As China strengthens its diplomatic presence in the Middle East, its companies are rushing to expand in a region that is more welcoming to U.S. rivals than it has been in years.
Several thousand Chinese businesspeople, including the chairman of the Hong Kong stock exchange and the head of the Bank of China, gathered in Riyadh this week to investigate investment opportunities in the energy, mining, infrastructure, manufacturing, and technology sectors, including gaming and artificial intelligence. The first Arab-China Business Conference was held in Saudi Arabia and focused on the kingdom’s intentions to restructure its economy over the coming years. According to the event’s organizers, it attracted the largest audience in its 10-year history.
The two-day conference, which began on Sunday, followed a flurry of activity since Chinese leader Xi Jinping’s December visit to Saudi Arabia and Beijing’s subsequent role in brokering an agreement to restore relations between Saudi Arabia and its major regional rival, Iran. In recent months, numerous high-level delegations have visited Saudi Arabia and the United Arab Emirates.
Henry Zhang, president and managing partner of tech-focused private-equity investor Hermitage Capital, stated that a visit to the monarchy has become obligatory for the Chinese business community.
“If you haven’t been to Saudi Arabia in the past six to twelve months, you’re out of style from both a political and business perspective,” he said on the sidelines of the forum in the Ritz-Carlton convention center.
“I have met men I haven’t seen in seven or eight years here, but not in China. It is absurd. “Everyone is visible here,” he stated.
For Saudi Arabia and its smaller Persian Gulf neighbors, the drive for Chinese business is part of a broader geopolitical pivot. The Gulf states are attempting to strengthen ties with China in order to reduce their reliance on the United States and increase their own influence. U.S. officials have cautioned the Saudis and Emiratis that establishing close security ties with China would harm ties with Washington, but have generally not objected to commercial transactions.
The Saudi Energy Minister, Prince Abdulaziz bin Salman, stated that he disregards criticism of the kingdom’s expanding ties with China and insisted that the kingdom wishes to collaborate with everyone.
“You will pursue opportunities as they arise,” he said. Therefore, it has no political significance.
The Gulf states claim they are attempting to develop an energy relationship with China that will make the Asian country their largest trading partner. After the diplomatic thaw, Chinese businesses of all sizes are examining business opportunities in Saudi Arabia and the rest of the Middle East.
Chinese businesses viewed the Middle East primarily as a market for inexpensive Chinese products and a vital source of energy. This could alter if the ongoing business negotiations result in long-term investment deals, according to executives.
China’s Baoshan Iron & Steel announced last month that it would invest $4 billion to construct a factory with Saudi Aramco and the Saudi sovereign-wealth fund to manufacture steel plates in a new economic zone on the eastern coast of the kingdom. In the upcoming years, Chinese cloud computing companies plan to invest hundreds of millions of dollars in Saudi Arabia.
During Xi’s December visit, Saudi and Chinese companies announced agreements worth more than $50 billion across a variety of industries. The mayor of Beijing and the chief executive officer of Hong Kong, who made a renewed drive in February for Aramco to list its shares in the city, were among those who visited the Gulf. This week’s conference produced $10 billion in additional nonbinding agreements. During the occasion, Saudia also announced a nonstop flight between Riyadh and Beijing.
In the midst of escalating global geopolitical tensions and a slowing domestic economy, Chinese businesses are anxious to explore new frontiers. Middle East and North Africa are becoming increasingly attractive to many.
Edison Gao, group vice president of Saudi conglomerate Ajlan & Bros. based in China, said, “It is one of the few markets that still welcomes Chinese.” Other conference participants reiterated this sentiment, stating that Saudi Arabia is “China-friendly.”
Beijing’s Belt and Road Initiative — China’s massive overseas infrastructure push — aligns with Saudi Arabia’s ambitious plans to diversify its economy away from oil, which have been led by Crown Prince Mohammed bin Salman, the country’s de facto leader.
As the kingdom attempts to attract foreign investment to establish new industries such as automotive manufacturing, logistics, and tourism, it is reaching out to any country prepared to provide capital and, perhaps more importantly, to transfer technology, employ, and train young Saudis.
Chinese venture capitalists who visited Riyadh stated that they saw potential for the region to serve as a launchpad for introducing disruptive technologies to the global market by leveraging the deep pockets and relatively youthful, well-educated, and affluent populations of Persian Gulf states. However, stifling bureaucracy and the absence of extant supply chains remain significant obstacles.
Despite recent reforms, foreign investment in the kingdom remains stubbornly low due to companies’ aversion to a business environment long characterized by red tape and uncertainty. Many Western companies have been deterred by the kingdom’s human-rights record, which is not an issue when attempting to attract Chinese investment.
According to Chinese and Saudi officials, commercial commerce between China and the Arab world grew by more than 30% annually in 2016, reaching $432 billion. One-fourth of that trade was conducted with Saudi Arabia, the largest Arab economy, but Chinese direct investment in the kingdom is far below what Riyadh desires. China is the largest buyer of Saudi Arabia’s crude, and historically, oil has accounted for the majority of bilateral trade.
