The global economic landscape is changing rapidly and so is the investment model and the way public and private companies do multibillion-dollar cross-border deals.
Partnerships - mutually beneficial partnerships - are what matters in the new global investment scene and there’s no better exponent of this model in the Arabian Gulf region than the UAE.
It is only natural for the UAE to solidify its investment ties with China - the world’s second-biggest economy and the UAE’s top global trading partner - and encourage new relationships between public and private sector companies to equally benefit both economies. To deepen economic ties with the UAE, the GCC's second-biggest economic powerhouse, which accounts for about 4.5 per cent of the world’s total crude output, also chimes well with China’s growth ambitions beyond its border, getting a foothold in the emerging economies of the Middle East and Africa through its Belt and Road initiative.
Listen: Business Extra podcast: How energy security drives UAE-China relations
The push to open more sectors where public and private entities can invest further and expand the existing investment base in vital sectors such as transport, finance and oil and gas, is quite evident from both governments.
Abu Dhabi National Oil Company (Adnoc) is the latest Abu Dhabi entity exploring ways to further build its investment relations with major Chinese oil and gas firms, as the state-controlled producer intends to enhance its share of crude exports to China, one of the world's biggest oil importers.
Adnoc Group chief executive, Dr Sultan Al Jaber, who is also the UAE State Minister, held a series of meetings with Chinese oil, gas, refining and petrochemical industry firms during his recent visit to Beijing. The discussions with senior executives from Wanhua Chemical Group, China National Petroleum Corporation (CNPC) and China National Offshore Oil Corporation, representatives from the China Development Bank and top officials of National Development and Reform Commission, focused on exploring investment opportunities across Adnoc’s integrated upstream and downstream value chain.
The pursuit of the UAE - China’s biggest investment destination in the Middle East - for enhanced energy cooperation with the Asian giant doesn’t come as a surprise as crude consumption in China is set to rise 4.6 per cent year-on-year to 12.05 million barrels per day this year, according to estimates by CNPC’s research division. Consumption of refined products such as plastics and compounds, which are vital for Chinese growth and development of its expanding middle class, is forecast to grow about 31 per cent year-on-year to 47.8 million tonnes in 2018.
In March, CNPC picked up two stakes worth Dh4.3bn in offshore fields in Abu Dhabi. PetroChina, which is majority-owned by CNPC, was awarded a 10 per cent interest both in Umm Shaif and Nasr as well as the Lower Zakum concessions.
“Energy cooperation is an important aspect of the UAE’s relations with China, which is the number one oil importer globally and a major growth market for Adnoc’s crude, refined products and petrochemicals,” Dr Al Jaber said earlier this month. “There are mutually beneficial partnership and co-investment opportunities across our upstream and downstream value chains. Adnoc is also ready to work with its existing and potential new partners to meet the growing demand for energy and petrochemical products in China.”
The Abu Dhabi oil major, which revamped its business model earlier this year, has also received strong interest from Chinese firms for onshore and offshore oil and gas concessions being offered in the first-ever round of competitive bidding proposed as part of its new partnership model, Tayba Al Hashemi, acting CEO of Adnoc unit Al Yasat Petroleum told a conference in May in Beijing.
“The release of the six blocks for competitive bidding represents a rare and exciting opportunity to invest in the UAE’s stable and secure exploration and production sector,” Dr Al Jaber, who has steered Adnoc through its transformation in recent years, said in a statement earlier this month.
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The Abu Dhabi producer plans to allocate Dh400 billion in investments over the next five years, including additional international downstream projects and further exploration for unconventional gas resources. Investments in petrochemical complex at Ruwais is at the heart of the company downstream ambitions. The Ruwais facility, when completed, will be one of the world’s largest integrated refining facilities.
“The expansion of our downstream portfolio will allow partners who contribute finance, give access to technology and knowledge and facilitate market access, to invest and benefit, with us, from the growing demand for petrochemicals, particularly in Asia," Dr Al Jabar said: "We believe there is enormous potential to expand our relationship with Chinese companies, especially in the downstream [segment].”
In the meantime, Adnoc remains focused on market expansion in China and broader Asia, where demand for petrochemicals and plastics, including light-weight automotive components is forecast to double by 2040. China is the largest export customer in Asia for Borouge, a petrochemicals joint venture between Adnoc and Borealis.
Beyond energy, the cooperation between the two governments extends to areas such as technology, knowledge sharing and making Abu Dhabi a hub of Chinese currency trading.
Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, in 2015, visited China, which set up the foundation for increased investments to-and-from China and cooperation within the financial sector between the two countries.
Mubadala Investment Company, an Abu Dhabi's strategic company with more than Dh200bn of assets under management, China Development Bank Capital, and China's State Administration of Foreign Exchange, during the Crown Prince's visit agreed to set up a $10bn investment fund. The UAE-China investment fund, a standalone vehicle which is being equally funded by the two countries, aims to deploy capital against jointly-approved investments. It is mandated to look at a range of alternative investment strategies, including greenfield projects.
Mubadala together with its partners in China has so far committed $1bn towards about 10 opportunities, Khaled Al Shamlan, the head of sovereign investment partnerships at Mubadala Capital told the inaugural Belt-and-Road financial summit in Beijing in May.
“In our short operations of two-and-a-half years in the Chinese market, we have managed to evaluate more than 150 [opportunities for] investments … some of them are at the closing phase,” he told the conference.
Emirates Global Aluminium, a Mubadala portfolio company that is the largest industrial entity in the UAE outside the oil and gas sector, has also recently opened its offices in Shanghai in an effort to expand its footprint and extend its customer base into the region. Mubadala, through semiconductor manufacturer GlobalFoundries has also set up a joint venture with the government of Chongqing in China to expand its global footprint by establishing a manufacturing facility in the country. The project has made significant progress and a "big announcement will be made in the coming year", Mr Al Shamlan noted.
Although, the pact to launch the UAE-China fund was the highlight of the Crown Prince’s visit, several other agreements were also signed. Dubai’s DP World’s intentions to invest $1.9bn in the China, where the world’s fourth-biggest port operator already operates three ports, were also made public during the visit.
Abu Dhabi Global Market, the capital's international financial centre, followed up earlier this year on the agreements to forge partnerships within the Chinese financial sector, when it opened its representative office in Beijing.
To select China as the destination of its first-ever overseas foray is a significant move by ADGM, which aims to attract more financial services firms from the Asian economic giant. The financial hub is trying to establishes itself as an offshore centre for renminbi to support internationalisation of the Chinese currency.
“The ADGM -China office is an extension of ADGM’s role as a financial services regulator in supporting Abu Dhabi’s economic commitment to strengthening its regulatory and financial collaborations with the Chinese government and enterprises,” Ahmed Al Sayegh, the chairman of ADGM, told a gathering of government and financial industry representatives from China and the UAE in May, at the inaugural ceremony in Beijing.
“The China office will initiate new projects and joint efforts to further enhance the cross-border connectivity and boost new opportunities between the two economies,” he said at the time.
“One of the key commitments for ADGM and ADGM-China office will be to support the RMB internationalisation strategy and we aim to build up an offshore RMB centre serving the Mena region via ADGM.”
As part of the launch of its Chinese office, ADGM, which is the fastest-growing international financial centre in the region, also signed several preliminary agreements with key Chinese institutions including UAE-China Industrial Co-operation Demonstration Zone, Shanghai Stock Exchange, Asian Financial Co-operation Association and Guotai Junan Securities, which signifies further cooperation in months and years to come.
"With the support of the leadership from both countries … when it comes to trade, direct investments and cross investments, it is on top of the agenda," Ali Al Dhaheri, the UAE Ambassador to China told The National at the time in Beijing The pipeline, he said, was strong with companies from both the UAE and China actively seeking investment opportunities in the two markets.