UAE defense ties are in their infancy and neither side is contemplating any important strategic dimension at the moment.

These developments point to the redrawing of the Silk Route from the Middle East to the Far East, facilitated by the rise of Asia—and in particular China—as a global economic power and the post-9/11 global geoeconomic and strategic environment faced by the Middle East countries. With an economic boom sweeping across the landscape, both the UAE and China are eager to expand opportunities and share benefits in the globalizing economy. The emerging partnership entails a highly competitive blend of China leveraging its strength in basic processed manufacturing and the UAE showcasing its logistics hub advantage, resulting in mutual benefit and prosperity.

Beyond tangible economic and commercial benefits, there are concurrent regional—as well as global—political, strategic and security interests that induce both parties to intensify bilateral relations. In the recent past, China has been highly successful in carrying out its overreaching global economic diplomacy, especially in its peripheral and extended neighborhoods. In pursuing its avowed objective of becoming a major strategic power while addressing its urgent domestic constraints such as its unstable Xinjiang province—whose population is comprised of nearly 20 million Muslims—and strive for energy sources, China has redefined its engagement with the Gulf region in general and Saudi Arabia and the UAE in particular. To protect its lifeline energy-transport channels starting from the Middle East, China has expanded its naval power and gotten a foothold in the Indian Ocean by constructing the Gwadar Port in Pakistan (China Brief, February 15, 2005). The UAE, as an Indian Ocean littoral state, is therefore a natural strategic partner for China in its effort to make its presence felt as a power vis-à-vis other regional powers and, more importantly, the United States. Besides, the UAE’s status as the most modern and liberal country in the Gulf region is not only a source of investment for the socio, cultural and religious development of China’s Muslim-dominated regions but also allows it to act as an interlocutor in quelling possible independence movements in those regions, most importantly in Xinjiang.

Of late, the UAE has been pursuing a pragmatic foreign policy pertaining to the Asian region, especially with respect to China, in its efforts to secure highly profitable congenial investment markets and reorienting its tag of being a hyperactive superpower. With the strength and confidence of a regional economic power, the UAE does not shy from increasing its political and strategic profile throughout the region and beyond and thereby forging links and partnerships with other major powers. China is therefore of vital importance in the UAE’s strategic calculus due to its close proximity with Iran. Given the fact that China-Iran relations are on the upswing while the UAE’s border disputes with Iran remains unresolved and U.S.-Iranian relations are deadlocked and stagnating, the UAE is strategizing to adopt a pragmatic course to secure its interests. In the event of future threats from Iran, the UAE can manage the Chinese influence to its advantage. Furthermore, with increasing U.S. pressure on the UAE to regulate and monitor trade and commercial exchanges with Iran, the UAE is contemplating a balanced approach.

Thus, there are outstanding potentials for enhancing bilateral relations between the UAE and China. Both are faced with two-way complementarities to exploit opportunities for mutual benefit. While economic and commercial benefits are clearly tangible, strategic interests underlines the trend. Therefore, both the countries need to adopt inclusive policies in order to adapt their interests and aspirations to the changing geopolitical environment. Though there are numerous challenges to be faced, an auspicious beginning like Shaykh Mohammed’s visit to China could take bilateral relations to a higher trajectory.

Notes

1. Ministry of Commerce, China,

https://english.mofcom.gov.cn/statistic/statistic.html

2. Pan Guang, “China’s Success in the Middle East,” Middle East Quarterly, December 1997.