Context

By Muhammad Zulfikar Rakhmat

Throughout the 21st century, China’s ties with the Gulf Cooperation Council (GCC) have strengthened in various domains. China and the UAE’s growing relationship is a case in point. Since Beijing and Abu Dhabi established a diplomatic partnership in 1984, China and the UAE have become major economic partners and the bilateral relationship is well poised to flourish in the future.

China Daily recently reported that China-UAE trade is expected to reach USD 16 billion in 2015, making China the UAE’s second biggest import partner behind India. At the same time, the UAE is responsible for one-third of China-GCC trade and one-fifth of Sino-Arab trade. China exports primarily electronic appliances, mechanical tools, and devices; the UAE exports mainly copper, plastic, and iron.

Analysis

A Financial and Commercial Hub

Eyeing promising potential in the UAE, several Chinese banks have made their way into the emirates. Industrial and Commercial Bank of China, China’s largest lender, established an office in the Dubai International Financial Centre (DIFC) in 2008. DIFC is also home to branches of Bank of China Middle East, the Agricultural Bank of China, and China Construction Bank. Other banks, including China Development Bank, also plan to open branches in the UAE.

At the same time, the UAE has been very active in China’s banking sector, establishing branches and representative offices on the Chinese mainland. Union National Bank was the first Emirati lender to enter China in 2007, setting up an office in Shanghai, followed in 2012 by National Bank of Abu Dhabi (NBAD) and Emirates NBD. Optimistic about the emerging power’s growth, the Commercial Bank of Dubai launched a Chinese banking platform called TianLong in late 2012 to support the business and personal banking requirements of China’s small and medium businesses. Services include a Chinese speaking staff, Chinese language documentation, and renminbi accounts.

Several major Chinese companies outside the banking sector have also begun to see encouraging opportunities in the UAE. The Emiratis’ state-of-the-art port, customs services, free zone facility, and logistics park have made the UAE a strategic point from which to conduct business throughout the greater Middle East. Over 2,400 Chinese enterprises are members of Dubai Chamber. Most of these companies sell electronics, machinery, building materials, gifts, garments, and novelty items. Over 1,400 Chinese firms are reported to be located elsewhere in the country. These companies view the UAE as an important hub, facilitating expansion across the wider Middle East. Many Chinese companies have started to use the Dubai International Financial Centre as a bridge to access wider markets in the region. China’s largest petroleum firm Petro China and the Industrial and Commercial Bank of China have also established footholds in the emirates.

Dragon Mart, China’s largest trading hub outside the mainland, was built in Dubai during 2004. The complex is expected to undergo a massive expansion (and name change) to include retail, residential and leisure developments. The new Dragon City will eventually cover 11 million square feet.

These growing economic ties have facilitated more than China’s access to untapped consumer markets and lucrative investment opportunities. The UAE, with its ‘Look East’ policy, has been interested in luring Asian investment. Attracting Chinese investors and promoting the UAE to China has been an increasingly important priority of officials in Abu Dhabi.

The Dubai Week, for example, was an event held in Beijing by DIFC to showcase Dubai as a competitive global business destination for investment opportunities. Another recent initiative was the agreement signed by China’s New Silk Road Investment Association in May of this year to promote the Emirati-hosted event Global Trade Development Week to Chinese businesses and investors.

The UAE has also been making inroads in China. It is reported that the UAE’s investments in China stood at USD 1.5 billion in 2013. Emirati enterprises and businesses have around 650 projects in China. Several institutions, such as UAE stock exchanges and the Dubai Pearl Project, have exerted efforts to increase their profiles in China and to attract potential investors.

Petroleum

Although not to such an extent as the Qataris and Saudi Arabians have done so, the Emiratis have made energy cooperation an increasingly important aspect of their relationship with China. China imports around 15 percent of the Emirates’ petroleum compared to 12 percent by South Korea. In recent years, this energy partnership has gone beyond buying and selling. In mid-2015, China Petroleum Engineering and Construction Cooperation (CPEEC) signed a USD 330 million agreement with Abu Dhabi Company for Onshore Oil Operations (ADCO) for a development project at the UAE’s southern Mender oilfield.

Under the contract, the CPEEC will be responsible for the building of pipelines, oil gathering stations, sewage systems, and power transmission lines. The deal is expected to increase ADCO’s daily production from 1.4 million barrels to 1.8 million within two years. Since early 2015, CPECC, which is affiliated with China’s largest petroleum and liquefied natural gas company, China National Petroleum Corporation (CNPC), has been involved in several other projects in the UAE, including the development of the country’s crude pipeline and Asab oilfield.

The company has a history of partnering with its Emirati counterparts. In 2008, for instance, the company secured a USD 3.29 billion deal with the Emirates International Investment Company on the Habshan-Fujairah pipeline project. To complement this, Abu Dhabi National Oil Company (ADNOC) has established an office in Beijing. As China’s energy needs grow, so will its interests in the UAE’s natural resource wealth.

Infrastructure, Trade, Currency, and Travel

Reciprocity in the infrastructure sector is also on the rise. In recent years, China and the UAE have signed agreements for construction projects worth billions of dollars. Dubai’s DP World, for instance, has invested in several Chinese ports and logistics centres in Hong Kong, Tianjin, Qingdao, and Yantai. In the meantime, it was reported in 2013 by Chinese Ministry of Commerce that between 2011 and 2013, Beijing firms have won more than USD 4.8 billion worth of construction projects in the emirates. This has led many Chinese infrastructure companies to make their way to the UAE.

Chinese companies have done well in the UAE’s automobile sector, previously dominated by European, Japanese, Korean, and American brands. Chinese firms, including Foton, Cherry, Dongfeng and GAC Motors, have now entered the Emirati market. As UAE consumers seek more affordable cars, Chinese manufacturers eye the lower end of the market. Eight Chinese car manufacturers took part in the last Dubai International Motor Show. Chinese car sales are predicted to increase 100 percent each year in the country and their market share is expected to reach double-digits by 2020.

In further efforts to facilitate the economic partnership, China and the UAE signed a currency swap agreement worth 35 billion yuan in 2012. Expected to be activated soon, this agreement will not only ease trade between China and the UAE, it will also help China globalise its currency. The agreement aims to boost trade and investment between the two countries by using the Yuan in the trade of petroleum. By taking part in the currency swap, at a period when the Chinese currency enjoys increasing global use, the UAE is asserting its commitment to strengthen economic ties with the world’s second largest economy.

Travel between the two countries is burgeoning. Presently, there are 21 daily flights from Dubai to China (Beijing, Guangzhou, Hong Kong, and Shanghai), including eight operated by Emirates. Chinese nationals reportedly constitute around four percent of passengers at Dubai International Airport and they are responsible for 12 percent of sales at Dubai Duty Free outlets. To improve the experience for Chinese consumers, the retailer has hired more than 500 Chinese employees at its Dubai Airport outlets. Many stores and hotels in the UAE now have Cantonese and Mandarin-speaking staff. Remarkably, some also accept renminbi as a form of payment.

Another important initiative was the agreement between the Central Bank of the United Arab Emirates with UnionPay International of China for connecting with UAE-Switch, a service that links ATMs across the GCC. The deal aims to allow the use of UnionPay at all ATMs connected to the service, which would ease Chinese investors’ ability to conduct transactions in the country. The most recent measure came when the Dubai Gold & Commodities Exchange (DGCX) and the Bank of China signed a Memorandum of Understanding, which aims for both countries to exchange market information and industry practices between both institutions.

Beyond Energy and Trade

Perhaps the strongest area of China-UAE cooperation is education. The first Chinese international school in Dubai will open in about two years’ time. Breaking down linguistic and cultural barriers will contribute to even deeper political and economic relations in the future. Importance has been placed on cultural events as well. In 2015, the annual Chinese Spring Festival in Dubai attracted an unprecedented number of Chinese tourists and locals.

The Emiratis have also concerned themselves with humanitarian aid, having offered USD 50 million in assistance to finance reconstruction after the Sichuan earthquake in 2008.

The Road Ahead

The ties between China and the UAE are expected to grow in the coming years. On an official visit in February, Chinese Foreign Minister Wang Yi and Sheikh Abdullah Bin Zayed al Nahyan pledged to expand the China-UAE partnership.

Beijing sees great potential in the emirates. In addition to its natural resources and strategic position, the UAE is viewed as a gateway to access untapped consumer markets and lucrative investment opportunities. China’s growing interests in the UAE and the other Gulf Arab monarchies must also be analysed within a geopolitical context.

As China gains leverage on the international stage, particularly with its recent Silk Road Initiatives and the Asian Investment Infrastructure Bank (AIIB), Beijing cannot afford to ignore the strategically located and resource-rich Persian Gulf nations. As a vibrant trading and commerce center, the UAE is viewed as an important member of the AIIB. At the same time, the UAE serves as a strategic hub for the realisation of Silk Road initiatives. It is important to note that approximately sixty percent of Beijing’s total trade passes through the UAE, where it is then delivered to Europe and Africa.

This is probably why the UAE has already asserted its willingness to support and participate in China’s Silk Road Initiatives and has become the AIIB’s founding member. Engaging in a new partnership with China, an economic power that has no aggressive history in the region since the Mao era, offers the UAE a bargaining chip with Washington. From an economic viewpoint, China, the world’s most populous nation with the second largest economy, offers much to the UAE. In spite of the world’s financial turmoil, the Chinese economy is still expanding at an impressive rate and is expected to surpass the U.S. by the end of the next decade to become the world’s largest economy. Given China’s rise as an economic power, it is difficult to imagine the UAE and China’s relationship not deepening in the coming years.

Muhammad Zulfikar Rakhmat is a Middle East analyst based in Qatar. His areas of expertise include China-Middle East relations, Indonesia-Gulf ties, and Muslim affairs.

This article is being published in affiliation with Gulf State Analytics

The post The UAE, China Growing Strategic Partnership appeared first on Politact.

Context

Navigating the stormy waters of relations with China has always been a delicate job for the US, especially if China refuses to follow suit with the new sanctions on Iran. China’s position on Iran will be a cause of concern in the US, but how Washington responds will be a clearer indication if a more serious confrontation is in store. In addition to economic and military options, the social media has become an increasingly lethal soft weapon that China is concerned about.

Two major events are weighing in on the status of US-China relations: the recent announcement of a shift in focus for the US toward the Asia Pacific, and the new US sanctions against Iranian oil trade. Both events have uncovered a new nexus of complexity in the US-China relationship.

Analysis

US Sanctions On Iranian Oil

Chinese Premier Wen Jiabao, who conducted a five-day tour of the Arabian Peninsula recently, has defended China’s decision to maintain trade relations with Iran: “China’s oil trade with Iran is normal trade activity… legitimate trade should be protected, otherwise the world economic order would fall into turmoil.” His tone is in keeping with the sentiment in Beijing that the unilateral sanctions form the US impinge on China’s sovereignty and relations with other states.

At the same press conference in Doha where he made these remarks, Mr. Wen also chose to send a message to Iran, saying: “We believe that, no matter what the circumstances, the security of the Gulf of Hormuz and normal shipping passage through it must be guaranteed, because this is in the interests of the whole world.” He also added that China “adamantly opposes Iran developing and possessing nuclear weapons.”

While Iran must be pleased that China is maintaining trade ties, the last sentiment regarding nuclear weapons would be a slap on the wrist for Iran, as China normally stays quiet on this subject and has in the past supported Iran’s right to a peaceful nuclear program.

For the US and China, resolving the issue of the sanctions will be tricky. China is Iran’s largest export partner in crude, and to grant a waiver to China, or to allow China to trade unhindered will more or less render the sanctions defunct. With Russia expressing similar sentiments to China on the sanctions issue, the US will have a tough time making the sanctions squeeze Iran in the right places, as two of the region’s biggest influences are standing by Iran on this issue.

New US Defense Strategy

Beijing is now watching US movement in the Asia Pacific with a more suspicious eye. It is no secret that the US intends to counteract Chinese influence in the region, particularly in valuable sea-lanes, by boosting military aid to allies in the region and bolstering the US’s own military presence.

This sentiment was confirmed recently by US Senator Joseph Lieberman at a press conference in Manila who stated that “we simply cannot allow one nation, in this case China, to exercise disproportionate control over these waterways,” referring to the South China Sea. At the same press conference, Senator John McCain reiterated however that “we do not foresee a conflict or confrontation with China,” but that boosting military ties with neighbors and allies in the region is Washington’s way to ensure China stays in check.

At the same time former Secretary of State Henry Kissinger was in China, offering similar sentiments. “A conflict between China and the United States would weaken both societies,” Kissinger told Chinese media. “You realize we can only exhaust ourselves by conflict, and that is the guiding principle of foreign policy.”

A Veiled Threat

China, and Russia too, have been watching the uprisings in the Middle East with much concern. The civil unrest in the region has taken a huge toll in just over a year and radically changed the landscape of the Middle East. China’s concern is that dissidents within China will seek to replicate the Jasmine Revolution and seek to instigate a popular uprising.

It is interesting to note that as China takes the route of negotiated settlement and against sanctions, in case of both Iran and Syria, US has been more vocal of late regarding China’s human rights record and the lack of freedoms in China. Only recently the US ambassador to China Gary Locke told reporters at a Washington press conference that the political situation within China was “very, very delicate” he further highlighted the success of a number of demonstrations within China, however clarified that “I think it would take something very significant, internal to China, to cause any type of major upheaval.”

The US ambassador to Russia, Michael McFaul has similarly highlighted Russia’s human rights record, and come under fire for meeting with government opposition groups and civil rights groups.

Both China and Russia would be aware of the perception that the US had something to do with igniting the Arab Spring uprisings via the use of social media and activating civil society activists. The increase of noise about the Chinese and Russian human rights could be seen as a veiled threat to these countries, particularly if they refuse to comply with the Iranian sanctions.
This is a new tactical weapon for the US, one which uses much fewer resources and is far less risky for US interests. Furthermore, the US would not have to “exhaust itself” to incite unrest in China, but if a Jasmine Revolution were to happen, China would exhaust itself with the US watching from the sidelines.

Weighing the Options

The US and China both have a lot at stake where their relationship is concerned. Both states are testing boundaries with each other, and it depends on how flexible these boundaries are, and how far they are stretched as to whether conflict develops into more than just a diplomatic row.

China has been unhappy for quite some time with the US’s renewed push into the Asia Pacific, and particularly the US’s “you either with us or against us” diplomacy, which doesn’t sit well at all with China’s diplomatic style. This was evident with the US reaction to the sinking of the South Korean vessel the Cheonan in March of 2011, and of course with the unilateral sanctions on Iran. Moreover, China’s ability to disagree with the United States is somewhat of a source of pride in Beijing. The US’s continual drawing of diplomatic lines in sand on issues that concern China will inevitably take their toll. If there is one thing to ignite a row with China that could potentially spark conflict, it’s interfering in areas China deems their own.

For the US, China is of great importance economically, yet poses a conundrum because of its vast difference in culture – both civil and political – as well as its history of human rights abuses. The rise of China in the Asia Pacific region is of great concern for the US because the region has been a US stronghold since the end of World War II.

The underlying truth for both countries is as Kissinger put it. Conflict between China and the United States would significantly weaken both countries, and neither country has a public with much of an appetite for war at this point.

This leaves a tricky minefield of diplomacy to steer in the months ahead. The US will need to tread carefully as it implements its new Asia policy – particularly as pertains to the disputed Spratly Islands. How both countries resolve their differences over the Iran sanctions will shed more light on the likelihood of tensions escalating and thus PoliTact will be monitoring this situation carefully.

The post The Scope Of Growing US-China Tensions appeared first on Politact.

China’s premier Wen Jiabao will visit the Gulf counties of Saudi Arabia, United Arab Emirates and Qatar from January 14 -19. Wen Jiabao’s visit will be the first by a Chinese premier to Saudi Arabia in 20 years and to the other two Gulf countries since diplomatic relations were established in the 1980s. Wen will sign a number of agreements related to trade, energy, education, economic, culture and sports with UAE and Saudi Arabia.

During his visit, he is expected to discuss the Arab Spring with the leaders of these countries. China hopes that Middle Eastern countries would resolve issues peacefully using dialogue. “China hopes the independence, sovereignty and territorial integrity of these countries will be respected by the international community,” China’s Deputy Foreign Minister Zhai Jun said.

The post Wen Jiabao To Visit Gulf Countries appeared first on Politact.