Nov 6, 2017 in Economics

United Arab Emirates and Chinese Economies

Introduction

United Arab Emirates and China are two the most developing countries in the world that provide perfect conditions for businesspeople and corporations that want to invest in these countries. They also offer an excellent environment for overseas expansion for companies and opportunities for globalization. Through these opportunities made available the process of globalization, these two countries are able to strengthen their financial systems and open up distribution channels that are more global for their products. China is well known for its manufacturing prowess, and it is undoubtedly the economic leader in that sector. It has opened many of its trade doors and now operates a free trade economy with no barriers. Thus, this attracts many nations around the world that want sell their products to over one billion consumers in this country (Cateora, 2007).

According to many global indicators, United Arab Emirates is among the fastest and wealthiest developing nations of the world due to its huge oil reserves. UAE’s economic boom comes from its attraction of huge foreign investment in its real estate sector moreover its skyline is one of the best in the world. China and UAE are rapidly becoming important growth economies and good targets for foreign investment as well as markets for imports and exports. Further, this paper will expound on other sectors of the economy such as political, social and the technological that make these two countries world economic giants (Forsyth, 2004). 

Sectors of the Economy

Political Sector

The United Arab Emirates government includes seven federations known as Emirates under President, Sheikh Khalifa bin Zayed Al-Nahyan, the ruler of Abu Dhabi. The government has successfully pursued an economic strategy that has provided a business environment that has enhanced economic growth. The stability in the political sector has not been seen in other Middle East countries that have experienced the Arab spring. Therefore, this stability has made UAE a worldwide centre of finance thus attracting huge global companies.

The government encourages foreign investments and is supportive towards open society and free trade. UAE’s legal restrictions are now conforming to the western world, and this encourages more foreign investors. Furthermore, China still pursues communism and has 23 provinces and 5 regions that make up People’s Republic of China. The government has allowed outside world to come into the country and invest on a large scale in many sectors (United Nations). This has enhanced economic and productivity growth in the manufacturing sectors that are rapidly on the rise. Thus, the government’s focus on investing in technology and education has made it much easier for foreign investors to fit in the country.

China also has focused on urbanization that has enabled it to offer low cost products in order to attract the foreign market to invest and buy their products. In addition, China maintains a good diplomatic relationship with many foreign countries and asserts its participation in many international organizations such as Group of 77 (G-77) and World Trade Organization (WTO) (Forsyth, 2004). Although both countries are stable in the political sector, China faces territorial disputes with Taiwan. UAE still finds it difficult to establish a court system that will be able to enforce its ruling due to the large number of foreign population.

Economic Sector

The UAE has a population of three million people and over 60% of the population consists of the labor force. Foreign expatriates make up 87% of the labor force due to the real estate boom currently going on in the country. Moreover, the country’s gross domestic product increased to over 450 billion dirham at a rate of 15% because of the rapid growth of the economy. Revenues from oil and gas and the real estate sectors make up a huge part of the GDP. Its major export partners include Singapore, Thailand, Korea, Japan, and India equaling around $48 worth of goods and services. Furthermore, UAE main import partners are the USA, Japan, Europe, and UK equaling about $30 billion. These imports are mainly animal and food products, manufactured products and transportation equipment (Forsyth, 2004).  

This is largely due to the lack of large-scale manufacturing industry and agricultural sector. Foreign direct investment into UAE is very high with a large percentage in the real estate sector about (20%) and trade (United Nations). Impact of globalization on UAE has enabled it to attract more foreign investors and workers that bring in different expertise, products, and services. In addition, its membership into the World Bank, GCC, WTO, and IMF has made it more attractive for foreign investors. UAE currently has over 50 billion in its official reserves and a trade surplus of over 100 billion dirhams, meaning that it does not need to borrow money from anywhere. Thus, this makes foreign investors to address the country because they do not feel like they are taking a risk of their hard-earned cash. UAE’s currency is the dirham, and over the years it has gained on the dollar (3.67) and euro (3.98) due to its reliance on a fixed exchange rate policy. The country makes a lot of revenues by placing no barriers on imported goods and then later re-exporting about 75% of its imports (United Nations).

On the other hand,China has a GDP of over $6.5 trillion at 9.1% growth, but its 1.3 billion populations eat away it. Compared to UAE’s 3 million of people, China has a large population that needs to be satisfied. The GDP earns about 14.8% from agriculture, 43.4% from investment, 32.2% from services, and 52.9% from industry. China’s economy is still considered being one of the strongest even though 10% of its population lives in poverty. China controls a quarter of the world’s foreign currency reserve meaning that without China, most of the foreign investments would not be so high (United Nations). The major markets in China are in the industry and the agricultural sector especially in big cities like Shanghai and Hong Kong. The agriculture sector produces rice, tea, cotton, peanuts, wheat, potatoes, pork, and fish. In the industry sector, they have textiles and apparel, cement, coal, chemical fertilizers, petroleum, automobiles, iron and steel, and electronics (Glover, 2012).

China’s industrial growth rate is about 31% with about $436.1 billion in exports, compared to $397.4 billion in imports. China’s major current export partners are USA, Germany, South Korea, and Japan. China’s major import partners include Taiwan, USA, Japan, South Korea, and Germany. Further, China’s currency is the yen, and it has maintained a consistent value against the dollar at 100 to 1 and euro at 110 to 1. The reason for its stability against the two currencies is the same as UEA dirham; it uses a fixed exchange rate policy. In addition, China has a trade surplus of over 3 billion and a reserve of about 20 million yen. However, unlike UAE it has borrowed a lot of money from the IMF and World Bank totaling to more than $300 billion. Also, it is a member of WTO and IMF.

Socio-Cultural Sector

UAE citizens copy a lot of their lifestyles from the West because of the increased financial system that they have. The society is very materialistic, and the citizens now purchase expensive cars, houses and other materialistic items (Cateora, 2007). In comparison to UAE, Chinese citizens still maintain their traditional beliefs and values through a social order called confucianism. Chinese citizens are taught at an early age in schools, and it serves almost as their religion. This involves a lot of social harmony and thousands of years old cultural rituals. However, like UAE the younger generation learns more towards the Western culture and is influenced by the American lifestyle (Redinger, 2003). Majority of Chinese population are considered to be atheists while the majority of UAE citizens are Muslims, (Forsyth, 2004). 

Technological Sector

The UAE has a very young exceptionally technological population. The IT sector in UAE fuels most of its development in the hotel and tourism sectors. The penetration of Internet and increase in the number of its users has been consistent over the past few years. The World Bank indicators show that since 2008, the number of Internet users have increased from 63 to 70 in the UAE. While in China, the number has increased from 22 to 38 per 100 of Internet users. Personal computer sales in the UAE have increased over the years moreover it has the highest number of Internet, satellite and mobile users in the Middle East (Cateora, 2007). China has almost 100 million of Internet users plus almost 300 million of mobile phone users. Thus, the introduction of smart phones has enabled many Chinese citizens to use the Internet for many reasons including e-commerce. Unlike UAE, many citizens are poor educated on the issue how to use the Internet properly thus become victims of the Internet fraudsters. The number of internet fraudsters in China is so high that it will adversely affect the IT industry (Glover, 2012). The numbers of victims of Internet fraud are high and soon they will lower the faith that people have in the banking sector and affect the booming e-commerce business (United Nations).  

Most of the UAE citizens feel that they have more freedom, and they can do almost anything, however the female citizens are more restricted than their male counterparts. In China, personal freedom is not as compared to UAE, and the Internet is censored, and most of information the Chinese citizens get access to have to be approved by the government. There are some similarities in the way both countries’ citizens feel when it comes to the power distance. Both countries’ citizens feel that there is a wider gap that separates the powerful in the society and the powerless.

Conclusion

In conclusion, UAE’s free trade policy allows all products and services to be traded globally since there is an increase in opportunities and profitability. However, China’s policy on free trade allows many products and services to be traded but still restricts goods that are locally manufactured from being imported since it can reduce competition from outside countries. Both China and UAE attract huge direct foreign investors but for different reasons. China provides global companies and businespeople with cheap supplies, raw materials and cheap manufacturing labor that allows companies to maximize their profits. The UAE attracts foreign investments because of its famous tourist destination and real estate and construction boom. Also, it is famous for its hospitality. Both these countries have extremely enticing societies that many foreign investors around the globe are focusing since they can increase their globalization prospective. Multinational corporations have entered global markets due to globalization, and this requires them to maintain good practice of social responsibility. When multinational corporations ensure that they conduct their businesses in accordance with global conventions and policies, many developing countries such as UAE and China will emerge in all corners of the globe. Thus, this will bring more foreign investments and lead to transfer of technology and skills, improved business techniques and an overall increase in tax revenues. Employment opportunities will increase, and many developing nations of the world will be at par with the major economic super powers. Chinese and UAE economies have shown that it is possible (Cateora, 2007).

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