China-United Arab Emirates (UAE): Bilateral Trade and Investment Outlook

The UAE and China share a robust partnership integral to both countries’ development and foreign policy goals, exemplifying a model of collaboration. Bilateral trade thrives, with the UAE as China’s top trade partner in the Arab world, while investments span key sectors like logistics and technology. This comprehensive strategic partnership continues to evolve, showcasing mutual commitment to economic growth and global cooperation.

The United Arab Emirates (UAE) holds a significant position in China’s trade and commercial connections within the Middle East, particularly in the Arab Gulf region. This partnership is integral to China’s broader strategic initiatives, including the Belt and Road Initiative (BRI), which the UAE actively supports.

Additionally, the UAE plays a crucial role in advancing China’s foreign policy objectives, such as enhancing South-South cooperation, particularly in technical collaboration among developing nations and the Global South in areas like resources and technology.

Indeed, the UAE and China maintain a comprehensive strategic partnership characterized by frequent high-level exchanges and strengthened political mutual trust, fostering bilateral cooperation across diverse sectors. With both nations sharing similar development trajectories, philosophies, and objectives, their collaboration serves as a valuable model for developing countries seeking to chart an independent path toward modernization and development.

In this article, we delve into the dynamics of bilateral trade and investment between the UAE and China, exploring the key factors driving their economic relationship and the opportunities it presents for mutual growth and prosperity.

China-UAE diplomatic relations

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China and the UAE first established their diplomatic relations in 1984. While China has an embassy in Abu Dhabi and a consulate general in Dubai, the UAE has a consulate general in Hong Kong and an embassy in Beijing. China and the UAE have long been close partners, collaborating extensively on economic, political, and cultural fronts.

In 2018, Chinese President Xi Jinping went on a state visit to the UAE, making history as the first Chinese head of state to visit the country in the previous 29 years. The visit was instrumental in lifting bilateral relations to a ‘comprehensive strategic partnership’.

High-level trade has always been the foundation of bilateral ties. Bilateral commerce between China and the UAE reached new heights in 2021, surpassing US$75.6 billion. Additionally, as of 2022, about 6,000 Chinese businesses operate in the UAE, with a sizable Chinese population working primarily in the infrastructure and energy sectors. The UAE is also China’s second-largest economic partner in the Middle East, after Saudi Arabia.

As the two nations approach the 40th anniversary of diplomatic ties in 2024, their multifaceted partnership continues to evolve and thrive. Notably, the UAE’s forthcoming membership in the BRICS group in 2024 underscores its commitment to multilateralism and constructive dialogue, particularly among developing and emerging economies. This commitment is further demonstrated by the UAE’s hosting of the UN climate change conference in Dubai, where its proactive preparations have garnered praise from China.

Overall, these developments underscore the dynamic nature of Sino-UAE relations and their shared commitment to fostering economic prosperity and global cooperation.

China-UAE trade and investment

Bilateral trade

Recent years have seen a substantial increase in economic and trade cooperation between China and the UAE, with China consistently serving as the UAE’s leading trade partner. By 2023, bilateral trade between the two nations had reached around US$95 billion.

Notably, China has emerged as the UAE’s primary global trade partner, reflecting a remarkable surge in bilateral non-oil trade. In 2022 alone, this trade witnessed an impressive annual growth rate of 18 percent, culminating in a non-oil trade exchange exceeding US$72 billion. Such exponential growth, amounting to approximately 800 times the trade volume since the establishment of diplomatic relations in 1984, highlights the depth of economic engagement between the two nations.

Moreover, the UAE’s pivotal role as China’s foremost trading partner in both the Arab world and the Gulf region, alongside its prominence among the top nations where China invests in the Arab world, further solidifies the strategic significance of their bilateral relationship.

In 2023, China’s exports to the UAE amounted to US$55.68 billion, as recorded by the United Nations COMTRADE database on international trade. Concurrently, China imported goods worth US$39.31 billion from the UAE during the same period.

In 2023, the UAE’s primary exports to China, based on value-added categories, included mineral fuels, oils, distillation products, plastics, organic chemicals, copper, pearls and precious stones, according to data from ICT Trade Map.

Meanwhile, in the same year, the main goods exported from China to the UAE were electrical and electronic equipment, machinery, nuclear reactors and boilers, vehicles, and iron and steel.

Bilateral investment

The UAE and China are forging a robust bilateral investment partnership, with plans for a comprehensive ‘framework agreement’ spanning various sectors. This collaboration extends from utilizing the UAE-China Business Committee to fostering cooperation in logistics, transportation, industry, technology, artificial intelligence, renewable energy, and food security to facilitating training for small and medium-sized businesses.

In a significant move, China’s COSCO Shipping Limited has designated the Khalifa Port in Abu Dhabi as the center for its operations in the Middle East, aiming to elevate its annual capacity to 6 million TEUs, thereby becoming the largest container freighter terminal in the region. This initiative not only enhances the port’s attractiveness but also aims to draw increased investments from East Asia.

The energy sector stands out as a focal point of collaboration, exemplified by the signing of multiple agreements with Chinese nuclear energy organizations. This underscores a mutual commitment to sectoral growth and signifies the diversification of the investor landscape in the UAE, particularly in renewables.

Furthermore, bilateral ties have expanded into cross-border e-commerce, augmenting bilateral trade facilitation.

Between 2012 and 2022, the cumulative foreign direct investment (FDI) from China to the UAE amounted to US$11.88 billion. China is the third largest investor into the UAE, with its FDI reaching AED 23.3 billion (US$6.3 billion) by the close of 2020, constituting five percent of the UAE’s total global FDI inflows.

Chinese investments in the UAE primarily focus on sectors such as trade, finance, insurance, and real estate.

Notably, a legal amendment implemented by the UAE in September 2020 to further attract foreign investment across the emirates eliminated requirements that companies outside of Emirates’ free zones have most of their shares owned by UAE citizens or their companies.

Meanwhile, sovereign wealth funds in the UAE are increasingly eyeing investment opportunities in Chinese companies as part of their broader strategy to diversify their investment portfolios and expand their economic horizons. In alignment with the UAE’s efforts to diversify its economy beyond traditional sectors, such as oil and gas, investment initiatives in Chinese enterprises have gained momentum. According to reports, UAE-based investors are drawn to the resilience and growth potential of China’s economy, fueling their confidence in tapping into Chinese markets.

Among the notable investments, Mubadala Investment Company, a prominent sovereign investor in Abu Dhabi, has bolstered its engagement with China by establishing a Beijing office in September 2023. This move signifies the UAE’s commitment to strengthening economic ties with China, particularly in sectors like technology, renewables, and industrial innovation.

Notably, in October of the same year, the Abu Dhabi Department of Economic Development (ADDED) entered into a memorandum of understanding (MoU) with China’s Jiangsu Provincial Overseas Cooperation and Investment Company (JOCIC) with the aim of encouraging increased Chinese industrial investments. This agreement entails cooperation between ADDED and JOCIC to facilitate investment opportunities, advance industrial zone development, and provide support services to industrial investors in Abu Dhabi, along with offering incentives to encourage such investments.

Additionally, with a focus on energy transition as a key pillar of its development agenda, UAE investors are anticipated to show keen interest in sectors such as electric vehicles, renewable energy, and industrial technology in Chinese markets.

Cross-border agreements

In the past 10 years, China and the UAE have been investigating joint ventures (JVs) in the free trade zones through ports, the construction of unique export-oriented economic zones, and the establishment of industrial projects – including fourth generation and other advanced industries. Moreover, both China and the UAE intend to expand their cooperation through joint investments in the Pacific Islands and the African continent.

The two countries are eager to deepen their financial services relations by allowing respective bank branches to assist trade and bilateral investment and by enhancing collaboration between the Shanghai Stock Exchange (SSE) and international financial centers in the UAE. The Belt and Road Exchange established in Abu Dhabi in 2018, for example, has been designed to become a significant international capital-raising platform, assisting Chinese businesses, foreign corporations, and international organizations in financing their investments, including those along the Silk Road Economic Belt network. In order to improve Abu Dhabi’s continued partnerships with the Chinese government, the Abu Dhabi Global Market (ADGM) followed through on the agreement by building its first foreign representative office in Beijing.

ADGM and the Hong Kong Securities and Exchange (HSE) have recently decided to work together to foster and promote financial services innovation in Hong Kong and the UAE. Together, the two authorities hope to strengthen the financial industry in both of their home markets and create flourishing ecosystems for FinTech.

An example from another sector is provided by the establishment of the ‘Partnership Program between China and Arab nations in Science and Technology, aimed at outlining further areas of cooperation in education, science, and technology. Young Emirati scientists will be given the opportunity to perform short-term scientific research in China and learn new technologies through the program.

Trade and investment treaties

China-UAE bilateral investment agreement

In 1993, China and the UAE signed a bilateral investment agreement (BIT). The China-UAE BIT fosters an investment-friendly environment, prioritizing legal certainty and investor protection from both nations while promoting collaborative economic endeavors. It incorporates several pivotal provisions:

• Investment protection: The agreement safeguards investments against actions such as expropriation, nationalization, and discriminatory treatment, ensuring the security of investor interests.
• Dispute resolution mechanisms: The BIT establishes avenues for resolving conflicts through negotiation, mediation, or arbitration, as outlined in Article 9.

In addition, the BIT also incentivizes investment flows by offering guarantees, support, and incentives to investors, fostering a conducive environment for mutual economic growth. It upholds principles of non-discrimination, ensuring that investors from either country receive fair and equitable treatment compared to others.

The focus is also on fund transfers, which are expected to originate from the foreign exchange deposit. There are specific guidelines outlined in the BIT for situations where a UAE investor lacks adequate foreign exchange for the transfer. In such cases, the Chinese government is responsible for supplying the necessary foreign exchange.

China-UAE double taxation avoidance agreement

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In addition to the BIT, China and the UAE have also signed a double taxation agreement (DTA), which prevents companies and individuals from being taxed on the same income in both countries. The China-UAE DTA was signed in 1993, and entered into force the following year. The DTA pertains to income taxes imposed by both China and the UAE. On the Chinese side, it covers the following taxes:

• The individual income tax (IIT)
• The corporate income tax (CIT) for enterprises with foreign investment and foreign enterprises; and
• The local income tax.

On the UAE side, the DTA covers the following taxes:

• Income tax;
• Corporation tax; and
• Surcharge (also referred to as “the UAE tax”).

Article 5 of the DTA outlines the definition of “permanent establishment” with respect to tax liability in one of the contracting countries, as “a fixed place of business through which the business of an enterprise is wholly or partly carried on.”

As such, a permanent establishment refers especially to:

• A place of management;
• A branch;
• An office;
• A factory;
• A workshop; and
• A mine, an oil or gas well, a quarry or any other place of extraction of natural resources.

These provisions also apply to:

• Building sites, construction, assembly, or installation projects, and related supervisory activities lasting more than 24 months; and
• The provision of services, including consultancy services, by a company from one country through its employees or other personnel in the other country, as long as these activities are for the same project or a related one and last for more than 24 months in total.

Withholding tax rates are outlined as follows:

• Dividends: Rates differ depending on ownership and income source, ranging between 0 percent to 7 percent. The reduced dividend tax rate of 0 percent is applicable under two conditions: if the recipient of the dividend is the government of the other contracting state, its institutions, or any entity fully owned, directly or indirectly, by that government; or if the recipient is a company residing in the other contracting state and at least 20 percent of its shares are owned, directly or indirectly, by the government of the other contracting state.
• Interest: Typically should not exceed 7 percent.
• Royalties: Typically set at 10 percent.

The DTA also outlines circumstances under which capital gains derived by a resident of one contracting state may be taxed by the other, including:

• Gains from the alienation of immovable property situated in the other State;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

In the context of double taxation relief, both China and the UAE adopt the credit method for the elimination of double taxation, as outlined in their tax agreement. Under this method, if a resident of one country earns income taxable in both China and the UAE, they can typically claim a credit in their home country (either China or the UAE) for the taxes paid in the other country. This approach helps to mitigate the impact of double taxation and reduces the overall tax burden on the taxpayer.

Multilateral treaties

China and the UAE, both members of the WTO since 2001 and 1991, respectively, are signatories to various multilateral treaties concerning trade and investment. These include:

• The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which mandates WTO members to extend intellectual property rights to owners in any member state. It incorporates a most-favored-nation (MFN) clause, ensuring equal treatment for IP rights protection across all member countries. Additionally, it provides mechanisms for dispute resolution and compensation.
• The Agreement on Trade-Related Investment Measures (TRIMs), which prohibits the implementation of investment measures that restrict trade between members. This includes measures like local content requirements, which mandate the use of locally-produced goods or services by companies operating in a market.
• The General Agreement on Trade in Services (GATS), which grants most-favored-nation status to service providers of any WTO member, excluding governmental services such as social security, public health, education, and certain services related to air transport.

The UAE’s role in China’s Belt and Road Initiative

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Undoubtedly, the Gulf Area plays a significant part in the BRI due to its geographic location at the crossroads of Europe and Asia. The UAE is well-positioned to lead the BRI nations in the Gulf and solidify its position as the region’s commercial hub and entryway to Africa. China was already the UAE’s second-largest economic partner before it joined the BRI, with bilateral trade between the two countries reaching US$50 billion in 2019.

The UAE has a head start on its neighbors and is likely to maintain this advantage as part of the BRI. More than any other Gulf country, the UAE has benefited from import, export, and re-export opportunities. The UAE has the busiest seaports, airports, and most established and diversified free zones in the area because of significant investment in this infrastructure. All of this is underpinned by a robust legal and regulatory structure that includes common law jurisdictions in the “offshore” jurisdictions of the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), where some of the region’s regular civil courts are located.

Dubai’s DBX Airport has been the busiest airport in the world by the number of international passengers since 2014 when it overtook London Heathrow. Other important airports are the Abu Dhabi Airport, which serves as the home base for Etihad Airways, UAE’s national airline, and the Dubai Al Maktoum Airport, which is mostly used for cargo flights into Dubai (including those operated by China Airlines Cargo and Emirates Sky Cargo).

Despite the daily number of planes that fly between the UAE and the rest of the globe, the UAE imports 78.1 percent, exports 92.7 percent, and re-exports 86 percent by sea. With more than 14 million TEUs handled in 2019, Dubai’s Port of Jebel Ali is currently the 11th busiest container port in the world (by container traffic). By a wide margin, this makes the port the busiest in the Gulf area and the third-busiest international port outside of China.

One of the biggest deep-water harbors in the world, along with the Port of Jebal Ali, is the Khalifa Port in Abu Dhabi. Although the six planned phases of building are supposed to be finished by 2030, the Port is now in operation. China’s COSCO Shipping Ports Abu Dhabi Terminal (CSP) is a part of the port. The CSP terminal, which has a surface size of 275,000 square meters, serves as the regional center for its global network of 36 ports. The CSP terminal can accommodate giant vessels weighing more than 20,000 TEUs and has a design capacity of 2.5 million TEUs yearly.

The Khalifa Port is a portion of the larger Khalifa Industrial Zone Abu Dhabi (KIZAD), which extends out to sea on a reclaimed island and spans an area of more than 400 square kilometers and serves the Emirates of Dubai and Abu Dhabi. The infrastructure for the movement of goods through the UAE’s seaports, along with its industrial and commercial free zones, provide a strong foundation on which the UAE will look to expand its role in international business and trade and be a key member of the BRI. As a result, even though the UAE connects the world by air, it also serves as a major player in the BRI.

The UAE’s participation in the BRI is probably more extensive than just facilitating the circulation of products by supporting the physical infrastructure for commerce. The fields of education, science, technology, culture, tourism, space exploration, and artificial intelligence, it has a lot of interest in China. The UAE is also at the forefront of such initiatives, and both Abu Dhabi and the Dubai Emirates serve as regional hubs for the FinTech industry. This role is only anticipated to grow as the UAE looks to gain from the BRI’s digital component and its stronger connections with China.

On this front, the Dubai International Financial Center (DIFC) and Jiaozi FinTech Dreamworks (Jiaozi) of China signed a memorandum of agreement (MoU) in July 2020. The progress of the BRI through FinTech collaboration in the fields of blockchain, artificial intelligence, big data, and cloud computing was the express focus of this MoU. The agreement with Jiaozi is intended to provide reciprocal advantages to the respective jurisdictions of both nations, with an emphasis on reciprocal access to markets. The DIFC has established the greatest intact ecosystem in the area.

Overall, the UAE is poised to lead BRI investments and commerce, through digital and technological advancement as well as facilitating the actual movement of products. Moreover, over 4,000 Chinese companies are already operating in the UAE, a country that serves as a commercial gateway to 100 million people in the Arab Gulf region.

Active BRI projects in the UAE

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After the UAE joined the BRI, Dubai Traders Market was one of the earliest core initiatives to be announced. The Market is located across the site of the Dubai Expo 2020. The site, which is a component of the Jebal Ali Free Zone (JAFZA), extends for an area of about 800,000 square meters. The JAFZA regulatory framework, which allows for 100 percent foreign ownership and other free-zone benefits for the re-export of goods, largely benefits the Market.

First announced in 2019, the first phase of this project was developed by the Dubai port operator DP World in a 70/30 JV with the Zhejiang China Commodity City Group (CCC Group). The first construction phase involved replicating the creation of the ‘Yiwu Market,’ which is modeled on the ‘Yiwu China Commodities City’ by the CCC Group, with a Chinese investment of US$2.4 billion. The Yiwu Market UAE, covering over 200,000 square meters, includes over 1,600 showrooms and 324 bonded warehouses. It aims to give merchants and enterprises from across the world access to wholesale pricing with reduced supply chain expenses, and it unmistakably contributes to and aligns the UAE with the goals of the BRI. At the time of the Market announcement, another contract for a US$1 billion Dubai-based project to import, process, pack, and export agricultural, marine, and branded as ‘Vegetable Basket,’ was also co-signed between Chinese investors and the Dubai-based logistics company DP World.

Finally, the Jiangsu Provincial Overseas Cooperation and Investment Company is among the top entities behind the construction of the China-UAE Industrial Capacity Cooperation Demonstration Zone in KIZAD (JOCIC). The project includes a total of 80,000 square meters of infrastructure within a 220,000 square meter footprint. Since it was formally launched in 2019, the project has received investments from around 20 Chinese enterprises totaling over US$1.6 billion. So far, the JOCIC has played a key role in attracting more Chinese companies to set up business in the Khalifa Industrial Zone. Moreover, based on a 50-year Abu Dhabi Ports Cooperation Agreement, the project is set to develop a 2.2 square kilometers manufacturing area with potential future expansion, based on a 50-year Abu Dhabi Ports Cooperation Agreement.

This article was originally published on August 29, 2022, and last updated on May 10, 2024

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