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

Posted by Written by Giulia Interesse Reading Time: 9 minutes

China is among the UAE’s top commercial partners over the last five years, with rapid growth recorded in bilateral investments and trade. The world’s largest container operator, China’s COSCO Shipping Limited, has chosen Khalifa Port as the base of its Middle East operations. The UAE has fully backed China’s Belt and Road Initiative, setting up projects like the Dubai Traders Market, the Yiwu Market UAE, and the China-UAE Industrial Capacity Cooperation Demonstration Zone with the involvement of Chinese capital and firms.

The United Arab Emirates (UAE) is an important stakeholder in China’s trade and commercial linkages with the Middle East, in particular, the Arab Gulf region.

The UAE has supported China’s ambitions along the Belt and Road (BRI) as well as other foreign policy goals like improving South-South cooperation, that is, technical cooperation among developing countries and the Global South in the field of resources and technology. Meanwhile, bilateral trade is strong, with Chinese exports to the UAE showing immense growth. This in turn has fostered an environment where partnerships with Chinese firms can grow in high-potential sectors like energy, infrastructure, and financial technology (FinTech).

China-UAE commercial relations

China and 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.

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.

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’.

China-UAE trade and investment

Bilateral trade

China-UAE non-oil trade rose by 27 percent in 2021 compared to the previous year, with China ranking first as the country’s top partner and accounting for 11.7 percent of its total foreign trade. The value of non-oil trade exchange between the two countries totaled US$57.71 billion.

According to recent estimates, decreased tariffs and non-tariff obstacles, together with increased infrastructure, are anticipated to continue to boost Chinese commerce with BRI participant nations in the years to come. On the other hand, the World Bank believes that these nations continue to under-trade, both with one another and the rest of the world, despite the significant expansion in trade between China and BRI partners.

In July 2022, China’s exports to the UAE increased by US$1.78 billion (53.2 percent) to US$5.12 billion, compared to July 2021, while its imports reached US$3.94 billion. The country’s top exports to the UAE include telephones (US$377 million), computers (US$350 million), semiconductor devices (US$149 million), motor vehicle parts and accessories (US$107 million), and video displays (US$95.3 million). On the other hand, crude oil (US$3.04 billion), petroleum gas (US$414 million), ethylene polymers (US$160 million), and refined petroleum (US$92.3 million) accounted for the most imported products.

In July 2022, an increase in product shipments of computers (39.3 percent), vaccines, blood, antisera, toxins, and cultures 43.8 percent), and light fixtures (77.2 percent) was the main factor contributing to China’s year-over-year export growth in the UAE market.

Bilateral investments

The UAE and China are thinking about a ‘framework agreement’ to collaborate on numerous projects. In addition to utilizing the UAE-China Business Committee to cooperate in the fields of logistics, transportation, industry, technology, artificial intelligence and energy, renewable and food security, as well as training for small and medium-sized businesses, the two countries intend to work together in areas involving innovation, technology transfer, and economic diversification (SMEs).

China’s COSCO Shipping Limited, the largest container operator in the world, has also chosen the Khalifa Port in Abu Dhabi as the center for its operations in the Middle East. It also intends to increase the port facilities’ yearly capacity to 6 million TEUs, making it the biggest container freighter terminal in the area. The action is hoped to further attract investors from Eastasia to the Khalifa Port.

China-UAE partnership has also witnessed the expansion of cross-border e-commerce and the support of the development of bilateral trade via e-commerce.

FDI flows

Despite the negative impact of COVID-19 on global economies, foreign direct investment (FDI) into the UAE increased by four percent (or US$20.7 billion) in 2021 compared to 2020; the total amount of inbound FDI received by the UAE was aboutUS$171.6 billion. To safeguard and promote investments, the UAE has inked over 106 agreements with its trading partners.

According to figures from the Chinese Embassy in the UAE, China’s total direct investment in the UAE increased by 171 percent from the prior year to AED2.4 billion (US$650 million) in January-September 2019. The amount accounted for 54 percent of China’s investment in all 22 Arab League members.

According to data from the UN Conference on Trade and Development (UNCTAD), FDI inflow into the UAE increased overall by 32.8 percent to US$13.8 billion in 2019, the highest level since 2007. A legal amendment implemented by the UAE in September 2020 eliminated requirements that companies outside of Emirates’ free zones have most of their shares owned by UAE citizens or their companies.

A closer relationship between the two countries is anticipated to strengthen the UAE’s function as a hub for China in the region and encourage investment, as major infrastructure, and power generation projects already underway will be supplemented by new joint trade, logistics, and greenfield initiatives across the emirates.

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.

The role of the UAE in the Belt and Road Initiative

What makes the UAE a key strategic partner in the BRI

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 UAE

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.

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