Wednesday, May 28, 2008

The "New Silk Road"

I was a bit perpelexed in 2002, when involved in planning of Dragon Mart and Chinatown in Dubai's International City on the seriousness of Dubai government to attract chinese business. I was informed it was a G-to-G arrangement. Something like the project would be built by Dubai and funded by China government.

The Dragon Mart complex is huge (pic below) and was supposed to house more than 4,000 retail shops under one roof. Chinatown which is a cluster of apartment buildings inside International City was built to complement Dragon Mart to house the workers and traders.

The location was a bit far from then the Dubai downtown and I still remember it was nothing there but desert and adjacent to a big sewage treatment plant (which is now still in operation and produces bad odour to the vicinity).

Fast forward to the future, UAE has the energy-China has the biggest market, the two countries are building a new silk road that is phenomenal!



Below is an article from Business 24/7

The "New Silk Road" Рthe rapidly growing trade between the Middle East and China Рhas been the subject of media articles, business conferences and economists' treatises so often that it has almost become a clich̩. But recent research from the World Trade Organisation show what we are witnessing in this new two-way trade is nothing less than a revolution in the pattern of global commerce that will have profound effects on the two regional trading blocs, as well as the rest of the world. It is so significant that I make no apologies for again highlighting what could be the most significant phenomenon of present-day business practice.

The WTO has published figures comparing the rates of growth of different global trading blocs regions in their business with China over the decade 1996-2006. This was the period when the Chinese economy – set free from the shackles of communist ideology a few years earlier by the visionary Deng Xiao Ping – really began to accelerate, and western commentators woke up to the sheer power of China, with its population of 1.3 billion potential consumers, as a force in the world economic system.
Over that decade, all parts of the world saw big expansion of trade with China, with Europe leading the way with a 582-per cent increase in the value of two-way commerce between the two. But the Middle East, over the same period, saw an increase of more than 1,000 per cent in its trade with the new economic powerhouse to the east.
For the UAE, this trend will continue to accelerate, with a predicted seven-fold increase in trading volumes over the next seven years, when it is predicted to stand at $100 billion. That will make China the UAE's largest single trading partner, overtaking both the US and Europe, which currently dominate the Emirate's trade. Both those regions will continue to be important customers of the UAE, of course, but the country as a whole will turn 180 degrees from West to East, with huge economic and political consequences.
The basic reason for the volte-face is obvious: the UAE, indeed the Gulf, has the world's largest reserves of energy, which China needs to fuel its economic growth, still running at around double-digit levels each year, even with the West heading into recession. In return, China can pay cold hard cash, due to the huge dollar reserves it has built up over the past two decades.
It has also been able to supply basic goods such as textiles and household items cheaply and to an increasingly high standard. But its factories and assembly lines are also beginning to produce the high technology goods that insatiable consumers in the Middle East want in ever-increasing numbers – electronics, hi-tech consumer durables, and even motor cars. We are rapidly approaching the time when "Made in China" is not a symbol of cheapness, but has a brand value of global cachet.
Apart from these basic economic and financial factors, another geo-political impetus has ensured that the Middle East and China will increasingly turn to each other – the US has made it pretty clear that it does not want much to do with either. The UAE was rebuffed when it tried to buy the American ports of the old P&O business, but China too suffered humiliation when two of its biggest corporations tried to buy stakes in the US oil and telecommunications business. When these two economic power blocs find the way to America closed to them largely for political reasons, it was only to be expected that they would turn to each other instead.
There are factors that could work against the new trading alliance between Arabs and Chinese. A change of US administration might lead to a freeing up of US sentiment towards the region, and an increase in US-Gulf trading relations. But it is unlikely that on its own could stop the momentum of the economic power shift.
There is also the possibility of a collapse in the soaring oil price, which would affect the buying power of oil producers, but the experts, such as US investment bank Goldman Sachs, tell us it will keep going to the $200 level.
The threat of a Chinese recession – perhaps prompted by the Western financial credit crunch – could also affect the equation. But most authorities agree that even at its worst an economic downturn would only knock a couple of points off Chinese growth rates. The Chinese economic juggernaut seems unstoppable.In these circumstances, the logic of the "New Silk Road" appears unbreakable. Business leaders in the UAE have already shown they are well and truly aware of the phenomenon, and they should continue to tread the path of growing commerce to the East, whatever the West might do.



By Frank Kane

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