China's Africa trade to benefit UAE

The UAE is likely to benefit from increasing trade links between China and Africa as it acts as a go-between for the growing traffic between them, says the chief China economist at The Royal Bank of Scotland (RBS) in Hong Kong. Its continuing presence as a thriving trade hub means the Emirates, and Dubai in particular, will help deliver the rising number of goods traded between China and Africa, said Ben Simpfendorfer.

"One reason that I would still be bullish about the UAE, Dubai and Abu Dhabi is because China will use this region as a springboard for much of its African trade," he said. Trade between China, the world's third-largest economy, and Africa rose 45 per cent to a record US$106.84 billion (Dh392.42bn) last year from the year earlier. Chinese exports to Africa jumped 36 per cent to $50.84bn. Some 35 per cent of China's African exports are made to North Africa, with half of its total African trade lying closer to Dubai than Johannesburg, said Mr Simpfendorfer. "It makes more sense to service that trade from Dubai than it does to Africa."

Trade between the UAE and China rose 40.5 per cent last year to $28bn, and exports from China to the Gulf are expected to rise next year with China consolidating its position as the biggest exporter to the region, having overtaken the US. Exports from the Asian country to the Middle East reached $60bn last year. Trade between the GCC and China is expected to receive a further boost once China begins to buy more of the Gulf's hydrocarbon production to meet its surging energy needs.

"We see Asia rising and see the GCC benefiting on the back of this new dimension," said Alessandro Bocchi, the chief economist at Kuwait China Investment. "We see double-digit growth in trade relationships mainly in energy as Asia is energy hungry and the GCC has oil." The Chinese oil firm known as Sinopec announced last month that it would import about 50 million tonnes of oil from Saudi Arabia next year, a 30 per cent increase from this year.

Levels of non-oil trade would also develop from a low base, led by Saudi Arabia, which was already the leading petrochemical exporter to the Chinese textile industry, said Mr Bocchi. However, financial ties between the GCC and China are undeveloped, with many GCC investors having remained on the sidelines for much of the boom there. Part of the reason is that much of the investment in China has been in manufacturing, a sector that Gulf private equity investors have traditionally avoided in favour of established companies in sectors such as services, said Mr Simpfendorfer. Avenues to investment have also been blocked by excessive regulation and limited opportunities for majority ownership.

"That situation is changing through the gradual liberalisation of China's investment regulations, which makes sense given that China's population is multiples bigger than the Middle East and as its economy is more diversified so investment opportunities are much greater," said Mr Simpfendorfer. Recent activities by Gulf companies in China have involved Saudi Aramco forming a partnership with Sinopec to build a $5bn oil refinery in eastern China and SABIC, the Saudi chemicals giant, receiving permission to build a $3bn petrochemical complex in the north-eastern city of Tianjin.

Meanwhile, ongoing government expenditure on infrastructure programmes in the Gulf could help Chinese construction to increase their presence in the region, Mr Simpfendorfer said. Chinese contractors earned $2.1bn last year from contracts signed with the UAE. "We see a lot of investment opportunities in China as it develops its growth model from export-led to investment-led," said Mr Bocchi. @Email:[e-mail]

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