UAE central to Middle East role in China’s Jinping-backed Belt and Road
China’s growing influence in the GCC comes as the Asian superpower strengthens its ties with the UAE for what President Xi Jinping calls ‘the construction project of the century’
China’s trillion-dollar Belt and Road Initiative (BRI) is more than just a soft power play – it is an attempt to strengthen China’s geopolitical and business influence around the world.
The multilateral infrastructure programme that spans three continents is already spurring development and investments in Malaysia, Pakistan, Cambodia, Greece, and the UK, and has been described as ‘the project of the century’ by Chinese President Xi Jinping. In the Middle East, Kuwait, Oman, Saudi Arabia, and the UAE have expressed an interest in building developments that will bring Asia and the GCC closer through China’s project, which conservative estimates value at $4tn.
While the numbers underpinning the project are enormous, regional contractors are, in all likelihood, yet to fully grasp the road bumps that they may encounter if they decide to participate in one of the world’s largest construction projects. Launched in 2013 by Jinping, BRI – also known as One Belt, One Road – is the Chinese government’s development strategy to build ties along the overland Silk Road Economic Belt, and a naval trading route known as the 21st Century Maritime Silk Road. Through the development of major infrastructure projects across land and sea, BRI aims to promote the flow of people, goods, and services across Asia, Africa, and Europe. It is a beast of a project, and due to the Middle East’s strategic proximity to all three continents, China has expressed its desire to help the region fund the construction of infrastructure projects that can support BRI.
The pomp and pageantry of Jinping’s state visit to the UAE in July highlighted the UAE’s intent to forge closer trade ties with China. In fact, at least 13 cooperation agreements and memorandums of understanding (MoUs) were signed between the two nations during Jinping’s visit, forming a solid foundation for BRI in the UAE.
During Jinping’s visit to Abu Dhabi, the Chinese head called on countries such as the UAE to join “China’s express train of development” by participating in BRI – and recent project launches suggest the UAE has already boarded the train.
It is important to first understand the deep ties that already exist between China and the UAE. Abdulfattah Sharaf, HSBC Bank Middle East’s group general manager, its chief executive officer of the UAE, and head of international, tells Construction Week that the UAE’s position as a re-exporter of goods means closer collaboration with China on BRI makes financial sense for all stakeholders.
He adds: “The historic ties between the UAE and China are underpinned by compelling economics. Almost 60% of trade between China and the UAE is currently re-exported to Europe and Africa, and HSBC research forecasts that trade in goods between the two countries will grow at around 9-10% per year until at least 2030.
“The potential of China’s BRI adds another dimension to the business relationship, providing opportunities in infrastructure and construction, transport, logistics, tourism, healthcare, education, and many other sectors across the UAE’s increasingly diverse economy.”
With Sharaf’s comment in mind, it is not surprising that the UAE’s notable BRI projects are located close to the country’s ports and trading zones. The latest of these projects is one that was agreed during Jinping’s state visit to the UAE.
Dubai port operator DP World struck a deal with Zhejiang China Commodities City Group to build a 3km² export hub, called Traders Market, at the Jebel Ali Port and Free Zone. This cluster of markets will house international traders, creating a platform to sell fast-moving consumer goods, building materials, cosmetics, pharmaceuticals, and energy and power utilities, as well as engineering and technology goods. At the time of the announcement, Sultan Ahmed Bin Sulayem, DP World’s group chairman and chief executive officer, said: “The new Traders Market will provide an ideal platform for traders to showcase and sell goods in Dubai to local and international businesses. We look forward to working with the Zhejiang China Commodities City Group, we will continue to support China’s BRI and innovate for mutually beneficial development.”
Construction will start on the project after preparatory works have been completed, but a development timeline is yet to be revealed. The agreement increases the level of Chinese influence and investment in the UAE, whilst highlighting the latter’s appetite to work with China on projects related to BRI. It also complements an earlier deal DP World struck with Zhejiang Seaport Investment and Operation Group to build a warehouse in Yiwu, China, for exports heading to Dubai.
Another example of China’s influence on UAE projects is a $300m (AED1.1bn) deal between Abu Dhabi Ports and Jiangsu Provincial Overseas Cooperation and Investment Company, to develop a manufacturing hub in Khalifa Industrial Zone Abu Dhabi (KIZAD). Agreed in 2017, the deal will see at least five Chinese firms get 2.2km² of space in KIZAD to manufacture goods. The five Chinese firms – Hanergy Thin Film Power Group, Jiangsu Fantai Mining Development Group, Xuzhou Jianghe Wood Company, Jiangsu Jinzi Environmental Technology Company, and Guangzheng Group – are involved in sectors such as clean energy, mining, and construction materials.
The 50-year musataha (usufruct) agreement will create 1,400 jobs, and help strengthen the region’s BRI connection.
Coupled with the more recent agreement to build Traders Market in Dubai, the duo of China-backed projects in the UAE show the country’s enthusiasm for China’s BRI. As China’s initiative aims to encourage trade and investment, it’s no wonder that China wants to work closely with the UAE on infrastructure projects that can help advance its vision to revive the ancient Silk Road trading route.
But the port projects in Abu Dhabi and Dubai are not the only ones that point to closer UAE-China collaboration on the BRI. The UAE’s Emaar Properties this year revealed plans to launch offices in Beijing, Shanghai and Guangzhou – all cities that are connected to Dubai by Emirates airline. Emaar even announced plans to build the biggest Chinatown in the Middle East, which will be based in the retail district of Emaar’s master-planned Dubai Creek Harbour development.
Commenting in a statement on the projects that appear to be aimed at building closer ties with China, Emaar said: “Our expansion to China complements the One Belt, One Road initiative announced by President Xi Jinping, in which the UAE will have a significant part to play, in addition to benefiting from the extraordinary development programme.”
Emaar is not the only developer in the UAE to pledge its support for BRI. Following the state visit by Jinping, Mohammed Sultan Al Qadi, managing director of RAK Properties, said the country would be an important pillar of support for the initiative: “The historical official visit of Chinese President Xi Jinping to our country has added more flavour to the already existing bilateral trade ties between both countries.
“As one of the key partners of China in the Middle East, the UAE serves as a key junction for the Belt and Road Initiative. Many specialists have highlighted the fact that relations between the two sides, which date back more than three decades, are due to the mutual activities of Emirati and Chinese businessmen, which have contributed to their growing overall trade in goods and investments,” Al Qadi added.
While developers in the UAE have expressed their support for BRI, there are some practical considerations contractors must remember when exploring the project. The Royal Institution of Chartered Surveyors (RICS) says stakeholders involved in the Middle East and connected to China’s BRI programme should work towards common international construction standards to avoid protracted and costly disputes.
“It will be important that all parties work on shared systems, platforms, and delivery models wherever possible,” Robert Jackson, RICS’ regional director, tells Construction Week. “It would make sense for all key stakeholders to try and work to common international standards to drive efficiencies and mitigate the risks of disputes. From both a client and delivery perspective, standards such as the International Construction Measurement Standards (ICMS) would provide greater certainty and informed decision-making for all parties when it comes to construction costs, whether this is at the feasibility, delivery, handover, or operational stages.
“Construction cost classifications, and therefore the systems and contracts surrounding the projects, could align with these common standards.”
Jackson says another way through which stakeholders could see real value being added to the project is by ensuring contracts are “fair, clear, and transparent”, as well as encouraging a collaborative approach to the delivery of BRI work.
He continues: “Mechanisms such as Conflict Avoidance Panels (CAPS) should be introduced, and when issues escalate to disputes, these must be resolved efficiently using internationally recognised mechanisms and practices.
“Clearly, cash flow and payment security to all delivery partners will be paramount, and contracts must afford the comfort to all stakeholders that payments will be secure.”
Dubai has already taken the lead in creating a watertight legal framework for the project. Dubai International Financial Centre Courts (DIFC Courts) teamed up with the University of Oxford’s China Centre this May to protect investment in the multilateral infrastructure project by reviewing ways to create a seamless legal system along the economic belt.
DIFC Courts and the University of Oxford signed an MoU to ensure that the legal, judicial, and arbitral systems in place to handle the opportunities created by the BRI are up to scratch. Through joint research and reports, the collaboration will raise awareness around the legal and regulatory challenges that businesses and courts could face in the countries that BRI will pass through.
The DIFC Courts initiative will allow Dubai to play a pivotal role in paving the way for effective dispute resolution and the enforcement of court decisions along the BRI trading route. Michael Hwang, chief justice of DIFC Courts and head of its Dispute Resolution Authority, said in May that the Dubai judiciary wanted to create the best environment to improve dispute resolution mechanisms for “one of the world’s most ambitious projects”. He added that DIFC Courts wanted to help create the “ideal legal platform” to incorporate a “robust regime of enforceable court judgments outside the boundaries of the issuing court”.
Creating legal certainty will be important if China is to attract the GCC’s top firms to work on BRI projects. One company it will be able to count on for support is the government-owned China State Construction Engineering Corporation Middle East (CSCEC ME), which expects to benefit from the Chinese megaproject.
“Generally speaking, BRI is a strategy to boost global infrastructure, and, from our perspective, there is going to be more and more investment from China during the implementation of the initiative,” CSCEC ME’s president and chief executive officer, Yu Tao, tells Construction Week.
“For CSCEC ME, there are going to be more landmark projects participated in by Chinese enterprises, and we are going to get support from our headquarters, both technically and financially, to boost our performance in the Middle East by increasing capacity and international scale. We can see that backboned by BRI, which is a great opportunity for CSCEC ME to enhance its business activities.”