UAE financial ties with China were years in the making

The UAE Central Bank signed in 2012 a currency swap agreement worth 35 billion yuan, a measure to boost trade and investment.

The UAE has had a long journey in embracing the yuan in all its forms, despite the dirham being pegged to the dollar.

In 2012, Emirates NBD became the first bank in the Middle East and North Africa to issue a yuan "dim sum" bond.

The UAE Central Bank also signed in 2012 a currency swap agreement worth 35 billion yuan (Dh20.71bn), a measure to boost trade and investment.

“Usually countries build the RMB [yuan] relationship by first agreeing to set up swap agreements with the People’s Bank of China [PBOC]. This builds confidence in the commercial relationship between the two countries and ensures increasing liquidity,” says Astrid Thorsen, the head of Swift’s Business Intelligence Solutions. “In most cases and based on our Swift statistics, that is what we are seeing, the emergence of additional payment flows. Usually it’s a really good start to establish confidence.”

“As the commercial relationship gets stronger, we typically see the emergence of a Memorandum of Understanding (MoU), which often is the precursor to an appointment by PBOC of a Chinese institution to become a clearer in the new country.”

The Abu Dhabi Investment Authority received in 2008 a Qualified Foreign Institutional Investor (QFII) licence, with a quota of $1bn. The QFII allows foreign institutions to invest in yuan-denominated securities.

Meanwhile, the Agricultural Bank of China, the country’s third-largest lender by assets, last year listed a 1bn yuan bond on Nasdaq Dubai, becoming the first Chinese issuer to list a bond in the Middle East and North Africa region.

UAE banks have also been expanding in China, opening branches and representative offices on the mainland and Hong Kong, helping to boost dealings in yuan. Union National Bank was the first UAE lender to enter mainland China in 2007, opening a representative office in Shanghai.

National Bank of Abu Dhabi (NBAD) inaugurated its representative office in Shanghai in 2012, complementing its Hong Kong branch, and Emirates NBD opened its representative office in Beijing, the first office for a Middle Eastern bank in the Chinese capital.

FGB also aims to open a representative office on the mainland of China.

Chinese banks have also left their mark in the UAE. Industrial and Commercial Bank of China, the country’s largest lender, has had an office in the Dubai International Financial Centre since 2008.

DIFC is also home to branches of the Agricultural Bank of China, Bank of China Middle East, and China Construction Bank. China Development Bank plans to open a branch in Dubai, following in the footsteps of the other lenders.

Follow The National's Business section on Twitter