Dragon’s Shadow Over Gulf: UAE Strengthens Ties with China Amid Growing Sino-Arab Relations

UAE Strengthens Strategic Ties with China Amid Rising Sino-Arab Relations

Sometimes agreements made years ago come to life. The UAE raised its relationship with China to a strategic level in 2018, and two-way trade has certainly seen a boost since then. The UAE has traditionally been the gateway to trade throughout the Gulf, including sanction-crippled Iran, and North Africa. In July 2018, President Xi Jinping visited Abu Dhabi. As many as 13 financial and trade agreements were signed, among almost 150 since diplomatic relations were established in 1984. Xi Jinping met with then-Crown Prince Sheikh Mohammed bin Zayed al-Nahyan of Abu Dhabi and the ruler of Dubai. Xi was the first Chinese supreme leader to visit the UAE in 29 years.

China has persistently attempted to establish a free-trade agreement with the entire Gulf Cooperation Council (GCC) area, with the help of the UAE and Saudi Arabia. However, concerns over China’s propensity to dump cheap exports remain a hurdle. Currently, China is seen as a power that may be able to prod the ‘two-state solution’ in Palestine into being, given its influence and leverage. The leader of the Palestinian Authority recently paid a state visit to Beijing. Chinese influence extends to all the oil-exporting countries of West Asia, as well as to Iran and its proxies like Hezbollah, Hamas, the Houthis, and elements in Syria and Iraq. China cannot be ignored by Israel and its ally, the US.

For the Arabs, this represents a balance between pressures from America and those from China. Work on this is proceeding apace. The UAE and Chinese central banks recently renewed a $4.9 billion currency swap agreement. There is a cooperation agreement between the Dubai and Shanghai stock exchanges, and the UAE sovereign fund Mubadala has opened a Beijing office. Currently, the president of the UAE is visiting Beijing from May 29 to May 31, 2024. This visit coincides with the China-Arab States Cooperation Forum, formed 10 years ago. Sheikh Mohamed has visited China several times before, starting in 1990, and again in 2009, 2012, 2015, 2019, and 2022. This time, Sheikh Mohamed said he wants to ‘enhance Arab-Chinese cooperation.’ Reports indicate he aims to ‘finesse’ the relationship, particularly after significant progress in the UAE’s relationship with India and its geopolitical implications.

This year marks the 40th anniversary of diplomatic relations between China and the UAE, established in 1984. In 2023, the UAE’s non-oil trade with China reached $81 billion, accounting for 12 percent of all UAE trade. The UAE’s investments in China totaled $11.9 billion across sectors like telecommunications, renewable energy, transportation, hospitality, and rubber. The UAE is home to a resident Chinese community of about 350,000 people.

For the 10th China-Arab Summit from May 28 to June 1, there are four heads of state from the UAE, Egypt, Bahrain, and Tunisia present in Beijing. This is happening while NATO foreign ministers are meeting in Prague to discuss the idea of Ukraine being allowed to hit targets inside Russia. NATO is celebrating 25 years of its existence, but there is no unanimity on further provoking Russia.

The UAE and Saudi Arabia, as the biggest middle powers in the GCC and the Gulf, are strategically close to the US for military needs but want to resolve the Palestine issue troubling their region. The state visit of the President of the UAE to Beijing, the first since he assumed power, can be partially seen in this light.

Besides, China has a GDP of $17.7 trillion despite its weakened economy. It has had upwardly revised GDP forecasts of 5 percent per year by international lending agencies like the World Bank and the IMF after China made strenuous efforts to stabilize its economy. Stock investors worldwide are returning to China to take advantage of attractive, beaten-down valuations.

Despite aggressive trade practices and erstwhile, pre-Covid, ‘wolf warrior diplomacy,’ China’s economic heft is second only to that of the United States. Tensions with Taiwan and countries around the East and South China Seas add friction. India has its own tense standoff with China along its long border alongside Tibet and proxy issues with Pakistan. Still, most countries must deal with China until more effective geopolitical shifts occur. China remains a formidable trading partner with every country and is still the factory for the world.

Aware of this, leading countries in the Gulf and Arab North Africa signed up years ago for China’s Belt and Road Initiative (BRI), despite its predatory nature. Ironically, no work has been done on it in the region better than the usual ‘beneficiary’ so far. Nearly bankrupt Pakistan’s CPEC struggles, and India has refused to participate from the start. The UAE, Saudi Arabia, Egypt, Tunisia, and Bahrain might not miss much given the BRI’s debt trap propensities and erratic progress. Countries like Cambodia, Sri Lanka, Malaysia, Thailand, Myanmar, Nepal, and Bangladesh, along with some in Central Africa, probably regret their involvement. Some European countries, like Italy, have withdrawn from the BRI.

While China has a vast military establishment, its effectiveness is unproven. Though it has not been involved in a significant shooting war, it is not considered to be up to par with the US technologically or in terms of manpower. The size and extent of its blue-water navy and submarines, along with progress in hypersonic missiles and drones, are underpinned by its nuclear weapons prowess. However, Russia, with a $1 trillion economy and a huge nuclear arsenal, is considered a more formidable military power.

The GCC countries sell 80 percent of their oil to China. The UAE alone exports over $32.5 billion of petroleum to China and is its biggest trading partner in the Gulf, importing over $57.7 billion worth of machinery, electrical equipment, and broadcast equipment. The UAE is also preparing to import China’s cheaper and high-quality electric cars. China and India offer increasing opportunities to conduct petroleum business in local currencies, reducing dependence on the strong US dollar. Despite America’s large debt, China also carries substantial external and internal debt. The difference is that the US dollar remains the main global currency for international trade. China is steadily devaluing the Yuan to make export-import trade more attractive, having kept it artificially strong for years.

What might come out of a closer relationship with Beijing beyond the obvious bully-boy arrangements is hard to say. However, hedging bets in an increasingly unstable multipolar world makes today’s China and tomorrow’s emerging India important considerations.

Sheikh Mohamed’s visit to Beijing is not just about strengthening ties with China but also about participating in the broader Sino-Arab dynamic. The China-Arab States Cooperation Forum, held from May 28 to June 1, 2024, is a testament to this growing relationship. This forum, formed a decade ago, aims to foster cooperation between China and Arab states. The presence of heads of state from the UAE, Egypt, Bahrain, and Tunisia highlights the importance of this summit. This visit also underscores the UAE’s commitment to balancing its relationships with global powers amidst a shifting geopolitical landscape.

In the background, NATO foreign ministers are meeting in Prague to discuss the contentious issue of allowing Ukraine to target sites within Russia. This meeting coincides with NATO’s 25th anniversary, though there is no consensus on escalating tensions with Russia. The UAE and Saudi Arabia, key middle powers in the GCC and the Gulf, maintain close strategic ties with the US for military purposes. However, they are equally keen on resolving the persistent Palestine issue, which continues to trouble the region. Sheikh Mohamed’s visit to Beijing can be viewed through this lens, as the UAE seeks to leverage its relationship with China to address regional challenges.

China’s economic clout, despite recent challenges, remains formidable. With a GDP of $17.7 trillion, China’s economy is second only to that of the United States. International agencies like the World Bank and the IMF have revised China’s GDP growth forecasts upward to 5 percent per year, reflecting confidence in China’s efforts to stabilize its economy. This economic resilience has attracted global investors, who are capitalizing on attractive valuations in the Chinese market.

China’s economic influence extends to its Belt and Road Initiative (BRI), which has seen mixed results. While leading countries in the Gulf and Arab North Africa signed up for the BRI years ago, the initiative’s progress in these regions has been limited. Countries like Pakistan, struggling with the China-Pakistan Economic Corridor (CPEC), highlight the challenges of BRI projects. Meanwhile, nations such as India have opted out of the BRI from the outset. The UAE, Saudi Arabia, Egypt, Tunisia, and Bahrain might not regret their cautious approach, given the BRI’s debt trap concerns and inconsistent progress.

China’s military capabilities, although extensive, remain largely untested. Despite possessing a vast military establishment, China has not engaged in significant conflicts to prove its effectiveness. Comparatively, Russia, with a smaller economy but a substantial nuclear arsenal, is perceived as a more formidable military power. Nevertheless, China’s advancements in naval capabilities, hypersonic missiles, and drones, backed by its nuclear prowess, cannot be overlooked.

The economic relationship between the GCC countries and China is significant. The GCC exports 80 percent of its oil to China, with the UAE alone exporting over $32.5 billion worth of petroleum. The UAE is China’s largest trading partner in the Gulf, importing over $57.7 billion worth of machinery, electrical equipment, and broadcast equipment. Additionally, the UAE is preparing to import China’s affordable and high-quality electric cars. Both China and India present opportunities for conducting petroleum trade in local currencies, reducing reliance on the US dollar.

China’s strategy of devaluing the Yuan to boost export-import trade contrasts with its previous policy of maintaining a strong currency. Despite substantial debt, the US dollar remains the dominant global currency for international trade. As countries navigate the complexities of the global economy, closer ties with China offer both opportunities and challenges.

Sheikh Mohamed’s visit to Beijing symbolizes a strategic effort to enhance Sino-Arab cooperation amidst a changing geopolitical landscape. The UAE’s relationship with China, marked by significant trade and investment, reflects broader regional dynamics. As the world becomes increasingly multipolar, countries like the UAE are positioning themselves to navigate this complexity by strengthening ties with both established and emerging global powers.