China ripe for Middle East investment

China and the GCC countries are sitting on some $2.5trillion of international assets. Trade between China and Dubai alone is already at $11.5bn, so the GCC countries, and the UAE in particular, are seen as the hub for China to trade to the Middle East and to countries such as India and Pakistan, because of its proximity and strong ties to those nations.

Nasser Saidi, chief economist at Dubai International Financial Centre (DIFC) Authority, said there was much potential for investment in both directions, especially as China and the Middle East were experiencing investment protectionism from the US and Europe, where they would traditionally spend their money.

'Since we are both capital surplus economies, are there now investment areas for both regions? GCC and UAE companies are interested in projects in China and are investing in projects,' he said.

Greater openness in Chinese markets

But that increased flow relies upon greater transparency and Chinese markets continuing to open up. While China evokes an image of old style industries producing low-value goods and a plentiful supply of cheap labour - and that is still true - it is a nation that is quickly moving up market, increasingly producing electronics and high-end goods. Chinese productivity growth is now 16 per cent a year.

It is rapidly opening up to outside investment, and trade patterns are changing, but still most of the cash surplus generated by the two goes straight to western markets, so more political, cultural and economic ties need to be generated for that money to be spent in the Middle East and Asia.

Abdulaziz Sager, chairman and founder of the Gulf Research Center, pointed to obstacles that need to be overcome for growth to be more fluid. These are primarily that the Middle East is dependent on the west, that China has been more of a buying and selling nation than a strategic partner and that educational ties between the two are still relatively undeveloped.

Mergers and acquisitions

While the capital markets may be one area of future co-operation - and to date no Chinese companies have for instance listed on the DIFX - mergers and acquisitions is another area seen as having great potential for economic growth between the regions. Robert Dodds, MD for Global Investment Banking and head of mergers and acquisitions, China Shanghai Representative Office, HSBC, said there is a strong trend of private equity involvement in China, so companies in the country are becoming more familiar with partnering with multi-national investment.

And as both the government and companies become cash rich, they are not only looking to invest outside of the country, but also becoming pickier about foreign investment and who they do business with in China itself. 'Investors have to concentrate on where they can add value in China. What might Middle East companies look at in China - I would not point to any one sector because all sectors are growing quite dramatically,' said Dodds.

This means Arabic companies that plan to make strategic investments in China - such as buying companies based in the country - need to look at the sectors they know best, get to know and understand the market and often work with intermediaries who have already developed local knowledge and ties.

As the DIFC Authority's Saidi had said earlier in the day, when referring to the capital markets: 'The world's architecture has got to change. We have two very large surpluses in the world, but still we park too much in the US. We need to invest more in our regions.'

See also:
Emerging markets key to future Dubai growth
UAE Chinese imports to spike
DIFC to increase commercial ties with China