Xi Jinping’s state visit to UAE has perhaps been overshadowed by media coverage of the Trump-Putin meetings in Helsinki earlier in the week: the visit is part of UAE-China week running from 17-24 July focusing on bilateral relations and enhancing the trading and cultural relationship between the countries. Importantly, we see the event as highlighting the importance of China’s Belt and Road Initiative (BRI) (also known as One Belt, One Road or OBOR) which also fits with a plan by Sheikh Mohammed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi, to ‘Restore the Silk Road’ trading route.
BRI aims to boost economic linkages by improving land and maritime connections along an economic belt or corridor running along the historical silk trade route from Asia to Europe. The project envisages an overland route stretching from Central Asia to Europe and a maritime route than connects ports in Asia and Africa. BRI aims to create a network and economic corridors that connect China to SE Asia, Pakistan, Mongolia and Russia, Iran, Turkey and Europe. The GCC member states are not directly on the land route but logistically they are well located on the maritime route with world class ports and remain important trading partners with China.
The immediate focus of President Xi’s visit to the UAE is likely to be closer ties and co-operation agreements with the UAE building on the USD10bn UAE-China investment fund that was established in 2015 to invest in energy, renewables and technology. This continued cooperation is likely to be positive for future trade growth between the two countries: the UAE’s Ministry of Foreign Economy calculates that trade between the UAE and China grew to USD53.3bn in 2017 up from USD46.3bn from the prior year.
Longer term, BRI illustrates China’s growing importance and influence in the global economy not only in terms of trade and deepening economic linkages but we also see this project as playing an important role in helping China with its goal of internationalising the renminbi. On this trip President Xi noted that over 100 countries and organisations have joined the BRI. Estimates vary but generally look for as much as USD1-2.5 tn in investment and we have seen the establishment of agencies such as the Asian Infrastructure Investment Bank (AIIB) in 2016 to help provide financing for aspects of the project and the Silk Road Fund. At the same time as the BRI is making renminbi usage more widespread we expect the continued opening up investment channels into China promoting greater representation of China in global indices and investors’ portfolios. In our opinion, the recent pullback of the renminbi versus the US dollar in response to US-China trade tensions, plus expectations for policy easing in china, is likely to prove temporary in the context of these longer term positive trends.