Mohammad’s visit will help tackle nations’ economic challenges due to low oil prices
Beijing looks to Abu Dhabi to meet its energy needs and stabilise the market
Both the UAE and China stand to gain by keeping open communication channels and boosting ties, analysts said ahead of a state trip by a senior UAE delegation to China this week.
His Highness Shaikh Mohammad Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, will lead the three-day official visit from today.
The Crown Prince is expected to meet Chinese President Xi Jinping and other senior officials during his third trip to the country.
Alp Eke, senior economist at the National Bank of Abu Dhabi, said he expected the visit to provide new opportunities for economic interaction and cooperation.
“UAE and China have been able to create strong economic ties. The UAE, being a stable location in a region of turmoil, is an ideal hub for Chinese companies wishing to expand into the Mena (Middle East and North Africa) region.
In 2014, with $22 billion (Dh80.81 billion) [in imports], China is the top source of imports for the UAE, [and the] UAE is the main market for China in the Mena region,” Eke told Gulf News. With nearly $55 billion in bilateral trade between Launched by Chinese President Xi Jinping in late 2013, the “One Belt, One Road” initiative aims to re-establish the old Silk Road trade route both on land and sea to boost trade and infrastructure across Eurasia.
The initiative which stretches from Hungary to Indonesia, essentially connects Asia to Western Europe (by land), and to East Africa (by sea), spanning infrastructure projects among 64 countries.
Also called the “New Silk Road,” the scheme includes countries on the original Silk Road through Central Asia, West Asia, the Middle East, and Europe. It is set to boost the usage of the yuan, emphasising the Chinese currency’s role as a vehicle to raise capital globally to fund railways, highways, ports, airports and other infrastructure projects.
The initiative will add $2.5 trillion (Dh9.18 trillion) to China’s trade in the next decade — more than the value of its exports in 2013 when it was the world’s top exporter, Reuters reported.
Auditing firm PriceWaterhouseCoopers estimated that over $250 billion worth of projects, from railways to power plants, have been contracted since the initiative was announced in 2013.
Earlier this year, the Chinese government rolled out fresh guidance aimed at supporting the Silk Road initiative, announcing it will speed up approvals for major construction projects and strengthen bank credit policies for investments in those regions.
Under the “One Belt, One Road” initiative, China is aiming to extend its influence and to support local industries, bolstering demand in the country’s infrastructure sector as concerns mount over economic growth. both countries in 2014, Eke said the figure is expected to grow even further and easily surpass $60 billion in 2015.
Economic challenges
The significance of Shaikh Mohammad’s visit today also stems from economic challenges that both the UAE and China are currently dealing with on the back of lower oil prices.
As oil supply continues to flood the market, analysts have long said growing energy demand from China could help stabilise the market.
“China is the dominant consumer in commodities such as metals [and] energy, and the global weight has been steadily increasing. A slowdown in the Chinese economy will most definitely affect the supply/demand equation, and will lead to further declines in commodity prices,” NBAD’s Eke said.
Meanwhile, Nikola Kosutic, research manager for the Middle East at Euromonitor International, a market intelligence firm, said that the UAE exported $13 billion worth of mineral fuels, oils, and distillation products to China in 2014.
The figure marks an increase of around $10 billion when compared to that of five years ago.
“While imports from China to the UAE are quite diverse and include a variety of commodities, on the other side, mineral fuels, oils and distillation products account for 82 per cent of the exports from the UAE to China,” Kosutic told Gulf News.
He added that China was the UAE’s second most important trade partner (after India), with trade between both countries growing at an average rate of 20 per cent following the 2008 global financial crisis.
Exports from UAE
“It’s important to note that exports from the UAE to China account for 29 per cent of total trade between two countries, but just five years ago this share was only 12 per cent. Strong growth of exports to China comes despite [the] strong dirham compared to the yuan, [with the] dirham strengthening 6 per cent over the last two years,” Kosutic said.
According to a spokesperson at the Chinese embassy in the UAE, trade between both countries is set grow specifically in the fields of energy, oil and gas, construction, and industry.
He Song, economic and commercial counsellor at the embassy, said various Chinese energy companies have already set up operations in the UAE. He expected to see more coming into the country especially ahead of the Expo 2020, with negotiations already in place between Shanghai and Dubai.