x Abu Dhabi, UAEThursday 27 July 2017

China blazes a trail as trading partner for Middle East

China’s explosive economic development over recent decades has been responsible for the Arabian Gulf’s own rapid expansion, generating capital that has allowed the UAE to invest in, among other things, Manchester City, Burj Khalifa and SkiDubai.

Why did Manchester City win the English Premier League championship? China.

Who built the world’s tallest building, Burj Khalifa in Dubai? What’s the reason the UAE has the region’s only indoor ski slope? Similarly, China.

These are just some of the conclusions of a fascinating new piece of research from the pointy-heads at HSBC which focuses on the economic and trading relationship between China, the Middle East and Africa.

I’ve simplified the argument somewhat, but the authors (among them the bank’s very own Middle East expert-in-residence Simon Williams) believe, and argue convincingly, that China’s explosive economic development over recent decades has been responsible for the Arabian Gulf’s own rapid expansion, generating capital that has allowed the UAE to invest in, among other things, Manchester City, Burj Khalifa and SkiDubai.

The paper “South-South Special: what a globalising China means for Africa and the Middle East” develops a theme HSBC has been pushing for some time: namely, that the biggest and most significant area of global economic growth is the southern corridor that links China, the Middle East and North Africa (Mena), and Sub-Saharan Africa.

Trade flows in this huge geographic area have already raised living standards and wealth levels to unprecedented levels, and will continue to do so. In this sector of the world economy, things can only get better, the authors argue.

Some of the statistics they produce in evidence are eye-popping. More or less at random: China imports nearly three-quarters of its oil from the Middle East; Mena-China trade has increased 50-fold in the past 20 years to nearly US$300 billion last year; China’s trade with the region’s biggest economy, Saudi Arabia, has risen 10-fold since 2003, and Saudi has now replaced the US as China’s single most important trading partner, according to official figures.

At the core of this boom in trade is, of course, China’s seemingly inexhaustible hunger for commodities. In Mena, this obviously means oil and gas products; in Africa, virtually anything else from precious metals to iron ore.

With Chinese growth rates in double digits for much of the past two decades, and even now, in a time of apparent slowdown, still around 7.5 per cent, China is the big buyer in southern global markets, and willing to pay in cold, hard cash — dollars, of which it has vast reserves.

The result has been the enrichment of the Middle East and rising standards of living and economic growth rates in Africa. The rest of the world may not fully appreciate Chinese low-cost manufactured goods, but in Africa they are affordable and efficient, in the same way that Japanese electronic goods were for European consumers decades ago.

For the Middle East, the oil trade is all-important. Chinese growth has been the driving factor keeping the price of crude oil in triple-digit dollars for the past few years, “a thing of fancy just a decade ago”, the authors write.

“We estimate that, by the end of 2014, the region will have earned twice as much from its oil production in 10 years as it did from the previous 25 years combined,” they say. That enormous capital flow is what allows Gulf energy exporters to invest in infrastructure, economic diversification, and of course English football teams.

But the Chinese are not just passing through the Gulf on their way to Africa (although the UAE, and Dubai in particular are becoming the hubs for this global trade). They are increasingly stopping here for business and for pleasure. Chinese tourist numbers are booming, especially in the UAE; new business registrations by Chinese companies have grown rapidly; and Chinese banks are setting up in Dubai and Abu Dhabi to administer the capital flows associated with all that trade. It cannot be long before the renminbi is traded officially in the region.

Inevitably, there are some areas still to be developed. Chinese corporates in Africa have not had the easiest of times with local governments and labour forces; Gulf demand for Chinese manufactured goods is comparatively weak.

But these are mere growing pains. For the Middle East, trade with China is the future. And it works.

fkane@thenational.ae

Follow us on Twitter @Ind_Insights