x Abu Dhabi, UAEWednesday 26 July 2017

New Silk Road can smooth Dubai's path to top role in finance

It's not often you hear a call from economic or political leaders to go back to the world of 1,000 years ago, but that was the message from a forum of business leaders in Dubai, writes Frank Kane.

The yuan is fast becoming a global currency in its own right. Eugene Hoshiko / AP Photo
The yuan is fast becoming a global currency in its own right. Eugene Hoshiko / AP Photo

It's not often you hear a call from economic or political leaders to go back to the world of 1,000 years ago, but that was the message from a forum of business leaders in Dubai.

The gathering, held under the auspices of the global banking group HSBC and Gulf Intelligence, a regional information consultancy, was discussing the issue of trade relations between the Middle East and China.

Sheikh Nahyan bin Mubarak, the UAE Minister of Higher Education and Scientific Research, quoted Tabari, an Arab historian, who said in the 10th century: "There is no obstacle between us and China; everything on the sea can come to us on [the sea]."

In those days, the principal trade between China and the Middle East was in esoteric commodities such as silk brocade, saffron powder and frankincense. Now it is in commodities, manufactured goods, financial services and labour.

But Sheikh Nahyan's call was for a resumption of the free flow of commerce between the two regions that, for several hundred years, dwindled to a trickle as global trading patterns altered, shifting to Europe and North America.

It is, of course, already happening. The new Silk Road is now an established fact with the emergence of China as a leader in global trade. The forum heard that as soon as 2016, China would become the world's leading trading nation; by 2026 it would account for 12.5 per cent of world trade.

Some time around then, China will also have overtaken the United States to become the world's biggest economy.

Some commentators take it further, suggesting the rising phenomenon will be the "South Silk Road", a new trading pattern that virtually bypasses the old economies of Europe and the US, carving the world up in a broad swath of commerce extending from eastern Asia, through India, the Middle East and Africa, towards the economic powerhouses of Latin America.

Whether it is through the south or via the traditional silk route through Central Asia, Sheikh Nahyan said it will be a "maritime, aerial and electronic route".

At the same time, he pointed out what must be the crucial differentiating factor of the new trading set-up. "Although economic growth comes from increasing productivity, most increases in productivity come from education, research and innovation, those activities that mark high-imagination-enabling countries."

So although the potential is already evident and the commercial pathways are developing rapidly, the Middle East and Asia still have some way to go in this respect. Innovation has not been the hallmark of either region.

In the Middle East, new patent issue is still a lamentably low proportion of the world's total. The indigenous knowledge industry is still underdeveloped, and depends far too much on the importation of ideas and technologies from overseas, especially from the West.

In China, there is a solid bedrock of engineering and manufacturing, but in the high-technology sector, where most of the added value resides, by far the biggest proportion of commercial activity consists of manufacturing under licence for western companies, or (bluntly) in copying American and European products, whether legally or illegally.

These are deficiencies both regions must confront if the new trading patterns are to be consolidated.

China's own currency, the yuan, is fast becoming a global currency in its own right. But it is not yet traded universally in the same way as the dollar or even the euro.

Other financial centres, such as Hong Kong, Singapore and London, have capitalised on the opportunity in this market, and have either begun yuan trading or have advanced plans to do so.

It would reinforce Dubai's position as the leading financial centre in the Middle East if it were to follow suit. That would be a financial innovation for the region and would hasten the end of the dollar's domination of oil and other commodity markets, which is surely overdue.

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