China is the future – but not so fast

There are many reasons to invest in China right now. You only had to be at last week’s MENA/China Connections conference staged by HBSC in Dubai to see this — the mood is upbeat, the figures are promising and the opportunities endless.

But is that easy? On the face of it, everyone here should be looking there. China, fuelled by a generation that has pushed economic reform, is set to overtake the US as the world’s biggest trading nation by 2016 amid rising demand from emerging markets. The rise in oil prices coupled with increasing investment in infrastructure in the Middle East provide clear synergies with China. Bilateral trade between the two surged to $190bn in 2010 while Chinese trade to Qatar, Bahrain and Egypt is expected to grow above fourteen percent annually over the next five years.

Official figures from China’s National Bureau of Statistics last week showed economic growth slowed to a lower-than-expected 8.1 percent in the first quarter of 2012, the lowest since the first quarter of 2009. But this is hardly the crisis some commentators are trying to make out. Who do you know (apart from Qatar) that wouldn’t jump at 8.1 percent growth?

It is no surprise then that hundreds of Arab companies are now heading East as fast as they can, trying to make the most of the opportunities, particularly in infrastructure growth in the west of the country. However, our cover star this week, former HSBC chairman David Eldon, sounds an interesting warning note, telling us: “At the moment I think [the biggest challenge] is the knowledge or perhaps the lack of it. I see many otherwise sensible organisations — partly because the board of directors has said you have got to be in China — go to China, arrive and leave their common sense behind them and do some of the most amazing deals they wouldn’t dream of doing anywhere else.”

By “amazing” I think he means “ridiculous.” Without naming and shaming, I know of countless examples of usually well-run and respectable companies that have landed in Beijing and within a week signed a string of partnership agreements without the slightest amount of due diligence. Deals have been inked that tie Arab firms into ten-year agreements with Chinese firms that are completely the wrong fit, making many ventures almost certain to turn sour and end in tears. Eldon is right — now is the time to make the most of the Chinese opportunities. But do it slowly, do it right, and don’t do it just to impress your board of directors back in the Middle East.

And now for the Arabtec mystery….

It’s the greatest mystery in the Dubai Financial Market for decades. How did Arabtec shares manage to jump so high so soon? About twelve percent in the last four weeks; 92 percent in the last three months and 150 percent in the last six months? When quizzed in February, Arabtec CFO Ziad Makzoumi told Arabian Business it was all very simple to explain: “The reason is very obvious; there is a big volume of trading on a daily basis and if there is demand then the price will go up naturally.”

But as Makhzoumi knows,  rumour mill has been working overtime. Depending who you believe, Arabtec is either about to win the $3.2bn contract for Abu Dhabi Airport’s Midfield Terminal Building (MTB). Or be taken over. Well, I think we will soon find out if either are true.  MTB’s CEO James Bennett told us that the contract will be awarded “later this spring.” Meanwhile, Aabar Investments has upped its stake in Arabtec to 5.8 percent.

So in other words, pretty soon we will find out if either or both rumours are true. What happens then to Arabtec shares could be even more interesting.

Anil Bhoyrul is the Editorial Director of Arabian Business.