China is expanding its spending in the Gulf beyond the oil and gas industry
- China to ramp up exports
- More Chinese firms to open up in Gulf
- Dubai airport sees increase in passengers from China
Chinas relationship with the Gulf has for many years been solely shaped by its huge demand for oil and gas to fuel its burgeoning population and rapid economic growth.
Large state-owned Chinese firms, such as China Petroleum & Chemical Company (Sinopec), would invest in hydrocarbon and petrochemical projects in Saudi Arabia and the wider region to secure a steady flow of oil and gas from the Middle East.
The relationship is changing, however, and moving beyond being defined by a need to buy or sell oil. With the start of the Chinese New Year holidays on 19 February, the tourist hubs of the Gulf will attract more of Chinas growing middle-class, eager to spend money in the regions hotels, resorts and shopping malls.
There has been a change in behaviour among [Chinese] clients that they need to have a physical presence in the region
Ahmed Yeganeh, HSBC Mena
Furthermore, increasing numbers of Chinese companies are setting up operations in the regions industrial free zones, while Chinas banks are establishing an on-the-ground presence in financial hubs, such as the Dubai International Financial Centre (DIFC).
Even during the past six months we have seen an increasing number of [Chinese] clients setting up real manufacturing businesses here in Dubai, says Ahmed Yeganeh, regional head of international subsidiary banking, HSBC Mena. The trend of putting roots down in the local economy has become more evident to me in the past six to nine months, and I expect that to continue, he adds.
Despite the much-publicised slowdown of Chinas economy last year, with GDP growth at its weakest for 24 years, it is likely that GulfChina relations will continue to be highly lucrative for both parties in the coming years.
Chinas slowing economy
Chinas rapidly expanding population and booming economy has been a driver for world economic growth for several years.
Large exporting nations around the world, including those in the Middle East, have come to rely on Chinas insatiable demand for their commodities, such as oil, gas, coal and copper, to fuel its expansion and industrialisation.
Inevitably, the news in January that Chinas economy experienced GDP growth of just 7.4 per cent in 2014, down 0.3 per cent on 2013 figures, sent shockwaves around the world. China had missed its official growth target of 7.5 per cent and significantly, reported its lowest growth since 1990, when it struggled under the burden of sanctions following the 1989 Tiananmen Square massacre.
The Washington-headquartered IMF has also cut its forecast for China for 2015 to 6.8 per cent.
A slowing economy means less demand for fuel, which potentially could translate into China reducing its reliance or interest in the Gulf, a scenario that has left some wondering what direction Gulf-China relations would take.
Yet far from declining, Chinas interests in the Middle East have grown and, more importantly, diversified into different markets and sectors. China continues to be a major trading partner for the Gulf. The value of China-Dubai trade reached AED126bn ($34.3bn) in the first nine months of 2014, 27 per cent up on the same period in 2013, according to statistics from Dubai Customs.
Total trade between the UAE and China in 2013 reached AED169.7bn compared with AED148.3bn in 2012, a 14.4 per cent rise. China is also the fourth-biggest export market for Qatar, according to official December 2014 data, due to it being a major buyer of the countrys oil and gas. China was also the second-largest country of origin for Qatars imports, with a total import value of QR1.2bn ($329.5m), representing 10.7 per cent of total imports.
Although oil exports still dominate these statistics, non-oil trade is also growing.
The import of white goods, electronic appliances and TVs, is increasing in the Gulf. Consumers are happy to buy good-quality Chinese products at a reasonable price, Yeganeh says. Weve seen increasing numbers of Chinese clients coming to us in the past 12 months and that can be attributed to Chinese governments strategy of diversification. The authorities want to diversify their revenue sources from just the internal domestic economy.
The multibillion-dollar pipeline of infrastructure projects in the Gulf is one major non-oil sector drawing the attention of Chinese investors, banks and contractors.
At the end of January, a Chinese delegation, including representatives from China State Construction Engineering Corporation, visited Dubai to learn more about opportunities within the emirates energy and renewables sector.
This included a meeting with Sayeed al-Tayer, managing director and CEO of Dubai Electricity & Water Authority (Dewa), to express interest in supporting the development of phase two of the Mohammed bin Rashid al-Maktoum Solar Park.
The Dubai visit was quickly followed by a meeting in early February in Beijing between the UAEs State Minister Sultan bin Ahmed al-Jaber and Chinese officials to further discuss investment opportunities in infrastructure, technology and the transport sector.
Trade and logistics
It is not just the opportunities within the Gulf that are attracting Chinese interest, but also the geographic position of the region as a springboard into other markets.
What I see now is a diversification in terms of industry. There are many more privately owned companies looking at the Gulf, and, in particular, looking at the UAE as a logistics hub from which they can re-export, says Yeganeh. There has been a change in behaviour among clients that they need to have a physical presence in the region.
Increasingly, Chinese firms are establishing themselves in Gulf free zones, setting up manufacturing units and warehouses from which they can re-export goods into major growth markets such as north and sub-Saharan Africa.
Dubais Jebel Ali Free Zone (Jafza), located next to the emirates Jebel Ali port, has been encouraging this interest from Chinese firms and has conducted several roadshows in China last year. Trade between Jafza and China has grown in the past decade, rising from just AED4bn in 2004 to AED46bn in 2013. There are more than 175 Chinese companies based in the free zone, employing more than 1,100 people.
Tourism and aviation
The Gulfs travel and tourism sector is another industry to benefit from Chinas interest in the region. Dubai International airport, now the busiest in the world in terms of international passenger traffic, has seen rising numbers of travellers from China. In 2014, almost 1.7 million passengers from China passed through the airport, up 6.8 per cent on the previous year.
Dubai has also launched advertising campaigns specifically targeting tourists from China.
According to the Dubai Department of Tourism & Commerce Marketing, the number of Chinese tourists visiting Dubai in the first half of 2014 increased by 26 per cent compared with the previous year. Although tourists from Saudi Arabia and the UK continue to dominate, Chinese tourist numbers are now rising at a far greater pace.
Regional airlines have noted this demand, adding major cities in China to their networks. In January, Sharjah-based low-cost airline Air Arabia branched into China, announcing a new route to Urumqi, the largest city in Western China. Its first destination in China, the airline is expected to add more routes over time.
The Gulfs financial hubs are also attracting Chinese interest. Chinese bank ICBC has an office in the DIFC and in the Qatar Financial Centre, while the state-owned China Development Bank plans to set up an office in Dubai.
Chinese banks and financial institutions are also looking to raise money through the liquid Gulf Bank market.
Towards the end of last year, ICBC Financial Leasing, a wholly owned subsidiary of ICBC Bank, signed a $500m syndicated loan arranged by Dubai-based Emirates NBD Capital, ICBC Dubai Branch and Qatar National Bank. It was the first syndicated loan for the borrower, and the first time ICBC Dubai had participated in a transaction as mandated lead arranger.
A banker who worked on the deal tells MEED there are similar transactions in the pipeline. There is a lot of potential for Gulf banks to work with Chinese companies, he says, as well as Chinese banks looking to raise money and increase their presence in the Middle East.
Qatar is also looking to strengthen its relations with China. In early November, the countries central banks signed several agreements, including a currency swap deal and a preliminary agreement to establish Qatar as a Renminbi clearing and settlement centre. Qatari banks are also looking at opportunities to move into China.
Growing interest from Gulf investors and firms looking to move into the China market will be the next step in the ever-evolving economic relationship between the Asian giant and the Middle East.
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