Chinese Businesses Look to New Frontiers in Middle East

The two-day conference, which began Sunday, followed a flurry of activity since Chinese leader Xi Jinping visited Saudi Arabia in December and Beijing’s subsequent role in brokering a deal to restore relations between Saudi Arabia and its big rival in the region, Iran. Several high-level delegations have streamed to Saudi Arabia and the United Arab Emirates in recent months.

Henry Zhang, president and managing partner at tech-focused private-equity investor Hermitage Capital, said that it has become a must within the Chinese business community to visit the kingdom.

“If you haven’t been to Saudi for the past six to 12 months, you’re out of fashion both from a political standpoint and from a business standpoint,” he said on the sidelines of the forum in the glittering halls of the Ritz-Carlton convention center.

“I’ve seen guys I haven’t met for seven or eight years here, not in China. It’s crazy. You see everybody here,” he said.

For the Saudis and their smaller Persian Gulf neighbors, the push for Chinese business is part of a larger geopolitical pivot. The Gulf states are trying to bind China closer and, in the process, hedge against their dependence on the U.S. and enhance their own influence. U.S. officials have warned the Saudis and Emiratis that close security relations with China would hurt ties with Washington, but have largely not objected to business dealings.

Saudi Energy Minister Prince Abdulaziz bin Salman said he ignores criticism of growing ties with China and insisted the kingdom wants to work with everybody.

“You will go where opportunity comes your way,” he said. “So there is nothing political about it.”

The Gulf countries say they are trying to build on an energy relationship with China that makes the Asian nation their biggest trading partner. Following the diplomatic opening, Chinese companies large and small are taking a closer look at business opportunities in Saudi Arabia and the rest of the Middle East.

Chinese businesses had mostly regarded the Middle East as a market for cheap Chinese goods and a key source of energy. That could change if the business talks moving forward now turn into long-term investment deals, executives said.

Last month, China’s Baoshan Iron & Steel said it would commit $4 billion to build a factory with national oil company Saudi Aramco and the Saudi sovereign-wealth fund to manufacture steel plates in a new economic zone on the kingdom’s eastern coast. Chinese cloud-computing companies have said they would invest hundreds of millions of dollars in Saudi Arabia in the coming years.

In all, Saudi and Chinese companies announced deals worth more than $50 billion in a range of sectors during Xi’s visit in December. Among those making trips to the Gulf were the mayor of Beijing and the chief executive of Hong Kong, who made a renewed push in February for Aramco to list its shares in the city. This week’s conference resulted in a further $10 billion in nonbinding agreements. Saudi Arabia’s flag carrier Saudia also announced a Riyadh-Beijing direct flight during the event.

Amid rising global geopolitical tension and a slowing economy at home, Chinese companies are eager to tap new frontiers. For many, the Middle East and North Africa look increasingly attractive.

“It’s one of the few markets that’s still welcoming Chinese,” said Edison Gao, China-based group vice president of Saudi conglomerate Ajlan & Bros. That sentiment was echoed by other conference participants who said they found Saudi Arabia to be “China-friendly.”

Chinese companies’ desire to find new international markets for expansion and Beijing’s Belt and Road Initiative—China’s enormous overseas infrastructure push—largely align with Saudi Arabia’s ambitious plans to diversify its economy away from oil, which have been spearheaded by de facto leader Crown Prince Mohammed bin Salman.

As the kingdom tries to attract foreign investment to establish new sectors such as automotive manufacturing, logistics and tourism, it is turning to any country willing to provide capital and, perhaps more importantly, to transfer technology and employ and train young Saudis.

Chinese venture capitalists visiting Riyadh said they saw potential to use the region as a launchpad for introducing disruptive technologies into the global market by tapping Persian Gulf states’ deep pockets and relatively young, well-educated and affluent populations. Stifling bureaucracy and a lack of existing supply chains remain major obstacles, however.

Foreign investment in the kingdom remains stubbornly low as companies balk at a business environment long marked by red tape and uncertainty, despite recent reforms. Many Western companies have also been put off by the kingdom’s human-rights record, something it doesn’t have to contend with when trying to attract Chinese investment.

Commercial trade between China and the Arab world grew more than 30% annually last year, reaching $432 billion, according to Chinese and Saudi officials. A quarter of that trade alone was conducted with Saudi Arabia, the largest Arab economy, but Chinese direct investment into the kingdom lags far behind what Riyadh envisions. China is a top buyer of Saudi Arabia’s oil, and historically that has accounted for a bulk of the trade between the two countries.

Write to Stephen Kalin at [email protected]