Analysis Economy Chinese investors target Middle East for growth By Andy Sambidge January 4, 2023 Saudi Press Agency via Reuters Saudi King Salman bin Abdulaziz Al Saud welcomes Chinese President Xi Jinping in Riyadh last December 82% of Chinese firms surveyed show interest in region‘High market potential’ is main draw6,000 Chinese companies operate in UAE More than three-quarters of Chinese businesses are looking to expand their presence in Middle East markets or enter them. The UAE and Saudi Arabia were named as the top two destinations for Chinese investment over the next three to five years. According to a new survey – part of the Report on Chinese Investors’ Confidence in the Middle East 2022, jointly authored by the Shanghai Institute of International Studies and PwC China – 82 percent of 120 firms polled indicated intent to expand their presence in the region or enter it. Of these, 45 percent said they are developing business plans with another 37 percent saying they already have detailed business plans. 10 events that shaped the Gulf’s economies in 2022China the ‘wild card’ for Dubai property sales, says DamacChina signed ‘$50bn of deals’ with Gulf nations in three days A large majority of Chinese businesses (75 percent) cited high market potential as the main reason why they chose to invest in the region, while strong customer purchasing power was cited by 36 percent. Huang Zhen, founder of iMile, a cross-border e-commerce logistics service founded by Chinese entrepreneurs and headquartered in Dubai, said: “Consumers in the Middle East have strong purchasing power, with the local government and the general public exhibiting a relatively friendly attitude towards China. “The manufacturing industry that is responsible for supporting the lives of local residents is relatively nascent and as a logistics company we definitely see a window of opportunity there.” Since 2015 Chinese e-commerce companies Jollychic and Shein have entered the Middle East market with great success. The survey revealed that two thirds of Chinese investors achieved strong profitability in the Middle East, while about 20 percent said they were in the red, mostly involved in infrastructure construction. PwC added that at a time when globalisation is undergoing a turbulent transformation, the Middle East is becoming increasingly important in China’s outbound investment game plan. In the context of the ongoing events in Ukraine, the Middle East is becoming a more prominent link in the global economic supply chain. At the same time, the UAE and Saudi Arabia have actively promoted economic reforms and diversification of local industries. “The Middle East presents both opportunities and challenges and is a valuable hotspot for foreign investors to explore and expand their investment,” the report said. “We believe that although the road to globalisation is full of bumps and winding turns, the future still looks bright for investors.” The survey results follow the announcement that China signed investment deals worth an estimated $50 billion with Gulf nations during President Xi Jinping’s three-day visit to Saudi Arabia last month. Reuters/Imad CreidiQatarEnergy CEO and Qatar’s Minister of Energy Saad al-Kaabi attends a signing ceremony with Sinopec last November. Picture: Reuters/Imad Creidi Asia House, an independent think tank and advisory service, said GCC trade with emerging Asia – which refers to a list of 34 Asian economies, including China – is expected to surpass the region’s trade with advanced economies by 2028 if current growth rates are maintained. GCC-China trade is driving the growth and has doubled between 2010 and 2021. Freddie Neve, senior Middle East associate at Asia House, said: “GCC-China trade has never been higher and 2021 was the first time it had surpassed the GCC’s trade with the US and Europe area combined.” The PwC survey revealed 52 percent of Chinese companies have established regional headquarters in the Middle East, with 82 percent picking the UAE as their base, followed by Saudi Arabia and Kuwait (both 5 percent) and Egypt, Bahrain and Qatar (all 2 percent). More Chinese investors are also starting to look to Qatar and Bahrain. Data from the General Administration of Customs shows that China’s trade with 10 Middle Eastern countries, including the UAE, Israel, Saudi Arabia, Iraq, Egypt, Kuwait, Qatar, Oman, Jordan and Bahrain, reached $295 billion in 2021, accounting for nearly 5 percent of China’s total trade for the year. The top three Middle East countries in terms of trade volume were Saudi Arabia, the UAE and Oman. Currently, China is the UAE’s largest trade partner, while the UAE is China’s top export destination and the second largest trade partner in the region. Saudi Arabia has long been China’s top supplier of crude oil and the top trading partner in west Asia and Africa, while remaining an important market for China in terms of construction contracts, ranking first in the Arab region for a long time. China mainly imports crude oil and petrochemical products from major oil-producing countries such as the UAE, Saudi Arabia, Egypt, Qatar, Oman and Kuwait – and mainly exports electro-mechanical, textile and metal products. Over 6,000 Chinese companies operate in the UAE, with China’s four largest state-owned banks establishing branches in Dubai. Iraq, Oman, Kuwait and Egypt are also popular destinations, with more than 40 percent of Chinese companies choosing to operate there. In recent years, investment in the Middle East market has diversified, expanding from energy and infrastructure to finance, logistics, Internet, retail and consumer and bio-pharmaceutical sectors. Tencent, as an example, set up its first cloud computing data centre in the Mena region in Bahrain in 2021 while Alibaba partnered with the Saudi Telecom Group and eWTP Arabia for Technical Innovation to set up a company that specialises in cloud computing services and solutions earlier this year. However, challenges persist for Chinese interests in the region. The survey revealed that 76 percent of companies consider geopolitical risk as an important factor affecting the growth of the Middle East market, while 71 percent pointed to the stability of the tax environment as having a “significant impact” and the lack of high-end local talent was also highlighted.