(Yicai) Sept. 19 -- As China's economy slows, Chinese firms are seeking new global opportunities to market their products and build their brands. While the United States and Europe have become politically challenging markets for Chinese products, the Middle East has been welcoming Chinese investment, goods and services. Within the region, the Kingdom of Saudi Arabia (KSA) stands out as a burgeoning opportunity for firms from the Middle Kingdom.

Under the leadership of Crown Prince Mohammed Bin Salman, the KSA has begun to significantly liberalize and open-up its economy, reminiscent of China’s own journey in the 1980-90s of “gaige kaifang” or “reform and opening-up.” Historically reliant on oil exports, Saudi Arabia is diversifying its economy to focus on renewable energy, infrastructure, tourism, and technological innovation, and is welcoming foreign investors and experts to support this journey. This new direction creates opportunities for foreign firms, particularly those from China. 

Here, we summarize five opportunities for Chinese firms seeking to do business in the Kingdom of Saudi Arabia.

Why Chinese firms should consider Saudi Arabia

1) Strengthening Diplomatic Ties 

In 2022, Chinese President Xi Jinping and Saudi King Salman bin Abdulaziz Al Saud elevated the bilateral relationship to a comprehensive strategic partnership, reflecting its strength and importance. While China has been KSA’s top trade partner since 2013, the agreement accelerated and expanded official exchange in key areas from defense and energy, to finance as well as culture. In the latest signs of the expanding relationship, at the end of 2023 China and KSA reached a local currency swap agreement, and in early 2024 signed a tourism MOU aligned with goals to expand flights and travel from China.

2) Aligning Interests Provide Opportunity 

Saudi Arabia’s Vision 2030 plan is a strategic blueprint for diversifying the Kingdom’s economy with a focus on renewable energy, infrastructure, tourism, and technological innovation. These priorities align with China’s core capabilities, particularly in areas of high-tech and new energy. Chinese firms with strengths in high-speed rail, e-commerce, photovoltaics, and new energy vehicles are well-positioned to support Saudi Arabia’s drive for diversification.

Already, in 2023, China became the top greenfield foreign direct investor in Saudi Arabia, with investments soaring to $16.8 billion, marking a 1,020 percent increase from the previous year. And as Saudi’s top trade partner, in February 2024, imports from China accounted for nearly 20% of KSA’s total.

3) Demographics Favor Cooperation

Saudi Arabia has one of the youngest populations in the world, with over 60 percent of the population under 30 years old.  Its workforce is also increasingly diverse. Since the launch of Vision 2030, women’s participation has risen from 24% in 2016 to 36% in 2022. These demographic trends have spurred extensive use of social media, with increased demand for fashion, online shopping, and digital payments—sectors where Chinese firms have established strengths.

As a result, Saudi Arabia’s e-commerce market is projected to double, from $13.61 billion in 2024 to $27.37 billion by 2029. The development of the KSA’s e-commerce market will open significant opportunities for Chinese companies who are dominant in this space. Already, SHEIN, AliExpress, and TikTok Shop, have entered the Saudi market, though with mixed receptions. TikTok’s entry has been challenging, but SHEIN has already made important inroads.   

4) Improving Regulatory Landscape for Foreign Investment

To reach its goal of attracting over $100 billion in foreign direct investment annually by 2030, Saudi Arabia needed to open its market – and quickly. It now allows 100% foreign ownership in most business sectors and is creating special economic zones with preferential tax rates. In August 2024, Saudi Arabia further relaxed its investment law, replacing foreign investor licenses with a simplified registration process, and pledged to continue enhancing investor rights by guaranteeing the rule of law, fair treatment, and the freedom to transfer funds without delay. 

Barriers to foreign firms still exist, however. The Kingdom requires regional headquarters of major foreign firms to be located in Saudi Arabia, and has quotas for hiring expats to help promote local job opportunities. There are also restrictions on certain types of cross-border data flows. Nevertheless, there is still a steady increase in foreign firms entering the market, particularly as Saudi Arabia prepares to host two globally significant events—the 2030 World Expo and the 2034 World Cup.

5) Strategic Geographics for International Expansion

Saudi Arabia's strategic location at the crossroads of Asia, Africa, and Europe makes it an important gateway to other international markets for Chinese firms seeking to diversify their supply chain and seek new opportunities. Saudi Arabia’s position near important maritime shipping routes including the Strait of Hormuz and the Red Sea, help reduce shipping times for Chinese goods to Europe and parts of Africa by nearly 50%. 

Moreover, Saudi Arabia boasts cheap commercial electricity at roughly 45% of the global average, as well as abundant natural resources including iron ore, copper, and rare earth elements. It is also one of the largest countries in the region, with plenty of opportunities for manufacturing. These advantages make Saudi an ideal international manufacturing node for Chinese companies seeking to expand overseas.