By: Michael Fahy, ZAWYA
Ancient trade routes from China through central Asia by rail (Belt) and to Africa and beyond by sea.
The United Arab Emirates has been ranked as third in a global index of nations that stand to benefit most from China’s Belt and Road Initiative, according to a new report released on Tuesday by property consultancy Knight Frank.
Only Singapore and Qatar finished higher on the Belt & Road Index, a measure drawn up by Knight Frank that looks at the investment potential of markets along the route). It measured countries via six categories – economic potential, demographic advantage, infrastructure development, institutional effectiveness, market accessibility and resilience to natural disasters.
The Belt & Road Initiative is a $900 billion policy initiated by the Chinese government to build on ancient trade routes from China through central Asia by rail (Belt) and to Africa and beyond by sea (Road).
The initiative covers 69 countries which make up 60 percent of the world’s population and 40 percent of global gross domestic product (GDP), Knight Frank’s report said. It was first announced by Chinese president Xi Jinping in September 2013, and a major forum for international cooperation around the initiative was held in May last year.
The initiative involves the construction of major infrastructure projects, including a Pan-Asia railway from China to Singapore, a railway from Western China to Iran, and major investments in highways, ports and refineries, including the Yanbu refinery in Saudi Arabia.
Although there are no such large-scale infrastructure projects planned for the UAE, Knight Frank’s Middle East head of research, Taimur Khan, argued that the construction market has already benefitted from plenty of Chinese involvement.
“In terms of projects, it’s a slightly tricky one,” he told Zawya in a telephone interview.
“China is involved in quite a lot of projects here, but it’s more on different types of private and public partnerships.”
Building a presence
He said that of the total value of current and future UAE projects, firms with a Chinese origin are involved with about six percent, and that this is expected to increase to between 7-9 percent in 2019-20.
Chinese investment into the region has been growing in recent years. Thomson Reuters data for mergers and acquisitions activity showed that Chinese investment was responsible for 28 percent of the $9.8 billion worth of inbound mergers and acquisitions into the Middle East last year. This included a $1.77 billion investment into Abu Dhabi National Oil Company onshore concessions by China National Petroleum Company.
The world’s biggest construction firm, the China State Construction Engineering Corporation, has also grown its Middle East footprint, working on projects like the Dubai Canal and the City of Lights project at Reem Island in Abu Dhabi. It has also co-invested in schemes, including the Five Palm Jumeirah hotel resort, and it signed an agreement at Cityscape Global in September to jointly develop the remainder of Union Properties’ Motor City scheme alongside the Dubai-based developer. This is an 8 billion dirham ($2.17bn) project involving the construction of 44 new apartment buildings and 150 villas.
Khan argued that there is a heightened demand, both for commercial and residential property, in Dubai among Chinese investors.
“It’s been led by a variety of reasons. You’ve had quite a lot of businesses that set up here who use Dubai as a hub because of the safety offered from the legal point of view,” he said. “Whether that’s in Dubai or from the DIFC (Dubai International Financial Centre) or ADGM (Abu Dhabi Global Markets), where you have an English law basis.
“If you’re working around the region, if you’re working in Africa, being able to set up here (and) having that safety net, it gives you that access to a lot of the southern (region) population.”
Added to this, he said, Emirates offers direct connections from Dubai to 13 Chinese cities.
Trade figures show that China has been Dubai’s biggest non-oil trade partner since 2014, and in a press release last week Dubai Land Department listed Chinese nationals among the most active buyers. However, DLD did not give a breakdown of the volume or value of properties bought by Chinese nationals.
It had previously said in September last year that since 1996, 4,475 Chinese investors had completed 8,259 real estate deals in Dubai, with a combined value of 12 billion dirhams ($3.2 billion).
By international measures, this is fairly insignificant, with a Chinese Global Property Investment Report by property portal Juwai.com stating in July last year that Chinese buyers spent $101.4 billion on overseas properties in 2016 (the most recent year for which it has figures), and that over $50 billion of this was spent in the United States. Other favoured markets were Australia, Hong Kong, Canada and the United Kingdom.
“The scale isn’t there yet, but I think there’s potential there for it to (be a) more significant market,” Khan argued. He cited growing government links between China, and particularly Dubai, as an example of this, citing a reciprocal agreement signed between DIFC Courts and the Shanghai High People’s Court in 2016 to collaborate more closely on commercial cases as evidence.
“There’s a lot more cooperation that’s going on,” Khan said.
Yet, in terms of hub status, the UAE has some way to go to rival Singapore, which shares some of the advantages of being a financial hub with the physical infrastructure development programmes.
Speaking at the World Economic Forum at Davos in Switzerland in a session on the Belt & Road Initiative, which was live-streamed over the internet, Chan Chung Shen, a minister in the Singapore Prime Minister’s Office, said that 33 percent of outbound investment related to the Belt & Road Initiative, and 85 percent of the inbound investment, flowed through Singapore.
“The reason that Singapore is able to do this is because we are a financial hub to syndicate loans together,” Shen said.
He argued that the long-term impact of the Belt & Road Initiative will be its ability to connect markets.
“And that will usher in a new era of growth for the entire global community.”