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China ramps up investment in the Middle East

Biggest contractor ties up with Dubai firm to build luxury resort on the Palm

Image Credit: Abdel Kirm Kallouche/Gulf News Archives
The Dubai Marina. CSCEC Middle East is investing in hoteldevelopment on the Palm Jumeirah.
Gulf News

Dubai: China, the world’s second-biggest economy, is ramping up its presence in the Middle East, as its largest construction firm made its first investment foray into Dubai real estate.

China Estate Construction Engineering Corporation (CSCEC) Middle East, the conglomerate’s regional arm, announced on Tuesday that the company will invest in Skai Holdings’ Dh3.67 billion hotel development on the Palm Jumeirah. It is said to be the company’s first investment in the region in its 61-year history.

Skai Holdings, a Dubai-based real estate investment firm, is currently building the Viceroy Dubai Palm Jumeirah, a luxury resort on the base of The Palm. The project is up for completion in 2016 and is expected to give investors a 12 per cent annual rate of return. Under its investment scheme, buyers can purchase hotel rooms that are then leased back in exchange for 40 per cent of the room revenue.

The Chinese company has created a “special purpose vehicle” called Assas, together with Skai Holdings to reaffirm the partnership.

“This is CSCEC’s first investment in a development project in the Middle East and marks a significant milestone in our growth in the region,” said Yu Tao, president and CEO of CSCEC Middle East.

Foreign capital

China has not been one of the Middle East’s biggest foreign investors. A report by Ernst & Young showed that the region attracted 6.8 per cent, amounting to $58.3 billion (Dh214.14 billion), of total foreign direct investments (FDI) made globally in 2011. Most of the capital came from Western Europe.

Between 2003 and 2011, China accounted for 10 per cent of the FDI value in the Middle East, lesser than Japan’s (26.8 per cent) and India’s (26.3 per cent). However, experts said the trend could soon change as China is looking to diversify its foreign assets.

According to the Dubai Chamber of Commerce and Industry, the trade between China and the UAE has been growing by 35 per cent annually for the last 10 years to reach Dh128.5 billion.

Kabir Mulchandani, CEO of Skai Holdings, said that China is not UAE’s major trade partner. It had recently announced its intention to expand its trade with the Arab countries by 50 per cent in 2014.

“As trade relations between this part of the world and China grow, I expect to see a significant rise, not only in terms of individual Chinese investment but also in the number of companies setting up operations in the region,” Mulchandani told Gulf News.

“I believe Dubai’s strategic location, coupled with its growing real estate sector, means that it will become a vital area of growth of Chinese investment in the future.”

Alternative investments overseas

There has also been a growing number of Chinese looking to invest their money abroad. “China has witnessed a surge in the number of individuals turning to alternative investments overseas as they look to preserve their wealth in the light of its fast-changing economy,” said Tao.

“Dubai’s strategic location between Asia, Europe and Africa, together with its burgeoning real estate sector is set to become a vital area of growth for Chinese investment,” he added.

CSCEC is the largest construction, building work contractor and real estate conglomerate in China. In 2012, it was included in the top construction firms in the Global Top 500 by Fortune. It has won contracts for a number of projects in the GCC, including the Palm Jumeirah Garden Villa Projects, Emirates Road Extension and Shaikh Khalifa Specialist Hospital, among others.