Dubai could be influenced by China’s Financial Crisis

The financial world was anxiously observing international markets on Tuesday to notice whether the devaluation of China’s Yuan and slowdown in the Chinese stock market would influence global markets.

The risk Dubai will be influenced is high considering the city-state is strongly linked to the international market as well as China. Being a globalised and international city-state, Dubai is considered as the most cosmopolitan destination on earth, therefore anything that influences international investors will also affect Dubai.

Dubai, one of the United Arab Emirates (UAE) city-states, has succeeded in developing a diverse economy, steering away from its prior dependency on oil and oil exports. Currently, the UAE is China’s largest Middle Eastern market for Chinese goods. Trade activity between the two countries is more than $169 billion. Some financial experts argue that Dubai will be influenced by China’s meltdown when taking into consideration that the UAE seeks to tighten its relations with China, which is its second largest trading partner.

Based on Dubai Chamber’s data, the UAE is home to more than 4000 Chinese companies of which most are involved in the construction sector. More than 350 Chinese companies operate within the trading sector. Furthermore, almost 300,000 Chinese tourists fly to Dubai annually and more than 200,000 Chinese-expats are currently residing in the UAE.

It is a fact that Dubai economy revolves around construction, real estate investments as well as tourism. During the 2008 financial crisis, the emirate’s economy was influenced considerably because a large number of Europeans moved out of the country. However, Dubai’s economy recovered as its relations with Asia tightened. During the past few years, Dubai’s real estate field has attracted many Chinese investors as more and more Chinese-expats choose to live in the emirate.

Dubai is such a globalised destination that whatever happens on an international level is witnessed in the emirate. The devaluation of China’s Yuan has a double-sided effect on Dubai since the amount of funds the emirate will spend on Chinese imports will be less but Dubai’s prices, especially property prices, are viewed as expensive for Chinese investors considering that the US Dollar influences the UAE Dirham.

 On the one hand, analysts argue that increased prices would not influence future investors. This is because Dubai is considered as a low-priced destination in comparison to other destinations like Shanghai, Beijing, Shenzhen and Guangzhou that are much more expensive cities.

 On the other hand, no one can accurately predict how long China’s meltdown will last or the extent this downturn will influence other major markets and economies. China’s stock market experienced a severe drop of 8.5% and 7.6% last Monday and Tuesday respectively.

Other analysts believe that China’s meltdown may be a blessing in disguise and should be viewed as an opportunity to make corrections. They also point out that Dubai’s economy is strong enough to overcome the difficulties a potential recession may bring. This is because Dubai continues to diversify its economy. The emirate’s real estate and banking sectors are strong and healthy and finally, the whole UAE is dedicated to spend on and develop its aviation, logistics as well as tourism sectors.