EY releases the 11th issue of China Go Abroad

EY today releases the 11th issue of China Go Abroad — Cross the millennia-old trade route: New perspectives on Arab investment. The report looks into the connectivity between China and the League of Arab States (LAS), offering in-depth analysis and summarizing the opportunities, challenges and strategies of Chinese enterprises in finance, energy, infrastructure construction and consumer products areas in LAS.

Data shows a significant growth in bilateral trade since the signing of “Declaration of Action on China-Arab States Cooperation under the Belt and Road Initiative” in 2018. The total value of goods trade has increased from USD244.2 billion in 2018 to USD398.1 billion in 2023, with a CAGR of 10.3%, surpassing China’s overall growth rate of 6.7%¹ during the same period. China’s outward direct investment (ODI) to LAS countries reached USD2.6 billion in 2023, a 30% leap year-on-year, with increasingly diversified investment covering finance, energy, infrastructure, consumer products, etc. In addition, Saudi Arabia, the United Arab Emirates (UAE) and Egypt officially joined the BRICS organization this January, indicating promising prospects for continuous rapid growth in trade and investment between China and the LAS.

As of present, China has signed Belt and Road cooperation agreements with all 22 member countries of LAS and established comprehensive strategic partnerships or strategic partnerships with 14 member countries. Within the framework of the Belt and Road Initiative, more than 200 mega projects have been implemented, benefiting about two billion population, significantly facilitating the regional flow of commodities, capital, technology and talent². Loletta Chow, Global Leader of EY China Overseas Investment Network (COIN), EY Belt and Road Task Force Leader, says, “Against the backdrop of an increasingly complex international landscape, China-Arab relations have ushered in a new era. The two sides focus on economic development, centered on mutual benefit and driven by innovation, expanding unprecedented space for cooperation. In the future, China and LAS will continue to leverage platforms such as the China-Arab States Cooperation Forum and the China-Arab States Summit to further enhance strategic partnership, accelerate cooperation in various fields and jointly promote a new inclusive and equal multilateral framework.”

Chinese financial institutions accelerate their expansion to help Chinese enterprises go abroad

The LAS financial markets, bolstered by their advantageous geographical positioning and abundant oil resources, exhibit significant development potential. Notably, the financial sectors in Saudi Arabia and the UAE have witnessed rapid growth. For example, in the Forbes 2024 Middle East “30 Most Valuable Banks” list, Saudi Arabia secured the top two spots, with a total of 10 banks listed³. In 2023, UAE IPO activities raised USD5.5 billion, accounting for 54% of the total amount of IPOs in the Gulf Cooperation Council (GCC) countries, leading in the region. In recent years, with deepening China-Arab relations, both Saudi Arabia and the UAE have encouraged foreign capital in the financial sector as part of their economic transformation efforts. This has created opportunities for Chinese enterprises to expand their financing channels and accelerate their presence in LAS market. Exploiting the Arab financial market has become one of the important strategic choices for Chinese financial institutions.

The report analyzes the characteristics of Islamic finance, the financial landscape of Saudi Arabia and the UAE, their unique financial culture and regulatory policies. Chinese financial institutions—including banks, insurance companies, brokerage firms and asset management companies—are accelerating their development in these markets. Currently, China’s top five banks have set up branches and service points in the region. Financial cooperation between Chinese and LAS central banks and stock exchanges is also deepening, including the promotion of bilateral currency swaps and cross-border investment.

Alex Jiang, Global Financial Services Leader of EY China Overseas Investment Network (COIN), says, “Financial cooperation serves as a pivotal driver that significantly enhances China-LAS relations. By accelerating their expansion into LAS market, Chinese financial institutions not only enhance their international competitiveness, but also provide diversified financing options for Chinese enterprises to quickly integrate into the local economy.”

Energy transition has accelerated with an increasing potential of clean energy 

The report shows that between 2018 and 2023, the investment and construction contracts of Chinese enterprises in LAS countries totaled USD52.6 billion⁴, of which the oil and gas industry accounted for 74%, amounting to about USD41 billion, concentrated in Saudi Arabia, the UAE and Iraq. Regarding the current market environment and strategic position, the LAS countries still continue to increase investment in the oil and gas industry, but are gradually reducing their dependence on oil revenues and turning to clean energy and other fields. At present, based on the traditional advantage in oil and gas in the LAS countries, Chinese enterprises are actively developing emerging fields such as renewable energy, energy storage, nuclear energy and hydrogen energy.

Sam Shiao, EY China⁵ Strategy & Transactions Services Partner, says, “Arab League countries will continue to promote efficient, clean and low-carbon utilization of hydrocarbon resources while accelerating the pace of energy transition. In the future, it is anticipated that China and Arab countries will deepen cooperation under the framework of the “Green Silk Road Initiative" and the "Eight Major Joint Actions for China-Arab Practical Cooperation." The two sides will focus on expanding investment and cooperation opportunities in key areas such as oil and gas products, renewable energy, carbon capture, utilization and storage (CCUS) and green hydrogen.”

Dual drive of traditional and digital infrastructures enhances comprehensive competitiveness

In recent years, LAS countries such as Saudi Arabia, the UAE, Egypt, Qatar have rolled out medium- to long-term transformation strategies, accelerating infrastructure development and digitalization upgrades to comprehensively enhance national competitiveness. For example, the Riyadh Metro Saudi Arabia is expanding, as one of the world’s largest urban metro projects under construction. The construction of the Saudi-China Special Economic Zone is expected to be launched in 2025, covering logistics and light industry park, international trade park and residential support areas. Meanwhile, the Middle East digital economy market is expected to reach USD780 billion by 2030, with an estimated CAGR of 20%⁶. These developments present opportunities for Chinese infrastructure companies in the region. 

Cong Zhang, EY China⁵ Business Consulting and Tax Service Partner, Saudi Arabia Markets Leader of China Outbound Tax COE (Center of Excellence), says, “Many LAS countries are undergoing economic transitions and have huge demands for infrastructure. The comprehensive advantages of Chinese enterprises in technology, cost and efficiency are fostering deeper cooperation in traditional infrastructure areas such as energy, power, transportation, housing and desalination, as well as in digital infrastructure areas such as 5G, industrial internet, smart cities, data centers and artificial intelligence.”

Consumer products market expansion provides promising investment prospects for Chinese enterprises

The report highlights the rapid expansion of the consumer sector in the LAS, driven by economic diversification policies, digitization, a youthful population, the rising “she-economy” and shifting consumer preferences towards health and sustainability. These present huge investment opportunities for Chinese consumer products companies. Chinese enterprises must adopt strategic approaches to navigate varying market competition and entry barriers in LAS consumer products sector. For example, in Saudi Arabia and the UAE, where millennials constitute a large proportion of population, there is a potential for growth in luxury brands, fitness services, cosmetics and high-end fashion, catering to the preferences of young to middle-aged consumers. Meanwhile, policies promoting women’s empowerment, such as allowing women to drive in Saudi Arabia and UAE’s legislation prohibiting gender discrimination and ensuring equal pay, have boosted female labor participation and social status, which have also brought new opportunities in the consumer market.

Denis Cheng, EY Greater China Consumer Products Sector Leader, says, “In the future, sectors such as smart consumer electronics, beauty and personal care, organic and specialty foods and cross-border e-commerce are expected to continue unlocking significant potential. The LAS strengthens consumer protection by enhancing food safety and health regulations, transparency and quality control. Chinese enterprises can seize opportunity in this market by adopting differentiated strategies, deepening localization, building brand trust and forming strong local partnerships to achieve sustainable long-term development.”

Major challenges faced by Chinese enterprises in the LAS and coping strategies 

Despite the deepening of China-LAS cooperation, Chinese enterprises in the region still face challenges such as geopolitical and economic fluctuations, complex regulatory environment, labor shortages, cultural differences and religious sensitivities. To ensure smooth operations and sustainable development, Chinese enterprises need to establish a sound risk control and compliance management system, strengthen local labor cooperation and cultural integration and gain an in-depth understanding of local festivals, consumption habits and religious norms in order to launch customized products and promotional campaigns.

1. Source: National Bureau of Statistics, PRC and EY analysis 
2. Source: Belt and Road Portal
3. Source: Forbes Middle East
4. Source: LSEG, Mergermarket; China Global Investment Tracker
5. Ernst & Young (China) Advisory Limited
6. Source: UBS Wealth Management Qatar

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