Cashing in on China

While the Middle East and China continue to boom, bridges are being built and friendships formed as businesses from both regions look to cash in on each other’s growth. CEO Middle East examines the rapidly evolving relationship between the world’s most accelerating economies

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By  Andrew Mernin Published  April 13, 2006

|~||~||~|If the Middle East is regarded as the world’s oil refinery, then China is the global manufacturing plant. The US imported over US $40 billion of oil-related products from the region last year, and US $53 billion of electrical machinery from China. However, as the Middle East proves it has more to offer than fuel and China sheds its reputation as a provider of cheap goods, a west to east power shift caused by stronger purchasing ability, is in motion. The acquisition of IBM’s PC division by Chinese company Lenovo in 2005 for US $1.75 billion was indicative of an economic superpower flexing its muscles in the face of western scepticism. And more recently, the takeover of P&O by Dubai Ports World (DPW) for US $6.8 billion, well and truly awakened the West to the ambitions of Middle Eastern businesses buoyed by a booming economy. According to the Economist Intelligence Unit (EIU), both economies will continue to expand over the next few years. Although it will gradually slow down by 2010, China’s GDP growth rate will stand at 6.9%, while the Middle East North Africa (MENA) region will maintain a solid 4.3% growth. This growth is reflected by an increase in export revenue. In 2005, China exported US $243.5 billion worth of merchandise to the US, compared to US $196.7 billion in 2004. The Middle East exported US $62.5 billion of goods in 2005, compared to US $51.2 billion in the previous year. As both regions continue to grow, however, they may eventually risk stepping on each other’s toes, particularly when competing for western investment. If the Middle East wants to develop from being an oil-reliant market and diversify into other sectors such as manufacturing, it will have a major task in grappling western investment from China. According to Jing Ping-Li, chief executive of CEO clubs China, in this battle, China has the upper-hand over the Middle East: “[China] produces the best products, using US technology and management skills, at the best price, due to cheap labour, and opens up businesses to the very large Chinese market.” And as China is a country where GDP per person was US $6270 last year, compared to US $33 840 in Qatar and US $14 550 in Kuwait, cheap labour is something that makes it difficult for the Middle East to compete, at least in the foreseeable future. Ping-Li, an official at the Ministry of Finance of the People’s Republic of China for ten years, is a man well versed in examining the developing relationship between the two regions. He believes they can continue to blossom in harmony and harvest the fruits of each other’s economies, but only if they can fine-tune their varying needs. “The two economies will not hinder each other’s growth, as they are seen by western investors as being totally different. China has cheap, unlimited labour, and a centralised, effective, one-party governing system. It needs joint venture investors to combine high efficiency with cheap labour”, says Ping-Li. “The Middle East’s booming economy is driven by its oil related industries. It needs investors that will bring high-end technologies and services such as specialised financial services, in order to become the new economic centre of the world,” he adds. The fact that China’s trade with the UAE surpassed US $10 billion last year suggests that more and more businesses from the GCC are plotting their course due east instead of taking the well-trodden path to the West. Rather than fighting over footholds in the western market, an inter-eastern relationship is being nurtured as the two economies carry each other forward.||**|||~||~||~|At base level this symbiotic relationship is the yin of manufacturing complemented by the yang of consumerism. While China is the global factory, the Middle East is fast overtaking the US as the world’s biggest consumer. And perhaps nowhere is this relationship better exemplified than in Dubai’s Dragon Mart – the largest collection of Chinese companies outside mainland China. “The demand for Chinese products is increasing. The volume of trade between the UAE and China has been rising at a very impressive rate,” says Abdullah Lootah, general manager of the 150 000 sq m trading centre. “Of the 1500 Chinese businesses we have here, 80% are expanding their companies and workforce, and diversifying the products they sell. We have negotiation rooms with translators to discuss deals between Chinese and other companies and provide free trade lessons for our Chinese tenants to deal with Middle Eastern business needs.” As well as the consumer/manufacturer relationship, there is the provision of Middle Eastern oil to fuel China’s massive growth. Oil demand in China rose by 11% in 2004, consuming 6.6 million barrels a day. The US government’s Energy Information Administration (EIA) estimates that this figure will rise to 7.9 million barrels per day by 2007. With China importing 55.7 million tonnes of Middle Eastern oil in 2004, the EIA predicts that by 2020, the Middle East will provide 69.4% of China’s imported oil. But trade links between the two regions are strengthening in other ways, as inter Chinese and GCC trade exceeded US $30 billion in 2005, with Dubai’s non-oil foreign trade with China reaching US $5.15 billion. Amid the post 9/11, anti-Arab climate in the US, which recently intensified during the DPW saga, many Middle Eastern companies are re-aligning their sights to the Far East and turning their back on the US. In a recent online CNN poll, 63% of 30 000 Americans questioned said they would rather have US-based mafia overseeing their ports, than an Arab-based ports company. This apathy towards business dealings with the Middle East does not exist in China, according to James Magee, chairman of CEO clubs in the UAE, and a regular visitor to China on Chinese networking missions. “China finds this region very safe, secure and stable and it is not influenced by the nonsense that the American media feed its people,” he says. Magee agrees that the base of power is swaying towards the East, “but not gradually. I think it is shifting so fast, that the only people concerned are the US,” he says. With offices spanning the globe, including the US, China, North Africa and the UK, CEO clubs state their mission as “nurturing the international environment” and have been instrumental in encouraging trade links between the Middle East and China. After receiving a number of Chinese delegates at the recent World CEO Forum in Dubai, several Middle Eastern businessmen visited mainland China last month and agreed seven Memorandum’s of Understanding (MOUs) with Chinese companies. One such agreement was made between Dubai-based real estate company, Fkamber Holdings and Dashang Group, China’s largest retail company with 126 stores across the Republic. The agreement will see the Chinese giant open two 400 000 sq m stores in the UAE, at a cost of US $200 million, with the option of opening more sites across the region in the future. ||**|||~||~||~|Tariq Nizami, chief executive of Fkamber Holdings, says: “The Chinese have good products but they need someone to market them. Joining hands and supporting each other will help both the Middle Eastern and Chinese economies. The Chinese want to be our ally.” As well as agreements in oil supplies, construction and furniture retail, one of the MOUs signed will see cutting-edge Chinese technology from the media industry used to advertise on Middle Eastern buildings – proof that oil and cheap goods are not the only bonds between the two regions. Nizami believes that Middle Eastern businesses should re-tune their expansion strategies to harness the opportunities of the Chinese market, which is “going to be huge in the next 15 years,” he says. “The Chinese are more open-minded than the US and are more open to making things happen. The US wants to do things on a one-way street and take business away. Chinese people are investing here.” While he regards the Middle East and Chinese economies as allies in sustaining their mutual growth, he also maintains there are obstacles to overcome in arranging Sino-Arab business dealings. “Chinese people are very tough when it comes to business. They will not sign an agreement unless they are 110% sure, which is good because the relationship will last longer. “The biggest difficulty is the language barrier. As less than 1% of Chinese people speak English, you should try to learn at least some basic Chinese before trying to negotiate with them.” Nizami also believes that Middle Eastern companies could learn a lot from Chinese business practice. “When we were discussing business deals, more of their discussions were on the future than in the present. For example, if I said I could sell 100 units of a product, they would ask how many I could sell tomorrow. In the Middle East, we always look at the needs of today, they are looking at the needs of tomorrow.” One company that has overcome the difficulties and differences between the Middle East and China is the National Bank of Kuwait (NBK), which opened a branch in Shanghai in November 2005. Despite the bureaucratic difficulties encountered by global businesses, the bank became the first Arab financial institution to break into the fastest growing economy in the world. Catering mainly for corporate banking clients, the bank has high hopes for the branch, says an NBK spokesman. “The mutual trading opportunities between both countries was the most attractive factor in moving over to China and our presence there is very welcome. “The trade figures between the GCC and China make impressive reading and were over US $30 billion in 2005. The main drivers are the consumer market and oil but the revenues we expect to generate very much depend on fees from clients and how the branch progresses but we have high hopes,” he adds. As well as the CEO clubs, other authorities are helping to reinforce the increasing trade link between the Middle East and China. Providing a networking platform, the Canton Fair or Chinese Export Commodities Fair, held in Guangzou, China, every April and October hosts over 200 000 traders from 210 countries. Generating US $60 billion every year in combined business turnover at both events, the fair attracts 13 000 Chinese exhibitors at every session and last year drew 5032 businesses from the UAE. Another stepping-stone between the two regions is the Hong Kong Trade Development Council (HKTDC), which encourages Middle Eastern businesses to invest in the former British colony. While such authorities make the passage between the Middle East and China smoother, there are many challenges to be addressed if the two regions are to fully capitalise on each others trading ties. The language barrier aside, awareness of the endless possibilities to be gained from expanding within the East in general, needs to be raised and differences in business practices need to be compromised. If these stumbling blocks are overcome, Middle Eastern CEOs can take their businesses to new heights by harnessing the riches of Chinese growth. And two rapidly growing developing economies can march shoulder to shoulder into a new world order where the East means more to the West than merely oil and cheap goods.||**||

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