China ties move beyond the oil bartering of old

The value of trade between the UAE and China was placed at $9 billion in the first half of this year. Ryan Carter / The National

Physical evidence of the growing economic relationship between the UAE and China is more apparent each day.

At a recent meeting in Abu Dhabi between top-level Chinese economic officials and their Emirati counterparts, the value of trade between the two countries was put at US$9 billion (Dh33.05bn) in the first half of this year, a big jump over the previous and enough to make the nation China's second-biggest trading partner in the region, after Saudi Arabia.

Industrial and Commercial Bank of China (ICBC), the world's biggest bank, is firmly ensconced in the Dubai International Financial Centre (DIFC), which it is using as a base to expand further in the GCC. The next phase will be to tap into the retail banking market for the estimated 300,000 Chinese residents in the UAE.

DIFC policymakers are pushing to make the UAE the Middle East hub for trading in Chinese yuan, which is surely an idea whose time has come. The DIFC has an opportunity here to steal a march on other Arabian Gulf centres and is only waiting on approval from the Central Bank.

And on a whole number of other levels, from growing aviation traffic and tourism numbers, through ties in heavy industry such as metallurgy and chemicals, down to the retail trinkets for sale at Dubai's Dragon Mart, the relationship is booming.

The UAE authorities have opened their doors to Chinese goods, and increasingly financial services, with enthusiasm.

Just recently, there was evidence that Beijing in turn was warming to the idea of importing one of the Gulf's most significant products: the vast sums of capital that have grown out of historically high global energy prices.

Chinese financial authorities scrapped a $1bn limit on foreign investment in its capital markets, in a move aimed at encouraging sovereign wealth funds and central banks to put more long-term money into China.

Although not aimed specifically at them, that news will be of interest to the Gulf's sovereign wealth funds, encouraging foreign ownership of Chinese companies and potentially boosting the wobbly equity markets of Shanghai and Hong Kong. There has been one niggling concern among some economists in the past about the China-UAE relationship: that it was simply a straightforward barter of oil and gas for manufactured products, usually destined for re-export from the Emirates.

This would make trade between the countries unusually vulnerable to the vagaries, on the one hand, of the price of oil, and on the other, global demand for Chinese products and the ability of Chinese manufacturers to make them at competitive prices.

Those fears have been allayed to some degree by the diversification that has taken place away from energy barter. Non-oil products make up an increasing amount of the total exports from the UAE, with manufactured goods rising in volume and value.

The second part of the equation, which ultimately depends on the state of the Chinese economy, is the great imponderable.

It is the key question not just for the UAE and the Gulf, but the rest of the world, which is dependent on the efficiency of the Chinese manufacturing machine for overall global economic activity. The news on China's macro-economic prospects is disappointing but not to the point of depression.

The consensus among economists is that GDP will grow at about 7 per cent or 8 per cent over the next couple of years, some way off the stellar double-digit growth of the past 30 years but much better than anything the United States or Europe is about to experience.

The wild cards in the Chinese pack are: the domestic property market, which has been in "bubble" territory for a long time; and the health of its financial sector. Both or either could throw those growth prospects out of kilter.

But as things stand, the UAE's increasing orientation towards the East, away from the sad old economies of the West, looks a sound long-term strategy.

If the UAE accelerated plans to become the regional centre of yuan trading, it would put the seal on it.