As the UAE and China come closer in all aspects of trade and diplomacy, the Emirate of Sharjah has an opportunity to become an offshore partner for China's financial services sector.
The UAE has developed closer ties with China over the last decade, and Sharjah is no exception. As with the other Emirates, Sharjah brings its own unique advantages and opportunities for China.
The UAE made a strong push for closer relations in July with a high-profile meeting in China, UAE-China Economic Forum, where both sides signed 16 MoUs on a wide range of subjects. Representatives from the UAE and China came to agreements to engage in further cooperation on security, agriculture, AI, nuclear power, and education, including a plan to bring Chinese-language teaching to the UAE.
“The UAE is home to the largest Chinese community in the Middle East. More than 1.1 million tourists came from China last year to take advantage of the mutual easy visa schemes, with 150 direct flights between the two countries. Conversely, Emirati businessmen and entrepreneurs are investing in China, exploring opportunities for further cooperation and to build effective partnerships,” Dubai-based Gulf News wrote in an editorial hailing the meeting.
The meeting came in the larger context of China building its One Belt, One Road project, a system of land and maritime links across Eurasia and Africa that will facilitate trade and commerce between China and the rest of the world. Situated at the center of Europe, Africa, and Asia, the UAE and Sharjah play a crucial role in turning China’s aspirations into reality. Although there have been some direct links between the two, Beijing and the Ruler of Sharjah have a nearly blank slate to work with when forging their new relationship. So far, the relationship between the two has taken the form of a yuan-denominated bond issuance offered by Sharjah in 2018. That initial move could help shape future trends in the burgeoning relationship between the two.
Unlike its fellow Emirates, Sharjah does not have a large population or an interest in grandiose building projects. Rather, Sharjah has made a name for itself as a more quiet force internationally. But that sober attitude could translate to trust as a financial hub. The RMB2-billion (USD316-million) “Panda Bond” issuance is an example of that potential already coming online. So what is a Panda Bond? Put simply, these bonds let foreign companies or governments profit from the Chinese domestic financial services market while lending a credible name to a financial product based on the Chinese yuan. Daimler in Germany and the government of Hungary are some of the other issuers of such bonds, which provide an opportunity for China and its international partners to profit together.
“Panda bonds are renminbi-denominated notes sold by a non-Chinese issuer in onshore China. For foreign investors, the Panda market allows onshore, renminbi exposure through companies that investors already know and are comfortable with,” according to an HSBC-sponsored Euromoney article. “As the notes are sold domestically in China, they naturally attract primarily Chinese investors. But recently the investor base for the notes has become as internationalized as the issuers themselves.” Lacking a financial services sector of the likes of Wall Street or the City of London, China is coming up with innovative ways to build one of its own, even though its own currency market is not as liberalized as its counterparts in the US or Europe. Keeping tight control over its currency has helped China boost its exports; however, a lack of a liberalized financial services industry also holds the country back from using its currency as an instrument of diplomacy. The One Belt, One Road initiative will take years to complete, but Sharjah’s reputation for quiet competence could offer China an avenue to participate more effectively in international currency markets.