By Ed Attwood
Why the country on everyone’s minds during 2010 will still be China, says Ed Attwood.
It wasn’t headline news, but an overseas financial group’s plans to launch a $250 million Dubai-focused investment fund certainly caught the eye of local bankers.
Hong Kong-based First Eastern told a British newspaper that it plans to invest in regional business services companies in areas such as shipping and oil, and wanted to support “sustainable businesses connected to Dubai as a trading, logistical and financial centre.”
Executives at Emirates NBD, the Middle East’s largest bank by asset size leapt on the announcement, saying that it could have a dramatic impact in terms of local sentiment, especially given the poor trading patterns the market has witnessed recently.
And the reason for this optimism? More than anything else, it’s the link with China.
It’s going to be another jumbo year for the East Asian giant, which is all set to overtake Japan to become the world’s second biggest economy at some point during 2010.
Two very significant figures outline just how important the powerhouse is going to be from the global perspective this year.
Firstly, the International Monetary Fund believes that China will contribute a whopping 28% of global economic growth in 2010. It is – in many respects - the engine that is dragging the rest of the world out of the financial quicksand.
Secondly, China is the undisputed world leader in foreign exchange reserves, pushing towards $2.5 trillion and rising steadily. No wonder Greece is asking it for a loan. The Financial Times points out that buying $35 billion worth of Greek government bonds would only amount to two weeks’ accumulation of Chinese foreign exchange reserves.
By comparison, Japanese foreign exchange reserves – the next highest – stand at roughly $1 trillion. Over in the US, the figure is a paltry $83 billion or so.
This is rather like the financial equivalent of those Cold War scare stories, where we were told that countless Russian tank divisions were lined up against a few US units and a British officer armed only with strong language and a cup of tea.
China’s interests in the Gulf region have historically been linked to oil; Saudi Arabia is the largest exporter of oil to the country, shipping in around 740,000 barrels a day in the first five months of last year.
Oman and Kuwait also provide substantial slices in what is an impressively diversified portfolio, and the country’s national oil company has been snapping up bids in the Iraqi oilfield auctions.
Another possibility for this year – or at least in the near future – is that Chinese outward foreign direct investment (FDI) might for the first time outweigh inward FDI, which has to be good news for those countries wishing to attract Chinese investment.
That’s why the First Eastern news is of such interest to Dubai. The sum in question is small in Chinese terms, but the influence in terms of potential similar deals – not to mention a much-needed fillip to local investor sentiment – is vital.