UAE-China Trade & Investment Profile

The UAE is a pivotal partner to China in its trade, investment, and commercial engagements within the Middle East, particularly the Arab Gulf region.

By Giulia Interesse

The United Arab Emirates (UAE) has emerged as a pivotal partner in China’s trade and commercial engagements within the Middle East, particularly the Arab Gulf region. This strategic alliance is integral to China’s expansive Belt and Road Initiative (BRI), which the UAE supports robustly. Additionally, the UAE plays a crucial role in advancing China’s foreign policy objectives, particularly enhancing South-South cooperation among developing nations.

Diplomatic foundations

UAE and China established diplomatic relations in 1984, laying the groundwork for a strong bilateral relationship.

The UAE maintains a consulate general in Hong Kong and an embassy in Beijing while China has an embassy in Abu Dhabi and a consulate general in Dubai. The relationship was significantly elevated in 2018 when Chinese President Xi Jinping visited the UAE, marking the first visit by a Chinese head of state to the UAE in 29 years. This visit upgraded the UAE-China bilateral relationship to a ‘comprehensive strategic partnership’, characterized by frequent high-level exchanges and strengthened political mutual trust.

As the two nations mark the 40th anniversary of their diplomatic ties in 2024, the multifaceted partnership continues to evolve. The UAE’s impending membership in the BRICS group and its hosting of the UN climate change conference in Dubai showcases its commitment to multilateralism and constructive dialogue, particularly among developing and emerging economies.

Trade and investment growth

In recent years, economic and trade cooperation between the UAE and China has grown substantially. China has consistently been the UAE’s leading trade partner. By 2023, bilateral trade between the two nations had reached around US$95 billion, with non-oil trade alone witnessing an impressive annual growth rate of 18 percent in 2022, culminating in a non-oil trade exchange exceeding US$72 billion. This exponential growth highlights the deepening economic engagement between the two nations.

The UAE is China’s second-largest economic partner in the Middle East, following Saudi Arabia. In 2023, the UAE’s imports from China were valued at US$55.68 billion, while its exports to China amounted to US$39.31 billion. The UAE’s primary exports to China include mineral fuels, oils, distillation products, plastics, organic chemicals, copper, and precious stones.

Despite the global economic slowdown in 2023, trade between China and the UAE reached nearly US$100 billion, underscoring the UAE’s position as China’s second-largest trading partner. The Emirates serves as a major market for Chinese exports and ranks as the third-largest market for Chinese engineering projects in the Arab world. The privileged bilateral cooperation spans multiple sectors, involving over 8,000 Chinese companies. – Zhang Yiming, Ambassador of the People’s Republic of China to the UAE, China-Arab Entrepreneurs Summit 2024

Investment relations between the UAE and China are equally robust. The two countries are forging a comprehensive bilateral investment partnership that spans various sectors, including logistics, transportation, industry, technology, artificial intelligence, renewable energy, and food security. Notably, China’s COSCO Shipping Limited has designated Khalifa Port in Abu Dhabi as the center for its operations in the Middle East, aiming to elevate its annual capacity to 6 million TEUs, making it the largest container freighter terminal in the region. This initiative not only enhances the port’s attractiveness but also aims to draw increased investments from East Asia.

The energy sector stands out as a focal point of collaboration, exemplified by multiple agreements with Chinese nuclear energy organizations. Between 2012 and 2022, Chinese foreign direct investment (FDI) in the UAE reached US$11.88 billion. China is the third largest investor in the UAE, with its FDI constituting five percent of the UAE’s total global FDI inflows by the end of 2020.

Legal reforms in the UAE have further attracted Chinese investments. A significant amendment implemented in September 2020 eliminated the requirement for companies outside of Emirates’ free zones to have most of their shares owned by UAE citizens or their companies. Meanwhile, UAE sovereign wealth funds are increasingly eyeing investment opportunities in Chinese companies, aligning with the UAE’s efforts to diversify its economy beyond traditional sectors such as oil and gas.

Collaborative ventures and agreements

The UAE and China have pursued numerous joint ventures and projects, particularly in free trade zones and industrial projects. The China-UAE Industrial Capacity Cooperation Demonstration Zone in KIZAD, launched in 2019, has attracted investments from around 20 Chinese enterprises totaling over US$1.6 billion. The Belt and Road Exchange in Abu Dhabi, established in 2018, supports financing for Chinese businesses and international corporations.

Financial collaborations include agreements between the Abu Dhabi Global Market (ADGM) and the Hong Kong Securities and Exchange, aimed at promoting financial services innovation. Additionally, the Dubai International Financial Center (DIFC) signed a memorandum of understanding (MoU) with China’s Jiaozi FinTech Dreamworks to advance FinTech collaboration under the BRI, focusing on blockchain, artificial intelligence, big data, and cloud computing.

Legal and tax frameworks

The bilateral investment agreement (BIT) signed between UAE and China in 1993 and the double taxation avoidance agreement (DTA) signed in the same year provide a robust legal framework fostering investment and trade.

The BIT ensures investment protection and establishes dispute resolution mechanisms, while the DTA prevents companies and individuals from being taxed on the same income in both countries. These agreements create a conducive business environment, promoting collaborative economic endeavors and reducing the overall tax burden on investors.

BIT

Key provisions of the BIT include:

• Investment protection: The BIT safeguards investments against expropriation, nationalization, and discriminatory treatment, ensuring investor security.
• Dispute resolution: Article 9 outlines mechanisms for resolving conflicts through negotiation, mediation, or arbitration.
• Fund transfers: The BIT requires the Chinese government to provide necessary foreign exchange if a UAE investor lacks adequate resources for the transfer.

DTA regime

In China, it covers:

• Individual income tax (IIT)
• Corporate income tax (CIT) for foreign-invested and foreign enterprises
• Local income tax

In the UAE, it covers:

• Income tax
• Corporation tax
• Surcharge

Permanent Establishment:

Defined in Article 5 as a fixed place of business through which a business is partly or wholly conducted. This includes:

• Places of management
• Branches, offices, factories, workshops
• Mines, oil or gas wells, quarries, or other extraction sites
• Construction projects and service provision lasting over 24 months

Withholding tax rates:

• Dividends: 0-7 percent, with 0 percent applicable if the recipient is the government or a government-owned entity, or if a company in one state owns at least 20 percent of the shares in the other state.
• Interest: Up to 7 percent
• Royalties: 10 percent

Capital gains tax:

• Taxed by the state where the property is located or where the business property of a permanent establishment is situated.
• Other property gains may only be taxed by the resident state.

Double taxation relief:

• Both countries use the credit method, allowing residents to claim credit for taxes paid in the other country, mitigating the impact of double taxation and reducing the overall tax burden.

Participation in the Belt and Road Initiative

The UAE’s strategic location at the crossroads of Europe and Asia makes it a crucial player in the BRI. The country is well-positioned to lead the BRI nations in the Gulf, leveraging its advanced infrastructure, including ports and airports. Dubai’s DBX Airport has been the busiest airport in the world by the number of international passengers since 2014. The Port of Jebel Ali, with more than 14 million TEUs handled in 2019, is the busiest container port in the Gulf area and the third-busiest international port outside of China.

The Khalifa Port in Abu Dhabi, part of the larger Khalifa Industrial Zone Abu Dhabi (KIZAD), serves as a significant hub for Chinese investments. The COSCO Shipping Ports Abu Dhabi Terminal, part of Khalifa Port, serves as the regional center for China’s global network of ports. The infrastructure for the movement of goods through the UAE’s seaports, along with its industrial and commercial free zones, provides a strong foundation for the UAE’s role in the BRI.

Beyond facilitating the circulation of goods, the UAE’s participation in the BRI extends to education, science, technology, culture, tourism, space exploration, and artificial intelligence. The Dubai International Financial Center (DIFC) and Jiaozi FinTech Dreamworks’ MoU in 2020 is an example of this broader engagement, focusing on advancing FinTech collaboration and creating reciprocal advantages for both nations.

Active BRI projects in the UAE

One of the earliest core initiatives announced after the UAE joined the BRI was the Dubai Traders Market, located near the Dubai Expo 2020 site. Developed by Dubai port operator DP World in a joint venture with the Zhejiang China Commodity City Group (CCC Group), the market includes the Yiwu Market UAE, covering over 200,000 square meters with showrooms and bonded warehouses. This project aims to give merchants and enterprises access to wholesale pricing with reduced supply chain expenses, aligning the UAE with BRI goals.

Additionally, the China-UAE Industrial Capacity Cooperation Demonstration Zone in KIZAD has received significant Chinese investments, playing a key role in attracting more Chinese companies to set up businesses in the UAE. This project includes a total of 80,000 square meters of infrastructure within a 220,000 square meter footprint and is set to develop a 2.2 square kilometer manufacturing area under a 50-year Abu Dhabi Ports Cooperation Agreement.

Conclusion

The dynamic and evolving UAE-China bilateral trade and commercial relations underscore their shared commitment to economic prosperity and global cooperation. The UAE’s proactive engagement in the BRI and its comprehensive strategic partnership with China highlight its significant position in fostering global trade and investment. As both nations continue to deepen their ties across various sectors, their collaboration serves as a valuable model for developing countries seeking to chart an independent path toward modernization and development.

A version of this article was originally published on our sister platform, China Briefing: Why the UAE is a Key Economic Partner for China and its BRI Ambitions

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