Wenhua Energy Network

"The Middle East people hand you a bottle of mineral water, which is a very high 'courtesy' for foreign guests." A manufacturing entrepreneur who has just returned from an inspection in Saudi Arabia described the details of his inspection of the Middle East market to Huaxia Energy Network.

Before setting foot in this magical land, many Chinese entrepreneurs had a lot of impressions of it focused on these few keywords: desert, oil, local tyrants and luxury. After the fieldwork, most people begin to shift perspectives.

In the past two years, as the global "sailing" journey of Chinese new energy companies has been in distress in Europe and United States, going to the Middle East to "pan for gold" has become a collective choice. From the past wait-and-see, "try to the water temperature", to now repeatedly win large orders, the essence has changed - the Middle East has become a hot spot for Chinese photovoltaic companies to go overseas.

This is closely related to changes in the general environment.

In recent years, the Middle East countries led by Saudi Arabia have all "looked eastward", and a large number of Middle Eastern funds are optimistic about China's huge market and stable economy. Middle Eastern consortia, led by the Abu Dhabi Investment Authority (ADIA), Mubadala, and Saudi Arabia's Public Investment Fund (PIF), have bet more and bigger chips on Chinese companies, and according to disclosed information, since July this year alone, Saudi consortia have invested tens of billions of real money in China.

China has also upgraded its friendly relations with Middle Eastern countries in due course. High-level exchanges not only increase mutual trust, but also provide good opportunities for cooperation between the business community. On September 10, Premier Li Qiang visited the Middle East, met with important dignitaries from Saudi Arabia and the U.A.E., and brought with him Ma Yongsheng, chairman of Sinopec, Hou Qijun, general manager of PetroChina, Zhang Lei, chairman of Envision Group, and other well-known entrepreneurs in the energy field, and exchanged views with senior officials of Saudi business circles.

So, will the journey of Chinese new energy companies to the Middle East be smooth sailing? Is the money of the oil tycoons lying there waiting for the Chinese to "pick up"? What are the opportunities and challenges of doing business in the Middle East? (The Middle East discussed in this article mainly refers to the GCC countries, namely the Cooperation Council for the Arab States of the Gulf, whose members include Saudi Arabia, U.A.E., Qatar, Oman, Kuwait, Bahrain, and other countries.) ）

Why "break" into the Middle East at this time?

So far in 2023, the news of new energy leading companies going overseas to the Middle East has frequently occupied the headlines.

Since June this year, a number of Chinese new energy companies have reached agreements with Saudi consortiums, U.A.E. consortiums and local new energy groups to invest and build factories in the Middle East, including GCL Technology (HK: 03800), JinkoSolar (SH: 688233), TCL Zhonghuan (SZ: 002129), Junda (SZ: 002865), etc.

According to incomplete

statistics from Huaxia Energy Network (public number hxny3060), since 2023, at least more than 10 Chinese new energy companies have gone to the Middle East to "pan for gold", with a total project amount of tens of billions, involving photovoltaic, wind power, energy storage, hydrogen energy and other industries, including solutions, new energy products, factory establishment and integration projects.

The industrial links that have landed in the Middle East cover the whole photovoltaic industry chain, the manufacturing of wind turbines and key components, etc., and the specific service projects are mainly NEOM New Future City and AMALA tourism projects in Saudi Arabia. At the same time, many Chinese-funded enterprises have also participated in local infrastructure projects in the form of EPC (general engineering contracting), and China Power Construction and China Energy Construction have successively won large new energy EPC orders from Middle Eastern countries.

Chinese new energy companies have been going overseas for many years and have always taken Europe and United States as the first place, why did they turn the bow of the ship at this time and choose to advance into the Middle East?

Before entering the hot land of the Middle East, Chinese businessmen who went overseas traveled to Europe and United States for a long time, because these two markets have huge market demand, good business environment and higher product prices. However, trade barriers in the European and American markets have been rising year by year, and the butterfly wings on the other side of the ocean have vibrated slightly, triggering hurricanes and tsunamis in China's new energy field again and again.

In particular, the "new three" represented by electric vehicles, power batteries and photovoltaics have been constrained by Europe and the United States everywhere, and the huge hidden dangers buried by the "double anti-dumping" investigation, huge tariffs, and outrageous access barriers are exploding at any time, and Chinese enterprises have suffered heavy losses. This has forced Chinese NEV companies to find more safe places to go.

If geopolitical fluctuations and the anti-globalization trend in Europe and the United States are the "shackles" for Chinese enterprises to go overseas, the Middle East market is the "key to unlocking the lock".

Gong Jiong, a professor at the School of International Economics and Trade of the University of International Business and Economics and a well-known international trade expert, said in an interview with China Energy Network: "The geopolitical risks of Saudi Arabia, U.A.E. and other countries are small, the political situation is relatively stable, the market is reliable, and the local government has the determination to transform, which is an external favorable factor. In addition, many industrial and consumer goods in the local market rely on imports, and the industrial chain is incomplete, which means opportunities, and Chinese companies have a strong advantage. ”

From the geographical point of view, Saudi Arabia, U.A.E., Oman and other countries are close to Europe and are located at the junction of three continents: Asia, Europe and Africa; For Chinese companies that are in urgent need of globalization and subject to trade barriers between Europe and the United States, the Middle East is a superior port to go to sea. The production capacity invested in the Middle East can be easily re-exported, exported to Europe and United States, and can also perfectly avoid tariff barriers in Europe and the United States.

From the perspective of the consumer market, in addition to a large population, the Middle East has a young population structure, with 60%-80% of the population under the age of 30; The per capita GDP of the six Gulf countries exceeds 20,000 US dollars, and their consumption power is high; Local residents have strong purchasing power and high unit prices of goods; Internet penetration is high, with more than 95% in all six Gulf countries.

"At this stage, there are three stops for Chinese companies to go overseas, Southeast Asia, Central Asia and the Middle East, in contrast, the total population of the entire Middle East country is about 470 million, there is a certain market size, and compared with Southeast Asia and Central Asia, the net worth of the people in the Middle East is higher." Yan Linhui, the representative of KEZAD GROUP in Abu Dhabi Khalifa Economic Zone and a venture partner of Fosun Fortune Creation, told Huaxia Energy Network.

On the diplomatic front, relations between Middle Eastern countries and China continue to warm. At the end of May and the beginning of June this year, the heads of state of U.A.E., Egypt, Bahrain and Tunisia visited China at the same time. In September, Premier Li Qiang met with important dignitaries from Saudi Arabia and the U.A.E..

In terms of trade, the trade volume between China and the six GCC countries reached 286 billion US dollars last year, and China has become the largest trading partner of Saudi Arabia and the U.A.E., and the bilateral trade volume between China and Saudi Arabia has exceeded 100 billion US dollars for two consecutive years.

"Gold" everywhere hides "minefields".

Although the Middle East is full of rich people, don't think that the bosses in the Middle East are "stupid and have a lot of money". Yan Linhui told Huaxia Energy Network that, on the contrary, the Middle East boss is very shrewd and has a powerful think tank behind it. In past projects and investments, Middle Easterners are more than willing to pay high consulting fees for great people and solutions.

So what can new energy companies do to make money when they go to the Middle East to "pan for gold"? What are the risks?

The opportunity is on the horizon. For example, Saudi Arabia, which is gaining momentum for carbon neutrality in the Middle East, released its "Vision 2030" in 2016, proposing 96 strategic goals and determined to break the economic pattern that relies heavily on oil.

In clean energy, Goldman Sachs expects Saudi investment to increase to $235 billion, up from its previous forecast of $148 billion. In line with this, Saudi Arabia raised its previous target of 58.7GW of renewable energy capacity by 2030 to 130GW.

It is worth noting that by 2023, Saudi Arabia's cumulative installed renewable energy capacity is only 8.8GW, which means that there will be huge investment opportunities in the new energy sector. Other GCC countries have also put forward plans for energy transition, and investment opportunities in the field of new energy are certain.

With the growth of investment in new energy installations, the power system will also bring new opportunities. Professor Gong Jiong believes that there are huge business opportunities hidden in the power and grid systems of the six Gulf countries. Not only photovoltaic, energy storage, and wind power in the power supply link, but with the popularization of electric vehicles going overseas, the competition in the charging equipment market will also create a large amount of infrastructure demand, and the competition will be very fierce.

However, there are always opportunities and risks. Under the "gold" everywhere in the Middle East, there are also hidden "minefields" everywhere.

Doing business with Middle Easterners is not easy, first of all, you have to be mentally prepared.

According to Yan Linhui's observation, the investment logic of Middle East consortiums in the past two years is very different from that of previous years, and don't do business with the stereotype of "people are stupid and have a lot of money". "Now the Middle East consortium is cautious enough to invest and attract investment, and they must consider whether it is in line with their own development strategy, whether they can increase the proportion of non-oil economy, etc., and some additional provisions will be added."

Li Xiande, chairman of JinkoSolar, the earliest photovoltaic company in the Middle East and a leading global photovoltaic module company, pointed out in CCTV's "Dialogue" program that "the biggest risk comes from the long-arm jurisdiction of United States." ”

To date, JinkoSolar's business has covered more than 190 countries around the world, and there are a few countries that are not covered and will certainly not be able to escape the sanctions from United States. Li Xiande also mentioned that there are two risks to pay attention to when going to the Middle East, one is to pay attention to the details of compensation when signing the contract, and the other is not to breach the contract, otherwise you will be severely punished.

The old mindset is no longer adapted to the Middle East

"When you go to someone else's house, you have to follow the customs." What Chinese companies need to understand is that the Middle East is undergoing a butterfly change at the socio-cultural level.

Take Saudi Arabia as an example, open to the public for tourist visas; Liberalize domestic cultural and entertainment activities, lift the ban on cinemas and other entertainment venues, and actively hold large-scale events; Women's rights and interests have been improved at an all, women are encouraged to work and their rights and interests are protected, women can enter stadiums to watch games and concerts, can travel abroad alone, can file for divorce on the grounds of relationship breakdown, and so on.

However, in order to truly enter the Middle East market, it is also necessary to be prepared in many ways to deal with conflicts from local investment, construction, operation, religion, culture and other aspects.

Yan Linhui believes that before investing or building factories in Saudi Arabia and the U.A.E., you need to know at least the following points:

First of all, the local business circle is small, and there are very few people at the top of the pyramid, so you must be very honest in doing business locally, otherwise it is easy to be "blacked";

Second, the local business thinking is more "Westernized", that is, it attaches importance to contracts and compliance;

Third, in terms of administration, communication, and efficiency, locals are slower than Westerners;

Fourth, the average working hours per local person are relatively shorter, working 4.5 days per week. Because of the majority of local believers, most of the services are held on Friday afternoons, and there are also services every day during the week.

In terms of investment access, the local market requires the localization of the industrial chain, which is the most basic threshold. For example, the European Union and United States have proposed the proportion of local manufacturing, and Saudi Arabia also has requirements for this, that is, the "Saudization rate", enterprises landing in Saudi Arabia, must hire a certain proportion of Saudi locals. The "Saudization rate" is different, and the policy treatment that landing enterprises can enjoy is also different.

In the Middle East, there is a lot of attention to who you choose to work with, and the business environment varies greatly from country to country.

As early as September 2023, GCL Technology (HK: 03800) planned to build a factory with an annual output of 120,000 tons in the Middle East, and negotiated with Saudi Arabia for a long time. ”

Just when industry insiders had tacitly tacitly agreed that GCL's factory was about to land in Saudi Arabia, in June this year, an announcement broke the outside world's speculation: its first overseas FBR granular silicon project would land in Abu Dhabi, U.A.E..

Diverting to the U.A.E., in addition to the consideration of the approval process, is precisely due to the "business environment". Some industry insiders revealed to China Energy Network that GCL finally chose U.A.E. for two reasons: first, the U.A.E. business environment is better, the process is shorter, and the capital is faster; Another more important reason is that its competitor's 100,000-ton polysilicon project has landed in Oman, and Oman borders U.A.E., which means that if GCL does not build a factory and put it into production immediately, the market is likely to be snatched up.

In order to attract and retain foreign capital and enterprises, Middle Eastern countries are trying to improve their own business environment, especially Saudi Arabia. According to the World Bank's Doing Business 2020 report, Saudi Arabia ranks 62nd out of 190 countries in terms of ease of doing business, a significant improvement from the previous year.

However, at this stage, the U.A.E.'s business environment maturity is far ahead of Saudi Arabia's.

Yan Linhui said that the U.A.E. has at least five advantages for Chinese enterprises to go overseas: First, the business environment ranks 16th in the world (2020), ranking first in the Arab world for many consecutive years. Friendly foreign investment policies and relaxed financial environment; Second, the geographical location is superior, close to Europe; Third, it has free trade agreements with many European countries, which has great advantages in taxation; Fourth, the basic labor force is sufficient, which is a great benefit for labor-intensive industries; Fifth, energy is cheap.

The U.A.E.'s attractiveness to foreign investment is even more telling – in 2022, FDI inflows into the U.A.E. amounted to US$22.73 billion, accounting for 61.24% of the GCC countries.

"The Middle East is a very good market, especially very friendly to Chinese companies." JinkoSolar Chairman Li Xiande has publicly stated.

From the moment Chinese new energy companies set foot on the hot soil of the Middle East with great ambitions, problems are also waiting for new challengers to solve. The Middle East will leave a strong mark in the era of Chinese new energy enterprises going overseas 2.0.