$3.4bn UAE-China deal deepens trade and diplomatic ties, say analysts

Chinese investment in two Dubai projects also expands Belt and Road initiative beyond traditional trading route

UAE Vice President and Ruler of Dubai Sheikh Mohammed bin Rashid al Maktoum shakes hands with Chinese president Xi Jinping. China is investing into shipping and food projects in Dubai. AFP

China’s $3.4 billion (Dh12.49bn) investment into shipping and food projects in Dubai, part of its Belt and Road initiative, is a fillip for the emirate’s economy and further cements the deepening trade and diplomatic relationship between China and the UAE, analysts said.

“The deal is very positive and feeds in with Dubai’s role as a global logistics and trans-shipment hub,” said Monica Malik, chief economist at UAE lender Abu Dhabi Commercial Bank.

“For Dubai, further developing links with Beijing is important given China’s current and future role in global export growth. For China, Dubai’s location, infrastructure, strong expertise in logistics and transportation will help with its development strategy and goals.”

Launched in 2013 as “One Belt, One Road”, the BRI involves China underwriting billions of dollars of infrastructure investment in countries located along the old Silk Road linking it with Europe. In the past year, Chinese companies have reportedly invested around $15.6bn in projects with some of the 125 countries that have signed up to the scheme. All of the six GCC countries, including the UAE, are part of the BRI.

Chinese companies signed two deals with the UAE during the second Belt and Road conference in Beijing last week, according to a statement on Friday from Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai. The first is a $2.4bn investment by Chinese wholesale company Yiwu to build a 5.5 million square metres logistics station, the ‘Traders Market’, close to the Expo 2020 Dubai site, to store and ship Chinese goods from Jebel Ali port to the rest of the world.

The second agreement aims to create a $1bn food manufacturing and processing plant called ‘Vegetable Basket’ in Dubai, to import, process, pack and export agricultural, marine and animal products to the world. The deal was between UAE ports operator DP World, and the heads of three Chinese institutions – China-Arab Investment Fund Management, Winland Investment Holding, China Co-op Group and Ocean Economic Development. “The deal will position Dubai well in China’s planned Belt and Road, as Dubai will be a major supply link to the initiative,” Sheikh Mohammed said.

China is the UAE’s biggest trading partner, with UAE-China bilateral trade exceeding $53.3bn in 2017, and plans to grow this to more than $70bn by 2020, the Dubai Ruler added. There are already plenty of Chinese companies operating in the UAE – contractor Chinese State Construction Engineering, technology firm Huawei, China National Offshore Oil Corporation and others – and strong inflows of Chinese tourists to Dubai, standing at almost 500,000 in the first half of 2018, according to figures from Dubai Tourism.

The two countries introduced reciprocal visa-on-arrival policies in 2017 and 2018, and signed a series of business pledges during Chinese president Xi Jinping’s high-profile visit to the UAE last year. The Dubai deals are the result of heightened efforts to increase economic collaboration, especially in the context of the expanding BRI, noted economist Nasser Saidi.

“This announcement reinforces the role of Dubai and the wider UAE as a key regional partner for China,” he said. “The UAE’s infrastructure and connectivity, and lessons learnt from these projects, could be beneficial to planning and executing BRI in the region and in neighbouring countries in Central Asia.”

The relationship could be deepened further with the formation of joint ventures and other commercial arrangements between Chinese and UAE infrastructure, transport and logistics companies for specific BRI projects, Mr Nasser added. “This would allow UAE companies to also integrate into China’s global value chains [as well as the other way round].”

He urged the GCC and wider Middle East to develop a China Strategy exploring strategic opportunities in a range of sectors, including banking, tourism, services, clean energy and technology, to build on these early investments.

Professor Rana Mitter, director of the University of Oxford’s China Centre, said the deals highlight China’s rising interest to create “a new commercial and security community in the Greater Indian Ocean”, and tap into existing strong trade links between the Middle East and Africa.

“The BRI now implicitly encompasses a much wider group of countries [than the traditional Silk Road route], making China’s economic agenda in building seamless East-West trade flows more than the sum of its parts,” he said.

For the UAE, the deals – and further trade co-operation – could boost economic activity over the next few years, provide investment opportunities in the Emirates at a time of weak economic activity, and enable the transfer of China’s know-how and expertise, said Garbis Iradian, chief Mena economist at the Institute of International Finance.

“China is flexing its economic muscle by forging relationships with crucial international partners,” added Mustafa Alani, senior adviser at the Gulf Research Centre.