Never before has the UAE seen so many celebrations on the occasion of the Chinese Spring Festival as it did in early February 2016. An almost unnoticed event once, the start of the “Year of the Monkey” triggered a wave of parties, promotions and spectacles across the region – from Dubai to Abu Dhabi and from Sharjah to Fujairah.
Colm McLoughlin, the executive vice-chairman of Dubai Duty Free (DDF), the world’s biggest duty free enterprise, organized a special promotion week at Dubai International Airport on the occasion of the Chinese lunar year. “At DDF, we employ 705 Chinese employees and roughly 14 percent of our business is from Chinese travelers,” McLoughlin said.
Saoud Khoory, deputy general manager of Yas Mall in Abu Dhabi, the mega mall adjacent to the Ferrari World theme park, welcomed Chang Hua, the Chinese Ambassador to the UAE, to the capital’s newest shopping complex, to observe artistic performances from China. “The Chinese are an important and loyal group of shoppers. That is why we honor their culture with these festivities,” said Khoory. Similar events were seen in the Qatar Duty Free area at Hamad International Airport in Doha and in many other shopping outlets across the Gulf. Relations between the GCC countries and China appear to be advancing on all fronts, notably in trade, tourism and banking.
More in store
In trade, the UAE and China have agreed to set up a clearing hub for renminbi (Mandarin for “peoples’ money”, the Chinese currency), the second after the one in Qatar, which was set up in April last year. According to Kuwait’s news agency KUNA, crude exports from the northern Gulf state to China surged by 18 percent year on year in January. China’s total imports of crude oil in January, however, declined by 4.6 percent, mirroring the slight economic contraction. “China and the GCC will meet each other halfway and make concerted efforts to reach a high-standard Free Trade Agreement by the end of this year,” Chinese Commerce Minister Gao Hucheng told Xinhua News Agency recently.
Last year in December, Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, signed an agreement on the launch of a $10 billion UAE-China joint strategic investment fund with President Xi Jinping. The bilateral trade between China and the UAE in 2015 was slated to reach $60 billion, compared with $47.6 billion in hospitality, Dubai tourism tracked 450,000 Chinese tourists traveling to “Fly-Buy-Dubai” in 2015, representing a 29 percent year-on-year increase and the strongest uptick among all visiting nations.
According to a report released earlier in the year, Bahrain Tourism and Exhibitions Authority’s acting chief executive Shaikh Khalid bin Humood Al-Khalifa signed an agreement with Chinese authorities that would result in more tour operators from China sending travelers to Bahrain in 2016.
In addition, Emirates airline will start flying from Dubai to Zhengzhou, the provincial capital of Henan province, and Yinchuan, capital of the Ningxia Hui autonomous region, marking the fourth and fifth destinations in China for the world’s fastest-growing carrier.
In banking, the Dubai International Financial Center (DIFC), the biggest financial free zone in the region, announced that two more big banks from China are in the process of procuring licenses to operate in the center. The “Big Four” – ICBC, China Construction Bank Corporation, Agricultural Bank of China and Bank of China – are already part of the DIFC family, and have upgraded their presence from subsidiary to branch status or category one in 2015.
“Within the DIFC, the Big Four have doubled their balance sheets in the past 18 months. Representing 26 percent of the total assets booked in DIFC, China’s top four state-owned banks have combined total assets of $21.5 billion,” said Chirag Shah, executive vice-president for Strategy and Business Excellence at the DIFC Authority.
Need of the hour
While the increased bilateral trade between the GCC and China is good news, the fact is that both sides need each other. The decline in the number of Russian tourists as a result of the ailing Russian economy and the resulting slump has affected business.
In fact, the managing director of International Monetary Fund (IMF), Christine Lagarde, surmises that the country “will face another year of negative growth in 2016.”
Dubai Duty Free’s McLoughlin and Yas Mall’s Khoory, both retail managers, are banking on spending by tourists from the world’s second-largest economy to mitigate the loss in business caused by dwindling numbers of Russian travelers.
However, there is a gray side to the silver lining. Chinese spenders have tightened their belts, resulting in visits from the mainland to Hong Kong going down by 15.5 percent in December 2015 compared with the year earlier, as per Hong Kong Tourism Board.
With the currencies of the GCC countries (except that of Kuwait) pegged to the greenback, the purchasing power of the renminbi has dipped. China’s January manufacturing Purchasing Manager’s Index (PMI) fell to 49.4 points, the weakest result since 2012 (a PMI level below 50 points to economic contraction).
Both regions are witnessing a decline in economic growth and they suffer from an outflow of capital. During her three-day visit to the UAE, the International Monetary Fund’s (IMF) Managing Director Christine Lagarde said China is transforming its economy “from quantity to quality”. The country’s lower growth rate of 6 percent was “deliberate” but healthy, she added, because the biggest state by population (1.357 billion people) is transforming its economy to one of less investing and more consuming, and from heavy industries to lighter industries.
The GCC, on the other hand, has to face “a new economic reality” as oil prices are expected to remain low for an “extended period,” she explained. Lagarde, who was just appointed for another five-year term (with the support of China), therefore urged the GCC to consider introducing corporate taxes to offset lower oil revenues, -beside the value-added tax of 5 percent, which the Gulf Arabian union already decided to implement by 2018.
Bumps in the road
Even as the GCC and China are getting cozier, Chinese managers are virtually non-existent on boards of Arab blue chip firms. The ‘man on the street’ in the GCC knows the euro and the dollar but the renminbi remains something abstract to him, not to talk about the Chinese language – although a growing number of GCC primary schools are teaching Chinese as a third language (after English and Arabic).
The foreign politics of China and the GCC in the Middle East also do not always match. China, for example, is welcoming Iran back as a major Middle Eastern economic player following the nuclear energy deal and the subsequent step-by-step fall of sanctions. Saudi Arabia, on the other hand, cut diplomatic relations with Iran in January.
So far, however, China’s principle of “non-interference” in foreign politics has guaranteed that relations between the GCC and Beijing remain warm and friendly in the Year of the Monkey and beyond.
In the Chinese zodiac, the monkey stands for cleverness and both sides continue to act in a smart way to expand GCC-China relations. As Lagarde said, “China’s ‘One Belt, One Road’ policy benefits all countries along the New Silk Road.”