Abu Dhabi continues to carry out infrastructure partnerships with China

China sees significant advantages in investing in Abu Dhabi as part of its long-term Belt and Road Initiative. Although Abu Dhabi sits midway between the overland Silk Road to the north and the Maritime Silk Road to the south, its increasingly close ties with China suggest the emirate will avoid being bypassed by the global flow of goods planned by the Chinese government. In February 2018 the Bank of China’s chief economist told a forum in Abu Dhabi that China’s outbound investments on the Belt and Road Initiative would reach $300bn by 2030. The Asian superpower’s decisions to forge closer ties with its strategic trading partner in Abu Dhabi suggest the emirate may be able to take advantage of this expansion from the east to help meet the targets of the Abu Dhabi Economic Vision 2030.

KIZAD

Khalifa Industrial Zone Abu Dhabi (KIZAD) was designed to act as a magnet for foreign investment to fuel economic diversification in the emirate, and by April 2018 it had attracted more than $1bn from Chinese firms. Abu Dhabi Ports manages KIZAD and has signed agreements with 15 businesses since forming an investment deal with Jiangsu Provincial Overseas Cooperation and Investment Company (JOCIC) in 2017. KIZAD offered Chinese companies 2.2 sq km in the first instance but has set aside an additional 10 sq km in an area called the China-UAE Industrial Capacity Cooperation Industrial Park. “KIZAD has established its reputation as an attractive investment and trade hub for entities around the world looking to expand in the region. Our value proposition, connectivity and infrastructure, as well as our strategic partnership with JOCIC, have been pivotal in cementing our position in the Chinese market and enhancing our competitive advantage,” CEO of Abu Dhabi Ports, Mohamed Juma Al Shamisi, said in 2018 to a visiting Chinese delegation.

JOCIC

Jiangsu is a province to the north of Shanghai, on China’s eastern Yellow Sea coast, and companies from this region are particularly interested in establishing trade links with Abu Dhabi. In addition to JOCIC’s 50-year agreement with Abu Dhabi Ports, five companies – Hanergy Thin Film Power Group, Jiangsu Fantai Mining Development, Xuzhou Jianghe Wood, Jiangsu Jinzi Environmental Technology and Guangzheng Group – have announced plans to open plants in KIZAD with a combined investment of $300m. The companies’ decision to establish factories in Abu Dhabi means increased investment for the emirate, but also an influx of new industries, skills and job opportunities in sectors with great growth potential in the UAE.

Hanergy Thin Film Power specialises in renewable energy solutions, and builds factories that manufacture thin film solar photovoltaic (PV) modules. It also constructs solar farms and rooftop power stations for households and businesses, and markets solar PV equipment and electricity. Jiangsu Jinzi Environmental Technology, meanwhile, specialises in sulphur recovery in chemical industries. For its part, the construction industry is served by both Xuzhou Jianghe Wood and Guangzheng Group, with the latter specialising in steel structures and components.

In February 2018 Chinese media reported that five additional companies from Jiangsu had signed deals to establish premises at KIZAD, as had two firms from other parts of China. The industrial zone signed a memorandum of understanding the following month with the China Council for the Promotion of International Trade to help market its offering in the Chinese business community. In April 2018 three more firms from Jiangsu province agreed to three new ventures in Abu Dhabi – Nantong Suzhong Construction, Lianyungang AnLun Oilfield Chemicals and Jiangsu Port Holding Group – collectively investing $47m in KIZAD.

Financial institutions in China are backing these new business ventures in Abu Dhabi, with the Bank of China agreeing to provide business loans, trade settlements, financing and dirham clearing to Chinese companies operating at KIZAD. Earlier in 2017 Agricultural Bank of China opened a yuan clearing branch in Dubai. “These new companies can play a pivotal role in diversifying Abu Dhabi’s economy in industries such as renewable energy,” Aseeb Abdul Khader, commercial development manager of Abu Dhabi Ports, told OBG. “Currently, there is relatively little actual manufacturing of solar panels in this region, and yet there is clearly huge potential. Once you initiate that kind of commercial activity, it can trigger additional developments in that sector.”

Container Port

To provide sufficient import and export capacity to support the increase in industrial activity, the emirate is advancing plans to expand its ports. COSCO Shipping Ports (CSP), the world’s largest port operator in 2016, created from the merger of COSCO and China Shipping, pledged to invest $700m in Abu Dhabi when it originally signed the 35-year concession to build and operate a new container station at Khalifa Port in 2016. Construction on the new container freight station began in 2017, and the completion of which is expected to increase Khalifa Port’s container capacity to 6m TEUs per year, making it CSP’s hub for the Middle East. The new facility will add 2.4m TEUs to Khalifa Port’s existing 2.5m capacity, and CSP has the option to increase capacity by an additional 1.1m TEUs at a later date. The new container station will offer bonded facilities capable of handling full container loads, as well as less than full or shared containers, and will offer consolidation and deconsolidation services, cross stuffing, short-term warehousing and connectivity with the container terminals at Khalifa Port. According to the shipping news journal Lloyd’s List, CSP has interests in 42 container terminals and nine overseas ports that collectively handle 24m twenty-foot-equivalent units (TEUs) a year, in addition to the 74m TEUs that pass through its facilities in China, Hong Kong and Taiwan.

Speaking at the ceremony in 2017, Sultan Ahmed Al Jaber, minister of state and chairman of Abu Dhabi Ports, said, “Following the guidance and vision of the leadership, Abu Dhabi Ports has played an important role in expanding trading links between the UAE and China, now the UAE’s second-largest trading partner. The partnership between Abu Dhabi Ports and CSP to develop the region’s largest container freight station will add a new dimension to UAE-China trade relations and is fully aligned with Economic Vision 2030 to drive growth and investment, support economic diversification, and create sustainable jobs.”

Investment Fund

The Sino-Emirati commercial cooperation being seen at KIZAD follows the establishment of a UAE-China Joint Investment Fund in December 2015 by Mubadala Investment Company, a government-owned entity, China Development Bank Capital (CDB Capital) and China’s State Administration of Foreign Exchange. The Joint Investment Fund is managed by Mubadala Capital’s sovereign investment partnership team, and is funded equally by the Chinese and UAE governments, with $10bn pledged at its inception. Its function is to target strategic sectors of benefit to both countries, including renewable energy, infrastructure and technology, and according to Mubadala, the fund will examine a range of investment strategies as it builds a balanced portfolio to deliver sustainable returns.

Trading Partners

The development of new Chinese projects in Abu Dhabi takes place in the context of flourishing trade between China and the emirate. Statistics Centre - Abu Dhabi data shows that China overtook Saudi Arabia as the leading destination for non-oil exports in 2016, accounting for Dh5.2bn ($1.4bn), or 18.5% of the total. China was also the fifth-largest consumer of Abu Dhabi crude oil by volume, buying just under 46m barrels, 7.9% of all shipments from the emirate in 2016. In the same year China was the fourth-largest importer of refined products from Abu Dhabi, taking in almost 2m tonnes, or 9.5% of the total. More than Dh2bn ($544.4m) worth of Chinese goods were re-exported through Abu Dhabi’s ports, 8.6% of the 2016 total, again ranking it fourth, while China was ranked fifth among import partners, with Dh7bn ($1.9bn) worth of its goods shipped into the emirate, accounting for 6% of the total.

Energy Agreements

In March 2018 China National Petroleum Corporation (CNPC) struck an agreement with Abu Dhabi National Oil Company (ADNOC) granting it stakes in two of Abu Dhabi’s offshore concessions. Through its subsidiary PetroChina, CNPC was granted a 10% stake in the Umm Shaif and Nasr concession with a contribution fee of Dh2.1bn ($571.6m), and in the Lower Zakum concession with a Dh2.2bn ($598.8m) fee. Both agreements are for 40 years. In February 2017 CNPC was awarded an 8% stake in Abu Dhabi’s onshore concession, and it also has a 40% share with ADNOC in the Al Yasat concession.

In 2018 China is the world’s largest importer of oil, with Abu Dhabi ranked 10th among its suppliers in terms of volume. ADNOC is also focusing on downstream investment in Asia, and China is the largest export customer for the manufacturer Borouge, also known as Abu Dhabi Polymers Company, accounting for 1.2m tonnes per annum of polyolefin, a third of its worldwide sales. ADNOC forecasts its sales of petrochemicals and plastics to Asia will double by 2040.