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Agricultural Development Bank of China

High economic complementarity extends China-UAE cooperation to more fields

November 15, 2019

Abstract : Whilst becoming more and more complementary economically, China and the UAE have also forged economic ties in more and more fields.

At the moment, the UAE is trying to shake off its heavy dependence on energy production and export, and develop downstream sectors of the industry chain like oil refining and chemical engineering. As a result, it seeks to strengthen cooperation with China in fields such as talent training, technical transfer and SMEs support within the framework of building the Belt and Road Initiative. This has injected new impetus to the sustainable development of the two economies and also expanded the scope where China and the UAE can complement each other economically.

Whilst becoming more and more complementary economically, China and the UAE have also forged economic ties in more and more fields. As one of the world's largest economies, China has entered the middle stage of industrialization, becoming the world's largest producer with more than 200 industrial products and moving up to the middle of global equipment industry chain characterized by the high cost performance ratio. At the same time, the UAE is formulating new industry development strategies and financially strong, and has a huge demand for Chinese technologies and talents. Therefore, there is great scope for further cooperation between China and the UAE in infrastructure construction, renewable energy, aerospace, oil production and processing, communications and other fields.

1. Renewable energy

For the UAE, one of the world's major traditional energy exporters, energy export has remained the biggest driving force for its economic growth. However, as its production capacity reaches a plateau and its oil reserves are on the decline, such a single economic structure dominated by energy export starts to hinder its sustainable economic development in many ways. Alongside that, growing financial pressure on the government due to the continuous drop of international oil price over recent years has driven the UAE to give an ever higher priority to the research and development (R&D) and application of renewable energy. Faced with these realities, the UAE set a target of increasing the share of renewable energy, mostly solar power, from almost zero to 50 percent by 2050. On China's part, Chinese enterprises are at the forefront of the field of clean energy such as solar energy and wind energy, and enjoy strong production capabilities which can help slash overall costs. Given these facts, there will be a considerable potential for China-UAE cooperation. Besides, strengthening China-UAE cooperation in renewable energy is also conducive to promoting economic development and industrial upgrading of both countries.

Under the framework of the Belt and Road Initiative, China-UAE cooperation in this field has delivered fruitful results. In June 2016, China's Harbin Electric Corporation and Silk Road Fund participated in the first clean coal power station project in the Middle East as investors. In February 2017, Jinko Solar and a Japanese consortium jointly won the bid of Abu Dhabi's photovoltaic power generation project. In August 2017, Jiangsu solar energy company Trina Solar provided about 40,000 units of solar photovoltaic modules for the UAE's green energy project "Dubai Sustainable City". In December 2018, the Phase IV of the Mohammed bin Rashid Al Maktoum Solar Park project made further progress, with 128 pillars of the solar tower being completed. In addition, nuclear energy and waste recycling are also one of the focuses of the UAE, as it works to get rid of heavy dependence on oil and natural gas.

In the future, there will be more domestic photovoltaic enterprises tapping into and gaining a foothold in this market by taking advantage of the UAE's renewable energy strategies.

2. Infrastructure construction project contracting

In terms of transportation infrastructure, UAE enjoys relatively sound road traffic links. According to data from the UAE's statistics authorities, as of 2018, the total length of roads in the UAE was about 4,080 kilometers. As to railways, the UAE government plans to invest 11 billion U.S. dollars in the construction of a railway connecting all emirates. With a planned length of 1,200 kilometers, the project will be built in three phases, and the Phase I of 266 kilometers has been completed. This railway is designed as part of the more-than-2,200-kilometer Gulf railway network to connect the six GCC countries. With regards to airports, there are 39 airports in the UAE, including 7 international ones like Abu Dhabi International Airport and Dubai International Airport. Among others, Abu Dhabi International Airport built in 1970 currently has only one runway.

Against the backdrop, the UAE government is stepping up efforts to implement multiple infrastructure construction projects. To name a few, Abu Dhabi plans to launch a 131-kilometer urban rail project, including subways, light rail and bus rapid transit, which has not yet started bidding; construction and extension projects of airports and ports in Dubai and Abu Dhabi are well in progress.

Thanks to the government's continuous investments even at times of global oil price drop, the UAE's infrastructure construction as one of the national moves to develop non-oil economy has brought quite generous benefits for the country. In addition, as the host country of the Expo 2020, Dubai is also strengthening urban infrastructure construction, including the extension of Al Maktoum International Airport, Mohammed bin Rashid Al Maktoum Solar Park, Dubai Metro and other projects. To cite some statistics from China's Ministry of Commerce, in 2017, the number of projects valued at over 5 million U.S. dollars newly signed by Chinese enterprises in the UAE recorded about 50.

This construction boom in the UAE and other Gulf countries has made the Middle East the world's largest market for construction vehicles, machinery and equipment. As a result, the commencement of many large contracted projects has fueled a surge in the demand for construction machinery, vehicles and equipment, and automobile spare parts. By virtue of competitive prices and good quality, construction equipment produced by Chinese enterprises has a huge market potential in the UAE. Given this, Chinese enterprises should speed up industry cooperation with the UAE to boost the export of construction machinery and equipment.

3. Communications

Due to a weak technological base, cooperation with foreign companies has played a significant role in the development of the UAE's communications industry. Against the backdrop, the government has made developing communications a high priority. At the beginning of this century, the UAE introduced communication means into government administration, hoping to make full use of Internet technologies to improve government operation efficiency and slash national administrative expenditure. Meanwhile, the government encourages investment in the industry to promote its development. China's Huawei and ZTE, relying on their advanced technologies and competitive products, have tapped into the UAE's market and emerged as its leading communication equipment suppliers. That has spoken volume about the great recognition of the UAE towards China's communication brands.

4. Consumer goods and food industry

As the favorite drinks of people in the Middle East, coffee and tea, especially black tea, are in great demand in the region. On the data front, the UAE has nearly 2,200 registered cafes, and a combined coffee and tea market is valued at 350 million U.S. dollars to 400 million U.S. dollars. Every year, the UAE imports 25 million U.S. dollar coffee from foreign suppliers, which indicates that there is plenty of market potential for Chinese coffee beans to be tapped. In addition, tax exemption policy on raw materials for manufacturing has also given the UAE an edge over other GCC countries, and will serve as a strong driver in this country's bid to become a regional food and beverage center integrating trade, import and export and secondary export. Among others, the China-UAE food cluster represents a microcosm of China-UAE cooperation in this industry. In September 2017, Dubai Food Park (DFP) and China's Ningxia Forward Fund Management Company signed an investment agreement worth about 350 million U.S. dollars in an attempt to establish a world-class China-UAE food industry cluster in Dubai. Currently, the trade volume in food accounts for 11 percent of UAE's total GDP. Calculated on an annual growth forecast of 7.2 percent, the volume is expected to reach 6.3 billion U.S. dollars by 2030.

Among other foods, tea has a market size of over 2 billion U.S. dollars in the whole Middle East. In recent years, Dubai has maintained swift growth and emerged as a world-famous tea trade and entrepot hub, and has set up a Dubai tea trade center in a free trade zone of Dubai. As we all know, China is the world's largest tea producer, China's tea exports to the UAE, however, only make up 1 percent of this country's total tea imports, and 0.3 percent of China's total tea exports. That says a lot about the huge potential of exporting tea to the UAE from China.

By and large, there is a vast coffee and tea market in the UAE. Therefore, China should seize upon the good opportunities presented by the Belt and Road Initiative to develop foreign trade in foods and drinks and even invest in the tea industry in the UAE by, for example, setting up teahouses, tea specialty shops, tea trading companies or tea processing plants.

5. Advanced manufacturing

In 2017, the UAE government introduced the UAE strategy for the Fourth Industrial Revolution (4IR) with a specific focus on innovation education, medical robotics, bioengineering, renewable energy technology, digital economy, block chain technology, driverless technology, 3D printing, transformation from centralized power generation to distributed power generation, development of space exploration and related technologies and other fields. This strategy is foreseen to consolidate the UAE's status as the center of the world's fourth industrial revolution, and enhance the role of industry in shoring up the national economy by promoting innovation and developing future-oriented science and technology.

Notably, the UAE's 4IR strategy coincides in many respects with "Made in China 2025" and promoting innovation and upgrading of manufacturing, two moves that are well in progress in China. At the same time, China has become a world's leading player in the fields of artificial intelligence and digital economy. That means the scope for cooperation between the two countries will be substantial.

6. The UAE's investment in China

The UAE's investment in China has seen a surge mostly in manufacturing, wholesale and retail, leasing and business services. Among others, Borouge is the most famous investment business of UAE in China. In 2008, it announced to establish an engineering plastic production base in Shanghai Fengxian Economic Development Zone with an annual output of 50,000 tons of composite resin, making its foray into Chinese market. In 2010, Borouge signed an agreement with the government of Nansha District of Guangzhou to set up a production plant in Nansha with a planned annual output of 105,000 tons of composite polypropylene resin, further expanding its footprint in China. Borouge's this move comes as a result of the rapid and continuous increase in the demand for polymers in China where the average annual growth of polymers is expected to reach 6 percent by 2022.

In 2014, Jumeirah, a well-known Dubai hotel group, announced that it had signed management agreements with three hotels and resorts in China, increasing the number of real estate projects in China managed by it to eight. In 2019, Dubai's Emaar Properties and China's Beijing Daxing International Airport signed a cooperation agreement to jointly develop a construction project valued at 11 billion U.S. dollars.

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Keyword: China-UAE report


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