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The Middle East @ Work

Construction signs of a new Silk Road

Kai Ryssdal and Scott Tong Mar 14, 2008
The Middle East @ Work

Construction signs of a new Silk Road

Kai Ryssdal and Scott Tong Mar 14, 2008


KAI RYSSDAL: Let’s bring the week to a close down at Dubai Creek. It’s where our series started. On little boats called Abras ferrying migrant workers across the creek. Just upstream from those docks there’s an entirely different kind of commerce going on. Dozens, maybe hundreds, of dhows, traditional Arabian cargo ships, are tied up. They stretch all along the seawall and out into the creek four or five abreast. But you can barely see them behind the mountains of cargo waiting to be loaded.

Ryssdal (at the port): We got printed bed sheets, we’ve got garlic, we’ve got one-ply napkins, we’ve got Palmolive natural shampoos, we’ve got baby wipes, and we got tires. We’ve got more tires than we know what to do with.

Think for a second about where we are on the map. Right inside the Persian Gulf, a perfect distribution point for this part of the world. Iran is less than 100 miles away. All of East Africa is practically right around the corner, which is where these boxes of sandals are going.

Migrant Worker: Somalia, Somalia.

There are, seriously, thousands of those boxes. Stamped “Made in China” on one side, “Dubai For Export” on the other. They’re loaded by migrant workers.

Migrant Worker: From Pakistan.

And swung aboard by crane and cargo net. If you were looking for a snapshot of the Middle East’s place in the global economy, it doesn’t get any better than this. Goods and capital coming in. Goods and capital going out. And increasingly, the U.S. nowhere in sight.

Marketplace’s Scott Tong picks up the story from the Chinese port city of Qingdao.

SCOTT TONG: About twenty times each day, a container ship pulls into Qingdao in northeastern China and the port comes alive.

Workers scramble to anchor the ship, and then cranes unload the containers.

Dubai Ports World, a company owned by Dubai, helps run the port terminal under a partnership with the local government. It holds stakes in two other Chinese ports, and it wants more to cash in on China’s booming cargo traffic, or “throughput,” says the company’s Senior Vice President, Peter Wong.

Peter Wong: The China container throughput is basically one-fourth of the global container throughput. Now the question is very simple: can you ignore a market of this size?

Trade between the Middle East and China shot up ten-fold the past decade.

The name Dubai Ports World sounds familiar to many Americans. Two years back, it tried to buy U.S. port terminals. But Republican Congressman Duncan Hunter and many others slammed the deal as a national security threat.

Duncan Hunter: Let’s let people buy apartments in Chicago or farmland in Iowa, but they can’t own and operate port operations.

Jonas Lindblad manages Gulf money for the private equity firm Jade Invest. He says DP World sold off its U.S. assets, but it wasn’t the only Arab investor to do so.

Jonas Lindblad: Let’s not kid ourselves, the DP World issue was driven primarily by the origin of the investor. That factor actually led to a wave of divestment out of the West. It’s still very disputed as to the magnitude of that divestment, but that it has happened is very clear to me.

Consulting firm McKinsey expects Mideast investors to shift up to a third of their portfolios to Asia, that’s around $250 billion in the next five years. Lindblad considers China less hostile politically, and safer economically.

Lindblad: If you look at the state of the U.S economy, the U.S. is not the country with the largest foreign reserves in the world. That’s the country where we’re sitting now.

Here in Qingdao, Dubai’s DP World has put half a billion dollars into a port expansion. And a sister company plans a high-end property development. The big bet is on Chinese consumers, the young people toting shopping bags along Qingdao’s pedestrian-only shopping strip. By some estimates China’s middle class is 150 million strong and growing.

For all the Gulf money starting to come East, China is sending exports back. No, not just low-end t-shirts and toys. But lately, China brand cars. Domestic Chinese automaker Lifan promotes a poor-man’s Honda Civic in Egypt, Syria and Iran. At $13,000 it’s $5,000 cheaper than the Japanese competition.

Lifan executive Zhu Xiaoman.

Zhu Xiaoman: Compared with big foreign companies our technology is lacking. And so is our quality. But in the Middle East, customers have lower standards for quality than in the U.S. and European markets.

Lifan plans to advertise heavily in the Gulf and other emerging markets; and then in three years graduate to the North American big leagues. Again private equity manager Jonas Lindblad.

Lindblad: I think it makes perfect sense for the Chinese to give that kind of priority to the Middle East. And it fits in with the agenda of the Middle East as well, which is rapid expansion, very focused on cost and price. And that is what the Chinese can deliver.

Big dreams like these have some observers predicting a modern-day Silk Road between the Middle East and the old Far East. A road that runs neither through Europe nor North America.

In Qingdao northeast China, I’m Scott Tong for Marketplace.

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