Dubai is well placed to become an offshore trading centre for the Chinese yuan, a development that would give the economy a major lift, says the director general of the emirate's chamber of commerce.
The emirate is vying with Singapore and London to become the next location for yuan, or renminbi, trading outside of mainland China after Hong Kong.
"For the Middle East and Africa, we are the natural choice," said Hamad Buamim, the director general of the Dubai Chamber of Commerce and Industry. "I don't see any other country or city in the region taking this position. We are the largest trading partner with China from the region, representing 10 per cent of total trade excluding oil, and we are starting to have more representations in China from our banks."
Commercial ties between the UAE as a whole and China have surged in recent years, with links extending from China's demand for oil into areas such as banking, construction and tourism. Non-oil bilateral trade between the UAE and China has grown at an annual rate of about 35 per cent in the past decade to US$35 billion (Dh128.56bn) last year, with much of the trade involving Dubai.
In a sign of the growing sophistication of these links, more and more of the goods and services are being paid for in the yuan. Chinese businesses are increasingly keen to deal directly in their local currency to avoid the risk of a fluctuating exchange rate, particularly as the dollar continues to slide against the Chinese currency.
Still less than 4 per cent of UAE and Chinese trade transactions are weighted in yuan, a figure Mr Buamim expects will rise to 10 per cent in the next year or so.
The trend forms part of the rising global profile of the currency, a pattern Mr Buamim believes will lead to the yuan moving behind the US dollar and the euro as the third major currency in the next decade.
Now Dubai is keen to carve a bigger slice of the Chinese market by becoming an offshore centre for yuan trade and investment.
China started a strategy in 2009 to internationalise the currency, with the granting of powers to Hong Kong to become the first location outside of mainland China for clearing yuan.
"If we are able to clear this platform we will be able to attract more Chinese, not only to Dubai and the whole region, and really support Chinese companies' expansion outside of China," he said.
The move would also help entice liquidity to the country, said Mr Buamim. In Hong Kong, close to HK$1 trillion dollars (Dh473.96bn) in deposits have built up since 2009. "If the same happened here, this would create huge opportunities as the money would be kept here," he said.
China and the UAE in January signed a currency swap deal, valued at US$5.5 billion, an arrangement yet to be activated.
"This is a good pre-qualification for the internationalisation of the renminbi in the UAE," he said. "It will lead to banks to get instant exchange of their currencies and reduce transaction costs for banks and, ultimately, for customers."