Sheikh Mohammed bin Rashid Al Maktoum, the ruler of Dubai, visited China earlier this month to cement business ties between the two rapidly emerging markets. The visit, which saw the United Arab Emirates (UAE) delegation discuss cooperation in a variety of sectors, could give a push to ongoing negotiations for a free trade agreement between China and the Gulf Cooperation Council (GCC).
Trade between the UAE - and in particular Dubai - is growing at a rapid pace. Non-oil trade growth between Dubai and China has been consistently above 30% since 2004, and last year hit 47%, according to Dubai World. The total volume of trade between the two is now worth almost $20bn a year, and all the signs point toward continued strong growth. China is Dubai's second largest trading partner, and its 12th largest market for exported goods.
However, much of the current trade is one-way. Of Dubai's estimated $45bn of non-oil exports, only around $180m find their way to China. By contrast, Dubai imports around $19bn of goods from China every year, and the volume is growing. China is also not a significant consumer of the UAE's oil: OBG estimates that UAE oil exports to China in 2007 ran to no more than 60,000 barrels per day (bpd) - significantly lower than China's imports from Angola, Saudi Arabia, Iran, Russia and Oman.
Given that the UAE is the world's third-largest oil exporter, this represents a lower than expected share of the Chinese market. As oil reserves dwindle and domestic consumption increases, however, China is likely to significantly step up its oil imports from the Gulf, and imports from the UAE could reach as much as 600,000 bpd by 2025, according to the local press. China has recently made moves to increase the amount of Gulf involvement in its domestic petrochemicals sector: a $5bn joint-venture Kuwait Petroleum refinery in Guangdong, South China, was approved last December, and China is keen to involve Kuwait in a major oil storage terminal with National Aviation Fuel Holdings. The UAE will no doubt be interested in similar joint projects.
However, as might be expected from a city that is becoming renowned for its entrepreneurial spirit, it is in the field of business that Dubai is making the most immediate progress. Dubai International Capital (DIC) announced on April 14 that it would be partnering with China's First Eastern Investment Group in establishing a new fund, China Dubai Capital, to invest in Chinese companies. The new fund is expected to raise $1bn in capital and hopes to increase the listing of Chinese companies on the Dubai Securities market.
Leading Dubai-based real estate developers Emaar are also looking to increase their involvement in China. During the UAE delegation's visit, Emaar's chairman Mohamed Ali Alabbar signed a memorandum of understanding (MoU) with Shanghai China News Enterprise Development to explore mixed-use property and infrastructure developments. Emaar was the first Middle East-based developer to establish an office in China in 2006.
For the time being though, China's most important role in Dubai's economy may be to keep a lid on inflation, which estimates put in the region of 10% for 2007 - a figure that is on the rise. The dwindling global purchasing power of the dollar, to which all the currencies of the GCC except the Kuwaiti dinar are pegged, is playing a part in driving up consumer price inflation in Dubai. The artificially low Chinese yuan, by contrast, is helping in minimising the effects of the dollar slide, while for China's part continuing strong demand in Dubai is helping to offset the effects of a drop in consumer confidence in other developed markets.
It seems likely that links between the two countries are likely to continue their rapid growth into the future; Dubai offering a dependable market and trading partner, and China offering a source of cheap consumer goods and a relatively untapped market for venture capital and real estate development.