The United Arab Emirates, China, and the new “Triple-South”

 

As South-South trade and investment ties expand rapidly, altering the geo-commercial and geo-political map of the world, one relationship stands out as particularly robust and consequential: the United Arab Emirates and China. It’s already one of the fastest growing trade relationships in the world, and it just got deeper with the announcement of a $10 billion joint strategic investment fund to explore opportunities in both countries and across the “New Silk Road.”

 

The $10 billion investment fund was announced during the three day official visit of Abu Dhabi Crown Prince and Deputy Supreme Commander of the Armed Forces Sheikh Mohammed bin Zayed Al-Nahyan to Beijing last week. The visit underscored a growing and dynamic relationship that goes beyond the familiar hydrocarbons exports-for-manufactured goods ties that are typical of many of China’s relations with Middle East oil producers. The investment fund also fuels a new trend that goes beyond the oft-discussed South-South trade story and underscores an emerging trend I call “Triple South” relationships: the commercial engagement of two global “South” countries aimed at cooperation toward trade and investment across emerging markets, fueling a South-South-South commercial nexus.

 

For Beijing, the UAE is not simply a bilateral trade partner, but a powerful hub that supports Chinese commerce across key emerging markets (as well as Europe). Indeed, some 60% of China’s $33 billion of exports to the UAE are re-exported to Africa and Europe, principally via the Jebel Ali port, the ninth busiest container terminal port in the world. On a recent visit to Jebel Ali, I saw a sea of container terminals bearing the name COSCO (China Ocean Shipping Group Company) as well as CSCL (China Shipping Container Lines).

 

Dubai’s sea ports and airports have become important arteries in China’s global trade networks. Dubai-based Emirates Airlines flies so many direct flights across Africa that it has become something of a national carrier for the continent. It’s the only foreign carrier to fly to all three of South Africa’s hubs – Cape Town, Johannesburg, and Durban. On flights from Dubai to sub-Saharan African cities, some 30% of the seats are occupied by Chinese travelers.

 

Look around at Dubai International Airport, which recently surpassed London Heathrow as the busiest in the world in terms of international passengers, and one site is ubiquitous: the Chinese consumer. For the last two years, Chinese have been the highest spenders in Dubai Duty-Free shops, snapping up gold bars, whisky bottles, Swiss chocolates, and designer clothing.

 

Chinese companies have poured into the United Arab Emirates over the last decade, principally the freewheeling commercial capital of Dubai.  The pace has been dizzying. In 2005, there were less than twenty Chinese companies registered in Dubai. Today, there are more than 4,000. Four of China’s largest banks have set up regional offices in the Dubai International Financial Centre, as well as a number of major state-owned enterprises, such as Petro China and telecoms equipment maker ZTE Corporation. Meanwhile, telecoms equipment supplier and rising smart phone global player Huawei Technologies recently established an office in Dubai’s Jebel Ali Free Zone to better service its clients in Africa, South Asia, and the Middle East.

 

In many ways, Dubai has emerged as something of a Hong Kong West for China. Abu Dhabi, on the other hand, had more of a traditional relationship based on hydrocarbons exports. Crown Prince Sheikh Mohammed’s visit takes the relationship to a new level of strategic cooperation. Dubai and Abu Dhabi, the principal city-states of the seven emirates that form the federation known as the United Arab Emirates, have a relationship that can be characterized by simultaneous strategic complementarity and strategic competition. In this case, the complementarity was on full display: the political and financial muscle of oil-rich Abu Dhabi engaged with a China that already has a deep relationship with commercially savvy Dubai.

 

The UAE has successfully leveraged a non-depleting resource – geography – into a powerful hub concept by building world-class connectivity infrastructure. As a result, companies from Lagos to London, Shanghai to Mumbai, view the UAE as an attractive hub to conduct trans-regional business beyond the stilted, outdated, and still over-used regional classification known as MENA (Middle East and North Africa). Such classifications have little or no meaning to an Indian food conglomerate or a Chinese trading company that uses Dubai as its hub for sub-Saharan Africa, Eastern Europe and South Asia – and the Middle East. It will be fascinating to watch the new UAE-China investment fund leverage this geography further.

 

To understand the value of UAE’s geography, consider this: it’s a shorter flight from most cities in the UAE to Mumbai than it is to Cairo. The principal cities of Abu Dhabi and Dubai are a four hour flight to 1/3 of the world’s population and an eight hour flight to 2/3 of the world. The Arabian Sea-Indian Ocean corridor is one of the most important maritime trade routes, and within easy access of Dubai’s Jebel Ali Port. Of course, other peripheral countries have similar geographies, but the UAE has led the charge in leveraging this geography for commerce.

 

Chinese businesses know a good hub when they see one. That’s why they flocked to Dragon Mart, the Dubai-based mega-mega mall that is the largest Chinese trading hub outside of mainland China. I recently visited Dragon Mart, off of a dusty highway far away from picture postcard Dubai. Miles of shops lined the “mega-mega” mall that attracts some 50,000 visitors a day to buy anything from one teddy bear retail to 10,000 teddy bears wholesale. Across the hall from a shop that sold industrial drills and piping, an Indian family picked at pink cotton candy, a group of British women shopped for Christmas ornaments, and a lighting store displayed some of the most blinding chandeliers this side of Versailles.

 

The Chinese expatriate population has been the fastest growing in the UAE over the last decade. Today, there are some 200,000 Chinese living and working across the Emirates, most notably in Dubai. Chinese tourists have also become regular visitors to the UAE, posting nearly 400,000 visitors last year. In the first half of 2015, 241,000 Chinese tourists visited Dubai. During a recent Chinese new year, some 70% of the rooms booked at the ultra-luxe “7 star” Burj Al-Arab hotel were Chinese. In return, the Burj Al-Arab emblazoned a silhouette of a red dragon on its iconic exterior sail.

 

All told, the UAE and China conducted nearly $55 billion in trade in 2014, and they are approaching $60 billion to end 2015. In a sign of the rapidly growing relationship, China surpassed India as Dubai’s largest trade partner this year – a significant milestone given the historic trade ties between India and Dubai.

 

In April, the UAE joined 56 other countries in Europe and Asia as a founding member of the Asian Infrastructure Investment Bank (AIIB). The UAE is also uniquely positioned to support the One Belt, One Road (OBOR) initiative. Indeed, the UAE had arguably become the center of The New Silk Road of South-South engagement between the Middle East, Asia, and Africa long before President Xi Jinping announced OBOR in late 2013. The UAE is not an OBOR follower, but a pioneer of the new geo-commerce of the Middle East-Asia-Africa corridor.

 

In one of the more remarkable statements that emerged from the meetings between Chinese President Xi Jinping and Crown Prince Sheikh Mohammed, the Chinese leader noted that Beijing “was ready to hold discussions with the UAE on exploring third-party cooperation in Africa.” The UAE has broad investments across sub-Saharan Africa in telecommunications, ports, and energy, and Dubai-based Emirates Airline has one of the largest Africa networks of any foreign carrier, with 25 direct flights from its Dubai hub.

 

The fact that Chinese President Xi Jinping would specifically point to the UAE as a partner in a continent that Beijing has invested hundreds of billions of dollars, not to mention the full diplomatic weight of the state, is a clear reflection of the high estimation that Beijing holds the UAE. It’s also a reflection of “Triple South” leveraging: two global “South” countries working together to build, grow, and develop trade and investment in another “South” region.

 

The $10 billion co-investment deal was signed by Abu Dhabi investment firm Mubadala with China Development Bank Capital and China’s State Administration of Foreign Exchange.  This could be a cutting edge moment in the emerging “Triple South” story. Now, Abu Dhabi and the full weight of the UAE has entered the relationship with a bang. This will mean a more active engagement on the part of Abu Dhabi Inc.’s network of companies.

 

Policy-makers in Washington have generally viewed the UAE in the narrow scope of a Middle East state. The reality is that the UAE is a global nexus state that links entire continents and regions in a web of trade and investment. Beijing seems to understand this and sees the UAE as a partner in Africa, not just an address or a destination to speak about Middle East issues. Indeed it is illustrative that China classifies the UAE as part of the West Asia region – a more accurate rendering of UAE’s geo-economic position.

 

Thus, Sheikh Mohammed’s visit to China and the announced investment fund should be seen as a natural progression in a Triple-South relationship linking China and the UAE to the broader Middle East and Africa.

 

 

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Afshin Molavi is a Senior Fellow at the Johns Hopkins Foreign Policy Institute, where he writes broadly on emerging markets, particularly on themes related to "The New Silk Road," South-South trade, global hub cities, new emerging market multinationals, global aviation, the geopolitics of energy, and the intersection of Middle East states and the global economy.

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© 2015 The Foreign Policy Institute

The Paul H. Nitze School of Advanced International Studies (SAIS)
The Johns Hopkins University

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