As China-Gulf relations deepen, here are 3 key sectors for growth

Amid significant geopolitical shifts, China is rapidly deepening its economic ties with the Gulf Cooperation Council (GCC), a loose political and economic alliance consisting of six Gulf states. Both geographies are major drivers of global gross domestic product growth; their economies are highly dependent on energy and despite cultural nuances, they share deeply ingrained values.

Trade between China and the Middle East and North Africa (MENA) region amounted to $505 billion in 2022 – a 76% increase over the past decade.

Building on the momentum and potential for further cooperation, the World Economic Forum first convened a group of business leaders from Greater China and countries from the Gulf Cooperation Council (GCC) at its 2023 Annual Meeting of the New Champions to explore ways to enhance understanding of each others’ markets and build partnerships. The group then reconvened to prioritize key sectors where the potential for collaboration is especially high.

“The GCC’s ambitions to develop clean energy opportunities will only bind the region tighter to China,” anticipates Ben Simpfendorfer, partner at international consulting firm Oliver Wyman in Hong Kong.

China is the dominant global player in the clean energy supply chain, controlling significant shares in batteries, wind, and lithium production. According to UN Comtrade data, China’s lithium battery exports to the GCC grew 26% between 2021 and 2022, with a 99% increase in the first three-quarters of 2023.

“Gulf countries are very proactive in tackling climate change and possess tremendous potential in the renewable energy market, as well as considerable capabilities in technological innovation,” says Gao Jifan, chairman and chief executive officer of Trina Solar, a leading Chinese solar energy company. Illustrating the opportunity, Trina Solar plans to open the Middle East’s largest photovoltaic plant in the United Arab Emirates (UAE) by 2027, supported by policies like the China-UAE Industrial Capacity Cooperation Zone.

China-GCC collaboration on renewables is good news for business and climate action, given China’s and Saudi Arabia’s global carbon and fossil fuel standings as the largest emitter and fossil fuel exporter, respectively.

The market opportunity in renewable energy is underpinned by national visions and the GCC’s quest for economic diversification. Lina Noureddin, managing director and chief executive officer of Lamar Holding, an operating company in Saudi Arabia’s energy markets, notes the pivotal role of Chinese companies in the country’s Vision 2030 projects. Noureddin believes that Chinese companies are attracted by the Kingdom’s shift from traditional governmental project models to public-private partnerships and argues that the involvement of Chinese businesses creates important societal benefits: “Our Chinese partners invest in talent development in the region and also bring in foreign direct investment support from Chinese financial institutions.”

The opportunities span beyond the clean energy sector itself. “Financing energy transition projects are costly, so building financing platforms, possibly led by sovereign wealth funds, will improve the outcomes of such projects,” explains Simpfendorfer. For example, Singaporean sovereign wealth fund Temasek has piloted ventures such as GenZero, a vehicle that invests in carbon reduction and removal technologies.

Given the presence of several sizeable sovereign wealth funds in the GCC, establishing similar platforms seems strategically sound. Chinese financial institutions are already channelling funds into energy projects, particularly in Saudi Arabia and across the GCC, through debt markets, indicating abundant potential for capital blending and integration. The logical progression now is towards a more coordinated approach.

Financial markets present an opportunity for China-Gulf integration, with increasing financial flows and growth potential.

And there is plenty of further upside.

“As the world’s economic growth is increasingly coming from the east, investors around the world recognize the importance of China and the Gulf region as growth engines, in key transformative areas such as technology, infrastructure and green finance, powered by the rich source of capital,” says Wilfred Yiu, deputy chief executive officer of Hong Kong Exchanges and Clearing (HKEX).

These larger trends are reflected in financial markets. In 2022, the GCC saw 48 IPOs, raising $23.4 billion, while Asia, led by China, dominated IPO volumes in early 2023. To facilitate access to their respective markets, China and countries in the GCC have reformed their market structures.

Saudi Arabia loosened foreign ownership limits and opened a local derivatives market. The UAE shifted its trading week to Monday to Friday to align with global standards and enhance liquidity. And access to China’s mainland market has become easier due to the Stock Connect programme which allows investors to tap into A-shares – China’s domestic shares – via Hong Kong.

These reforms create business opportunities and also matter for individuals. Market access provides investors with diversification opportunities and exposure to economies other than their own. Global financial integration and interdependence lead to mutually beneficial outcomes as they enhance prosperity and help maintain international peace.

A memorandum of understanding (MoU) between HKEX and Tadawul aims to list more Gulf companies in Hong Kong, underscoring HKEX’s role in bridging the GCC, China and global markets.

“The listing of Asia’s first Saudi Arabian [exchange traded fund] in Hong Kong and the inclusion of Saudi Exchange to the list of Recognised Stock Exchanges following our MoU with Tadawul Group are just a few examples reflecting HKEX’s commitment and unique role in connecting the Gulf, China and the world,” stresses Yiu.

As interactions between people underpin cooperation, the travel and tourism industry is key to unlocking further integration between the regions. According to data from Chinese travel platforms, flights from China to the GCC have doubled from pre-COVID-19 levels, reflecting the GCC market’s attraction for Chinese visitors.

Executives from the travel industry are upbeat about the potential of interregional tourism – some even expecting explosive growth in the number of travellers – given the similarities of values that emphasize family, long-term vision and privacy.

Industry executives are eyeing the luxury segment as China and the GCC have developed a best-in-class hotel infrastructure, shopping opportunities, and cultural and historical sites.

The rise of the Chinese middle class is having profound implications for domestic and global economies. Domestically, it drives consumption-led growth, supports a more diversified economy and fuels demand for a wide range of goods and services. Internationally, it presents significant opportunities for foreign companies seeking to tap into the world’s largest consumer market.

Given that, it was no surprise that airlines from the GCC were among the first to resume flights to China after the country re-opened its borders in January 2023.

Across industries, deepening business ties between Greater China and the GCC requires first building trust with continued dialogue.

“The diverse partnerships between countries in the Middle East and China clearly demonstrate a commitment to collective growth, progress and development,” says Omar Al Futtaim, vice chairman and chief executive officer of the Al-Futtaim Group.

The group’s collaboration with Chinese carmaker BYD to distribute electric vehicles in the UAE and Saudi Arabia exemplifies this growth.

“These efforts underscore not just our commercial and economic ambitions but also our commitment to pioneering solutions that are mindful of and contribute to environmental and societal well-being. We welcome the opportunity to explore mutually beneficial business partnerships,” says Al Futtaim.

To further explore specific collaboration opportunities, the community of private sector leaders will reconvene at the Forum’s Special Meeting in Saudi Arabia in April and then again at the Forum’s Annual Meeting of the New Champions in Dalian in June.