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Cai Yuekun, reporter of Economic Observer In July, the daytime temperature in Saudi Arabia soared to over 40 degrees. Such a heat wave is comparable to the investment enthusiasm of Chinese companies in Saudi Arabia.

Since July,China Power Construction（601669.SH）、Shengshi Technology（002990.SZ）、Fengguang Shares（301100.SZ）、Sungrow Power Supply（300274.SZ）、JinkoSolar （688223.SH）、TCL Central(002129.SZ), Hainan Mining (601969.SH), Rongsheng Petrochemical (002493.SZ) and many other A-share listed companies have turned their attention to the Middle East to launch strategic investment and market layout.

The Middle East is attracting A-share listed companies to come and seek gold with its unique advantages.

According to incomplete statistics from the Economic Observer, in July, nearly 10 listed companies in the A-share market announced that they would make strategic investments in the Middle East. Since 2024, more than 15 listed companies have revealed that they will increase their investment in the Middle East. This number has hit a record high in the same period in the past five years.

Domestic listed companies have focused their investment vision on the Middle East, which is closely related to the accelerated pace of internationalization of Chinese companies. JinkoSolar told the Economic Observer that as a landmark event in JinkoSolar's global strategic transformation, the establishment and model of the Saudi Arabian factory is of special significance and is the core of JinkoSolar's transformation to global manufacturing. As early as 2016, JinkoSolar has successively invested in GW-scale factories in Malaysia, Vietnam, and the United States, with integrated production capacity from silicon wafers to batteries to components.

UBSAn industry analysis report released by a global research team in April this year believes that Middle Eastern countries are actively promoting economic diversification, accelerating the pace of energy transformation, and reducing dependence on the oil industry. China continues to maintain its position as the world's largest manufacturing and exporting country, and possesses advanced 5G and new energy technologies. Close cooperation between the two sides is expected to achieve a win-win situation.

In addition to opportunities, Chinese companies also face many challenges in the process of investing in the Middle East.

Jing Lu, an executive of Yuanjian Consulting, told the Economic Observer that few markets in the world can compare with China's large and active market size. For those companies considering investing in Saudi Arabia, it is important to set reasonable expectations. At the same time, due to significant cultural and religious differences, investors need to be alert to possible cognitive biases and potential risks in the decision-making process.

Intensive investment in the Middle East

Since July, a number of A-share listed companies have turned their attention to the Middle East.

On July 25, PowerChina disclosed that its Abu Dhabi branch and its subsidiary, East China Design Institute Middle East Co., Ltd. (HDEC), formed a consortium and signed an EPC contract for the Abu Dhabi PV3 Ajiban 1.5GW photovoltaic project with Ajiban Photovoltaic Project Holding Co., Ltd. The contract value is approximately US$755 million, equivalent to approximately RMB 5.384 billion. The project is located in the Ajiban area of ​​Abu Dhabi, UAE.

On July 22, Maxvision Technology Co., Ltd. (hereinafter referred to as "Maxvision Technology") disclosed that it plans to use its own funds in the form of cash investment to invest in the establishment of Maxvision Technology's regional headquarters (hereinafter referred to as the "Saudi Arabia Regional Headquarters") in Saudi Arabia directly or through its wholly-owned subsidiary Hong Kong Maxvision Technology Co., Ltd. (hereinafter referred to as "Hong Kong Maxvision").

The registered capital of the Saudi Arabia regional headquarters is 500,000 Saudi riyals (equivalent to approximately 133,900 US dollars), and Shengshi Technology or Hong Kong Shengshi holds 100% of its shares. According to the operational needs of the regional headquarters, Shengshi Technology's total investment in the Saudi Arabia regional headquarters will not exceed 7 million US dollars.

On July 23, a staff member of Shengshi Technology told the Economic Observer that the company is committed to expanding its overseas business, and the Middle East is also a strategic focus of expansion. At present, Shengshi Technology has carried out business in Saudi Arabia, the United Arab Emirates and other regions, and has established subsidiaries in Nigeria in Africa and Cambodia in Asia, and has dispatched professional teams to support the development and operation of local businesses.

The staff member said that in the overseas market expansion strategy, Shengshi Technology will focus on project-based business in the countries along the "Belt and Road". For the European and American markets, its business will mainly focus on product equipment. In the later stage, it will gradually adjust according to the market promotion situation.

"Although the proportion of overseas market business revenue in the company's overall revenue is still small, we have begun to expand overseas markets since the second half of 2022. We plan to gradually increase the order volume through early market trials, and gradually expand the scale of overseas business as market promotion deepens." The staff member added.

Leading photovoltaic manufacturing companies are also making great efforts to expand into the Middle East.

On July 16, JinkoSolar and TCL Zhonghuan announced on the same day that they plan to establish joint ventures with Vision Industries Company and Saudi Public Investment Fund PIF to build 10GW of battery and 20GW of silicon wafer production capacity in Saudi Arabia respectively.

JinkoSolar told the Economic Observer that it has a leading market share in the Middle East, with a market share of over 70% in Saudi Arabia. JinkoSolar uses N-type TOPCon technology modules, which can better play the advantages of low temperature coefficient, low attenuation, and high bifaciality under the conditions of high temperature and high ground reflection in the Middle East, and can achieve good power generation gains.

Li Xiande, chairman of JinkoSolar, said that to enter the Middle East market, strength is more important than opportunism. First of all, you need to have global brand influence, and secondly, you need to have leading technology and first-class quality. The Middle East is a high-end market, and companies without strength will hardly have the opportunity to participate.

Envision Technology Group, a leading domestic wind turbine company, also plans to invest and build a factory in Saudi Arabia. On July 16, the group, the Saudi Public Investment Fund (PIF) and Saudi energy equipment company Vision Industries jointly announced that they would establish a wind power equipment joint venture in Saudi Arabia.

Since 2024, the acceleration of domestic new energy enterprises' layout in the Middle East market has become a phenomenal event.GCL TechnologyandJunda sharesPlans have been made to invest in granular silicon and cell production capacity in the Middle East.

On June 3, GCL-Poly Technology (03800.HK) disclosed that the company will explore potential cooperation opportunities with Mubadala Investment Company PJSC (Mubadala Sovereign Fund) to establish a comprehensive silicon ecosystem with global and regional significance in the UAE.

On June 13, Junda Shares (002865.SZ) disclosed that the company has signed an "Investment Intention Agreement" with the Oman Investment Authority, intending to invest in the construction of an annual production capacity of 10GW of high-efficiency photovoltaic cells in Oman. The total investment amount of the plan is about US$700 million, and the project will be implemented in two phases, with an annual production capacity of 5GW in each phase.

Ping An Securities believes that the rush of domestic photovoltaic companies to invest in the Middle East is related to the current export situation. Since 2024, the United States and India have increased their photovoltaic trade protection policies, and the difficulty of exporting photovoltaic products to the United States and India has increased significantly; after experiencing rapid growth in the past two to three years, large markets such as Europe and Brazil have shown signs of declining demand growth to a certain extent; according to data disclosed by the German Federal Network Agency, Germany's new photovoltaic installed capacity in the first half of 2024 was about 7.5GW, with a year-on-year growth rate of less than 10%. Against this background, the importance of emerging markets has increased significantly, and looking at the world, the Middle East may be the emerging market with the most outstanding photovoltaic development potential.

On June 28, the A-share listed company Energy Saving Iron (300197.SZ) disclosed the company's first overseas project. The company announced that its Dubai branch had signed an important contract with MAG of Life FZ-LLC (hereinafter referred to as "MAG of Life"), a company mainly engaged in real estate development, with a contract value of up to 2.822 billion UAE dirhams, equivalent to about 5.583 billion yuan.

Since May, Linyang Energy (601222.SH),Chinese Architecture(601688.SH), Jinggong Steel Structure (600496.SH), Jerry Group (002353.SH), Baosteel Group (600019.SH) and many other companies have won bids or signed contracts for projects in the Middle East. These projects cover smart meters, construction, oil and gas, steel and other fields. For example, on May 24, China Construction disclosed that its holding and shareholding companies won bids for several projects with a total amount of 26.01 billion yuan, among which the Safa II residential project in Dubai, UAE, won by China Construction Middle East Company, with a project amount of 2.7 billion yuan.

Sun Yuxin from Shandong Chenggong (Chengyang) Law Firm said that the Middle East is rich in natural resources. In addition to being an important energy source, oil is also the foundation of the huge industrial chain of petrochemicals, which just happens to form resource complementarity with my country and has a high degree of economic dependence. In addition, in the past, Middle Eastern countries could maintain a high quality of life for their citizens only by relying on energy exports, and neglected the construction of the domestic industrial system. The Middle East has advantageous resources for the development of photovoltaic, lithium battery, energy storage and other industries. Chinese companies have core competitiveness and sufficient production capacity in these fields, and the two sides hit it off in cooperation in similar fields.

Behind the investment boom

Jing Lu recalled that at the end of 2021, she visited Saudi Arabia as a member of the market research team. In October 2023, Sahm officially obtained the approval of the license from the Saudi Capital Market Authority (CMA), becoming the first securities firm with a Chinese background to obtain a license in Saudi Arabia. Sahm was jointly established by Saudi venture capital company Easy Capital and Hong Kong financial technology company Huasheng Group. Jing Lu's Vision Consulting is the front end of Sahm's investment banking business, serving the cross-border capital and business landing needs of institutions and enterprises.

Recently, Jing Lu organized and participated in a large-scale capital market research activity in Saudi Arabia, with participants including representatives from more than 10 domestic financial institutions, listed companies and VC (venture capital) institutions. They communicated with the Saudi Stock Exchange and discussed the possibility of overseas companies' secondary listing and exit in the Saudi stock market.

Jing Lu observed that listed companies that went to the Middle East for research can be divided into two categories: one is to seek diversified investment sources to enhance the activity and financing capabilities of the secondary market, and some companies are considering expanding to the Middle East; the other is those companies that seek growth opportunities in overseas markets, and these companies achieve growth through business implementation and internationalization.

VC institutions have two main demands: one is to find more exit channels to cope with the challenges of the domestic market exit situation; the other is to explore new sources of funds, namely "new money".

A person engaged in furniture trade in Saudi Arabia told the Economic Observer that the number of multinational companies investing in Saudi Arabia has increased significantly since the second half of 2023. At the same time, many domestic companies have also gone to Saudi Arabia to make layouts, involving industries related to the construction industry chain, as well as new energy, commodity trade and other industries.

According to an industry report published by Savills, in the first quarter of 2024, the rent of Grade A office buildings in Riyadh increased by 5% from the previous quarter. In addition, the occupancy rate of Grade A office buildings in Riyadh reached 98% at the beginning of 2024, and the rent increased by 20% year-on-year.

Domestic A-share listed companies are focusing their investment focus on the Middle East. What are the reasons behind this?

JinkoSolar told the Economic Observer that the Saudi government has set clear policy goals to promote the development of renewable energy and provide various incentives. In the photovoltaic field, Saudi Arabia encourages the localization of photovoltaic components and equipment and provides corresponding subsidies.

JinkoSolar said that the Middle East market is one of the fastest growing photovoltaic markets in the world, and Saudi Arabia is the largest single market in the Middle East, with long sunshine hours and rich photovoltaic application scenarios. The "Vision 2030 Goals" launched by the Saudi government will greatly promote the development of the photovoltaic industry, and the NEOM future city project also has a great demand for green energy.

When asked why JinkoSolar chose to invest in Saudi Arabia, Qian Jing, vice president of JinkoSolar, said that first of all, Saudi Arabia is located in the heart of the Middle East and is a hub connecting Europe and Africa. Establishing a base here has convenient transportation and wide coverage. Saudi Arabia is very friendly to new energy investment. In order to attract leading new energy companies like JinkoSolar to settle in, a series of incentives have been introduced. Saudi employees have advantages in terms of skills, quality and work attitude in the Middle East. Saudi Arabia itself has huge potential in the new energy market, and the government is determined to transform its energy sector.

KPMG China pointed out in the report "Middle East Economy in Transition - China and the Middle East have broad prospects for economic and trade cooperation" that in terms of investment, China has continuously increased its investment layout in the Gulf region. At present, my country has signed the "Bilateral Investment Agreement" and the "Agreement on the Avoidance of Double Taxation" with six Gulf countries (Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman, and Bahrain). China's investment flow to the six Gulf countries increased from US$10 million in 2003 to US$1.7 billion in 2021. State-owned enterprises are the main investment entities of China's investment in the Middle East, and the investment areas are concentrated in energy, real estate, infrastructure, etc. At the same time, as the Gulf market increases its opening to the outside world, private enterprises' investment in the Middle East is also catching up, mainly in information technology, financial services, commodity retail, new manufacturing and other fields.

UBS research shows that the strengthening of cooperation between China and the Middle East is expected to bring more than $400 billion in potential trade growth in 2030, mainly from four key areas, including petrochemical products, electricity and new energy, oil service equipment, and oil and gas. Among the four major energy sub-sectors, petrochemicals and new energy may contribute 95% of the potential trade growth. China's renewable energy, especially power grid equipment companies, are expected to be the most direct beneficiaries.

UBS estimates that the potential trade growth between China and the Middle East in the power and new energy sectors is US$77 billion. On the one hand, the Middle East needs to accelerate energy transformation, and on the other hand, China can provide a safe and secure upstream supply chain.

Sun Yuxin told the Economic Observer that from the perspective of social and cultural factors, the Middle Eastern countries have a high degree of external dependence on commodity consumption and strong demand, which provides the necessary conditions for Chinese companies to go overseas and engage in foreign trade, and helps to digest domestic excess production capacity or export mature technology and talents; from a technical factor perspective, domestic companies have accumulated sufficient technology, production capacity and talent advantages in new quality productivity fields such as photovoltaics, lithium batteries, energy storage, and new energy vehicles, and are in a competitive advantage position and have the prerequisites for going overseas.

Opportunities and risks coexist

In the process of strategic investment layout in the Middle East, Chinese companies have not only ushered in unprecedented opportunities, but also inevitably faced many challenges.

When expanding its global business, JinkoSolar shared its experience with the Economic Observer and said that in the era of global manufacturing, the investment model is more flexible and elastic, and can be a bilateral or multilateral joint venture, with various forms such as capital investment, technology investment, management investment, and resource investment. Standing on the shoulders of local giants, leveraging their strengths, and synergizing resources. This is very similar to the end of the last century, when old auto giants such as German, Japanese, and American companies came to China to set up joint venture auto manufacturing plants. They brought technology, experience, systems, culture, and management, and China provided funds, policies, and markets. It's just that this time it's Chinese photovoltaic companies like JinkoSolar that have become chain leaders and have control.

JinkoSolar said that local production and global sales require that the products manufactured in the host country have almost the same efficiency level, cost advantages and quality assurance as those in China, so as to meet the needs of global customers rather than specific markets. JinkoSolar will gradually implement the localization of the entire value chain, including not only production, but also all aspects such as product development and marketing, so as to achieve the greatest interests of both parties in terms of technology, management, supporting and sales.

Some Chinese companies have also encountered fraud cases when conducting cross-border trade in the Middle East.

On April 29, 2024, Vinson Law Firm’s official microblog said that a Wuhan environmental protection technology company entered the Middle East foreign trade market for the first time, accepted extremely harsh payment terms, fell into a fraud trap, and faced huge losses. After accepting the commission, Vinson’s international trade lawyer team negotiated and pressured with local buyers in Dubai, got back the bill of lading, and recovered 42 containers of goods on March 5, worth nearly 1 million US dollars. In early April, the goods were resold and properly handled.

In past investment experiences in the Middle East, some central enterprises that were overseas engineering contractors had incurred huge losses from projects they undertook in the region.

From the perspective of investment risk, Mei Fang, managing partner of KPMG China and Asia Pacific Risk Management Consulting, said that in the face of the vast Middle East market, Chinese companies face a series of challenges in the process of "going overseas", such as overseas market entry strategy, tax planning, cost control, cultural integration, data security compliance, etc. For example, driven by the digital vision of Middle Eastern countries, local consumers' demand for intelligent high-tech products and services is increasing, and Chinese companies' leading experience in digital transformation can be replicated and promoted locally. However, compliance with data security and privacy protection regulations in Middle Eastern countries is an important link that cannot be ignored. In order to maintain the sustainable development of the digital economy, the six Gulf countries have formulated comprehensive personal data protection legislation. The operations, products and services of Chinese companies must ensure the safe use of personal data.

Ernst & Young also analyzed that from the Silk Road in the Han Dynasty to the current "Belt and Road" initiative, China has always maintained economic exchanges with the Middle East. The Middle East, especially the Gulf Cooperation Council countries (hereinafter referred to as "GCC member states", including Saudi Arabia, Kuwait, Oman, Qatar, the United Arab Emirates and Bahrain) has increasingly become a place of opportunity for Chinese investors. But with opportunities, risks and challenges also come along, and local tax policies and practices are one of the main challenges facing Chinese investors. There are certain differences in the tax environment between the GCC member states and China. "In recent years, affected by the transformation of the international energy structure and the development of national economic and fiscal diversification, the tax system of the GCC member states has changed relatively frequently, and the level of tax collection and management has continued to improve. It is recommended that Chinese companies investing and operating in the GCC member states pay close attention to changes in local tax policies, understand applicable tax incentives and restrictions, increase their attention to tax risks, and strengthen the overall management of global tax compliance." Ernst & Young said in the report.

In Sun Yuxin's view, whether it is a listed company or a non-listed company, actively deploying overseas business is a coexistence of opportunities and risks. Chinese companies mainly face the following three problems. First, political risk, which is often reflected in whether the political situation in the country where the investment is located is stable. Second, policy and legal risks. The development of an industry is closely related to whether policies and laws support it. Therefore, the stability of policies and laws plays an important role in helping overseas companies judge long-term development opportunities and risks and integrate and optimize resource allocation. At the same time, the legal system in the Middle East is different from the continental legal system and the Anglo-American legal system. Overseas companies should avoid falling into the vicious circle of past experience. Third, it is necessary to consider changes in business risks, exchange rate risks, etc., which will increase uncertainties in domestic corporate investment.