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Next Up: Abu Dhabi; China’s Maritime Silk Road Breaks Into The Middle East

The next stop on China’s “21st Century Maritime Silk Road” has been chosen: Abu Dhabi. At the end of last month, China’s Jiangsu province signed a deal with the UAE’s Abu Dhabi Ports to develop a $300 million manufacturing operation in the free trade zone of Khalifa Port.

The deal will see China getting 2.2 million square meters of space in the FTZ for Chinese companies to do what they do best: make stuff. Five Chinese firms, who engage in a variety of sectors, including clean energy, mining, construction materials, steel, and environmental clean up technologies, have already signed on to the endeavor.

According to Seatrade Maritime, the UAE handles 60% of China’s exports throughout the region, with a trade value in the ballpark of $70 billion each year.

This deal comes in the wake of another which occurred at the end of last year which saw China’s COSCO shipping winning the rights to develop and operate a new container terminal at Khalifa Port, the second busiest port in the UAE to Dubai, for the next 35 years at a cost of $738 million.

While big ocean shipping companies owning and/or operating terminals and ports on foreign terrain is a standard operating procedure for the industry — Denmark’s Maersk line is running terminals in 36 countries, Switzerland’s Mediterranean Shipping Co. is operating in 22 countries, and Dubai Ports World is in 40 countries, for example — these are generally mono-faceted, shipping-centric operations. Where China is different is that they often don’t only come in and open a new port but invest in an adjoining free trade/special economic zone and other development initiatives as well — which they ideally stock full of Chinese companies. With China, countries get the entire development package.

Jiangsu province’s recent investment in the Khalifa Free Trade Zone and COSCO’s commitment to the Khalifa Port is all a part of China’s Maritime Silk Road project — the watery half of the broader Belt and Road Initiative — which seeks to establish an enhanced and interconnected network of Chinese-run ports and manufacturing zones along the route from the east coast of China to Europe. This is an endeavor that is coming together very quickly, with China pumping over $46.6 billion into new/reinvigorated port projects in countries such as Indonesia, Myanmar, Australia, Sri Lanka, Tanzania, Djibouti, Greece, and now the UAE.

These Maritime Silk Road investments benefit China in two main ways: 1) China is able to invest enough money and resources to make them viable economic entities which help to extend the country’s commercial reach throughout a vast part of the world. 2) It further enmeshes China into the political and economic fabric of Eurasia. While we see the bright glitter of billions of dollars flashing by today, these projects mean that China is going to have a strong foothold in these countries for the long-term: China is entering spaces today that they will occupy for decades, establishing an entirely new geo-political paradigm in the process. And as Sri Lanka recently discovered, China is a houseguest that is very hard to get rid of.

While the BRI is ultimately a top-down, Beijing-devised expansionist strategy, it is often individual provinces that are going out into the field and getting their hands dirty. Regardless of how it appears from the outside, the Communist Part of China is not a monolithic organization — various levels of government and factions maintain huge amounts of power and decision-making ability. As far as Belt and Road development is concerned, Jiangsu province has been one of the most active players, with key overland and maritime ports and other big investments being laid down throughout the various routes. This new $300 million Khalifa deal fits right into a portfolio which includes such massive investments as a $600 million (promised) manufacturing operation in Kazakhstan’s Khorgos East Gate SEZ.

Why this is good for Abu Dhabi?

It is obvious why this port / FTZ deal is good for China, but what does Abu Dhabi get out of it?

In brief, they get a port and a section of a key FTZ built, funded, and started up for them by China, as well as $300 million on top of it. Even if Abu Dhabi doesn’t directly economically benefit from these projects beyond the initial investment capital, they can serve as catalysts for other projects to grow up around them (i.e. factories need local suppliers, workers, etc).

The idea behind these places is for them to become multinational hubs of transport, production, and commerce. Khalifa port and FTZ is a very big place that is designed to bring in investment from many different countries from around the world — not just China — and the land area allotted to the Jiangsu province operation amounts to just 2.2% of the available land in the FTZ. However, China is often a key part of these plans, as the country has the political will and capital to come in and get the ball rolling. Such new transportation and manufacturing capacity creates new possibilities — and such new possibilities is precisely what oil-reliant Abu Dhabi is looking for.

The UAE has the world’s fifth-largest oil reserves, and Abu Dhabi controls 95% of them. This oil supply has allowed Abu Dhabi to prosper; however, the emirate sees the writing on the wall: either their oil stores are eventually going to dry up or the world is going to start losing interest in them, relegating fossil fuels to an archaic, niche energy source as we theoretically transition to other sources. To these ends, Abu Dhabi has set itself on a trajectory to diversify its economy away from oil-reliance. Dubbed “Abu Dhabi Economic Vision 2030,” the emirate has outlined how it’s going to build a “sustainable economy” by bolstering its tourism, manufacturing, health care, petrochemical, financial services, and renewable energy sectors.

The 100-square-kilometer Khalifa Port FTZ is a major part of this diversification program. Launched earlier this year and scheduled for completion in 2030, the port/FTZ combo is expected to eventually be responsible for 15% of Abu Dhabi’s non-oil GDP.

Abu Dhabi seems to be looking over the border at their neighboring emirate Dubai for inspiration here. Not being blessed — or cursed — with large reserves of oil, Dubai set out to develop their economy in a different direction. Rather than erecting thickets of oil wells they erected gantry cranes, factories, airports, shopping malls, and skyscrapers; rather than surviving off the whims of the global energy market, they gunned for tourism, FDI, technological innovation, logistics, real estate, and financial services; rather than trying to build their economy from the inside out, they invited the outside world to come in. Along the way, they created a global epicenter for trade and one of the most international cities on the planet — 85% of the population of Dubai are expats.

What we see in Dubai today was developed in synergy with the Jebel Ali Free Zone (JAFZA) — the world’s largest functioning free economic zone. JAFZA was built from scratch in accordance with a top-down plan, and is now the model for other such zones that are sprouting up along the various routes of the New Silk Road. This place that hardly even existed 30 years ago now contains over 7,000 international companies — including 100 of the Fortune 500 firms — employs nearly 150,000 people, and is responsible for roughly 21% of Dubai’s GDP ($87.6 billion in 2015), including $12.6 billion worth of trade with China.

Clearly, Abu Dhabi wants to get itself some of that.
Source: Forbes

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