Posts   |   China Wins Big UAE Oil Concessions, Ties Expand

February 20, 2017
China Wins Big UAE Oil Concessions, Ties Expand

XI-JINPING-CROWN-PRINCE

Caption: Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces Sheikh Mohammed bin Zayed al-Nayhan meets with Chinese President Xi Jinping.

By Afshin Molavi

Editor-in-Chief, New Silk Road Monitor

Co-Director, Emerge85 Lab at Johns Hopkins SAIS

20 February 2017

Chalk up another big data point in the rapidly rising ties between the United Arab Emirates and China: in the past few days, two Chinese companies became the single largest shareholders combined in Abu Dhabi’s most important oil concession. The Abu Dhabi National Oil Company (ADNOC) awarded an 8% stake in the emirate’s major oil concession to China National Petroleum Corporation for $1.8 billion, and a 4% stake to Shanghai-based CEFC China Energy Company for $888 million, according to Bloomberg.

The move makes sense given China’s rising demand for crude oil, and its growing and under-reported relationship with the UAE. With the two awards announced in successive days, Chinese companies are now the largest shareholders in the concession. By adding Chinese companies to the concession, the UAE is simply reflecting the growing strategic nature of the relationship between the two countries, one that has emerged as one of the fastest-growing and, in my view, underrated geo-economic and geo-commercial relationships in our world today.

(To see the concession shareholding structure, see this report in Gulf News. )

The world, of course, understands China’s economic heft. According to a PWC report, as reported by CGTN, China could overtake the US as the largest economy in the world in Market Exchange Terms by the year 2030. The UAE, however, is often misunderstood as only an oil economy. This fails to appreciate the key hub role the country plays, as a major global logistics and transport gateway, as well as a major tourism and services hub.

All told, the UAE and China boast a $60 billion trading relationship, potentially headed for $80 billion. But the relationship goes far beyond hydrocarbons exports in return for cheap manufactured goods — the usual China-Gulf Arab country formula. As I have written for the Foreign Policy Institute at SAIS, the economic relationship is deep and multi-faceted. To be sure, China is a major buyer of UAE crude oil, accounting for some $5 billion in sales, but that number only makes the UAE China’s 9th largest source of foreign crude.

An even more dynamic part of the relationship is the role that the UAE plays as a hub for Chinese trade. Of the some $33 billion in goods that China exports to the UAE, some 60% are re-exported to Africa, the Middle East, and Europe. Much of that re-export trade is funneled through Dubai’s Jebel Ali Port, the ninth busiest container terminal port in the world. Also playing a significant role are the air cargo hubs in Dubai and Abu Dhabi airports.

And it’s not just goods. Chinese traders regularly use Dubai as a hub for trade with Africa, the Middle East, and even Europe. A mega-mega mall outside of Dubai’s city center known as Dragon Mart is the largest Chinese trading hub outside of mainland China. It attracts African and Middle Eastern and European traders who make bulk purchases for goods from Chinese companies and traders. Those bulk buyers jostle for space in the mall alongside 50,000 daily shoppers, many of whom make up the lower end of the emerging markets middle classes. I spent a day in Dragon Mart not long ago and wrote about it and the emerging middle classes in Foreign Policy magazine, in How Dragon Mart Explains the World

And any traveler who has boarded an Emirates Airline flight from Dubai to one of the dozens of African destinations it serves, may do a double take as it looks around at the passenger profiles: some 30% of passengers on Africa-bound flights are Chinese. Some are transiting through Dubai, contributing to China’s number one status as the biggest buyers in Dubai Airport’s Duty Free, and some live in the UAE amid a growing contingent of Chinese nationals who call the emirates home. That’s why I’ve taken to calling Dubai “Hong Kong West” for China.

The Dubai International Financial Center has also attracted four of China’s top banks to its free zone, and Chinese tourists have been flooding the UAE for holidays, staying at both the highest of the high-end hotels as well as mid-range properties as part of package tours.

Beyond the hub role that Dubai plays, Abu Dhabi, the capital, has added political and economic heft to the relationship with a strategic investment partnership that pledges to invest $10 billion in joint projects along the New Silk Road. The two countries have even joined hands in global football investing. A Chinese consortium recently bought a 13% stake in Manchester City, currently owned by UAE investors.