Chinese president’s visit to the UAE is about more than oil

The United Arab Emirates is diversifying its strategic partners to reduce financial and geo-political risks.
Sunday 19/08/2018
Chinese President Xi Jinping (L) and Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nahyan arrive at the presidential palace in Abu Dhabi, on July 20. (AFP)
Strategic relations. Chinese President Xi Jinping (L) and Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nahyan arrive at the presidential palace in Abu Dhabi, on July 20. (AFP)

The state visit by Chinese President Xi Jinping to the United Arab Emirates focused on the customary Chinese signature economic diplomacy consisting of a bundle of financial and business memoranda of understanding as well as several trade agreements.

Xi’s UAE visit in July, the first by a Chinese leader in three decades, underscored how Abu Dhabi plays a key role in Xi’s signature foreign policy, the Belt and Road Initiative (BRI). The UAE is the gateway to more than half of China’s exports to the Middle East. China’s proposed investments will have a profound effect on Abu Dhabi’s financial, industrial, real estate, tourism and, of course, energy sectors.

While hydrocarbons are central to Beijing’s engagement with the Middle East, the focus of the planned investments in the area showcase a growing interest from China’s state-owned enterprises (SOEs) to be part of the UAE’s financial reform as well as to use the Emirates as a forward logistical hub.

Although the energy share of the deal allows Chinese SOEs to be part of the financial structure for onshore and offshore crude oil concessions in the area, the infrastructure share of the deal promises to increase the Emirates’ role as a regional hub as well as the BRI’s gateway for Chinese goods.

At the same time, the planned increase in bilateral trade is a sign of China’s desire to find new markets for products negatively affected by the trade war with the United States.

The BRI’s fluidity and lack of a defined framework are consistent with the Chinese practical modus operandi. Nevertheless, the BRI’s loose framework is inducing apprehension in the receiving countries over the economic gains and debt sustainability.

Some observers, who imply that the “debt trap” is a deliberate feature of China’s infrastructure building and lending strategy, point out the case of the Hambantota port in Sri Lanka that ended up as a 99-year concession to the Chinese government due to a lack of loan repayments.

Considering the financial effect of the planned Chinese investments in the area and the status of the UAE economy, it is possible to discount a hidden “debt trap.” However, China’s closer engagement with the Emirates and Gulf countries in general has showcased how the BRI is creating unintended geopolitical ripple effects altering the regional geopolitical equilibrium.

China’s increasing engagement with the United Arab Emirates and Saudi Arabia and the relationship with Iran are not sustainable in the long run. China will be forced, at some point, to take sides among the competing regional powers.

The comprehensive strategic Sino-UAE partnership promoted during Xi’s visit includes deeper military cooperation including high-level exchange of visits and communication between the military’s leaders as well as the joint training of military personnel and other cooperation mechanisms with particular attention to the fight against terrorism.

Beijing’s engagement in the region is characterised by the decades-old Chinese principle of non-interference. The need to protect Chinese interests and citizens abroad, however, is forcing Beijing to express theories that imply a proactive stance instead of the traditional passivity.

At the same time Chinese politicians and academics are aware that conflicts and bursts of sudden violence, which characterise the Middle East, could escalate, damaging not only the regional corridors of the BRI but even mainland China.

In the past, the strategic distrust that characterises China’s relations with the United States and India has not impeded Beijing’s efforts to freeload on the US security umbrella. Now, due to US President Donald Trump’s policy of increasing isolationism and unilateralism, China is taking proactive engagement measures; yet a clear policy or general guidelines have yet to be implemented.

Since the publication of China’s 2016 “Arab Policy Paper,” Beijing has demonstrated a willingness to undertake broader engagement measures, yet the economic support and promised infrastructure investments are not sufficient to shield China from sudden crises. Within the BRI corridor, the Middle East is a testing ground for China’s foreign and defence policies and its principle of non-interference.

While Beijing is taking practical steps to balance its relationships in the Middle East, the United Arab Emirates is also diversifying its strategic partners to reduce financial and geo-political risks. The Emirates is playing the multi-vector policy game that several other countries from Central Asia and the European Union 16+1, the grouping of 16 Central and Eastern European countries and China, are learning to play.

By leveraging its geopolitical position in this way, the United Arab Emirates could balance the concomitant presence of a great power, the influence of a rising power and the aspirations of the other regional powers.