At present, the world is undergoing major changes unseen in a century, and the needs of countries to seek win-win cooperation have become increasingly prominent. On March 28, 2023, the Chinese President had a telephone conversation with Saudi Crown Prince and Prime Minister Mohammed bin Salman. During the talks, China expressed its willingness to work with Saudi Arabia to continue to strengthen Sino-Saudi relations. With the continuous expansion of China's influence in the Middle East, the investment environment for Chinese companies in Saudi Arabia is expected to be greatly improved.

Prior to this, representatives of Saudi Arabia and Iran announced in Beijing the end of the confrontation since 2016, the restoration of diplomatic relations, and the resumption of cooperation agreements including economic and trade exchanges (referred to as Beijing Reconciliation). On the one hand, Beijing's reconciliation has demonstrated China's influence in the Middle East, and on the other hand, it has also eased the geopolitical antagonism in the entire Middle East, which makes it possible for Saudi Arabia to play a greater role in economic cooperation in the Middle East. Beijing's reconciliation will also provide a better business environment for Chinese companies investing in Saudi Arabia and the Middle East.

The upgrade of China-Saudi Arabia relationship brings new investment opportunities for Chinese enterprises

Saudi Arabia is the only Arab country in the Group of 20 (G20). It is one of the largest economies in the Middle East and a dominant power in the international energy field. It has important influence in the Middle East.

China and Saudi Arabia established diplomatic relations in 1990. After more than 30 years of development, they signed a comprehensive strategic partnership agreement on December 8, 2022. The relationship between China and Saudi Arabia in the new era is constantly improving, upgrading, and shifting gears.

According to the "Joint Statement between the People's Republic of China and the Kingdom of Saudi Arabia" (December 9, 2022), the energy field has become an area of common concern for both parties, and the two parties have expressed joint investment in energy projects in Saudi Arabia, other countries in the Middle East, Europe and Africa wishes. Among them, China hopes to invest in the petrochemical industry in Saudi Arabia.

In the non-energy field, China and Saudi Arabia hope to deepen cooperation in the fields of automobile industry, supply chain, logistics, seawater desalination, infrastructure, processing industry, mining industry, finance and other fields under the framework of China's construction of the Belt and Road Initiative and Saudi Arabia's 2030 vision. At present, Chinese enterprises have the following speculative opportunities in Saudi Arabia:

Chinese companies will gain more business opportunities in the Saudi high-tech market. Saudi Arabia is vigorously developing advanced technologies such as communications, digital economy, cloud computing, artificial intelligence, and aerospace. China has significant advantages in these fields.

In industries such as new energy vehicle manufacturing, supply chain, and transportation and logistics, Chinese companies have technological advantages, construction capabilities, and operational experience.

In the fields of water resources and agriculture, the Saudi side welcomes direct cooperation between the Chinese private sector and the Saudi private sector. Saudi Arabia hopes to open investment opportunities to Chinese companies in areas such as seawater desalination plants, drinking water, water pipelines, sewage treatment plants, and dams. In addition, Saudi Arabia hopes to attract Chinese investment in the field of agriculture, agriculture and food industry.

Changes in the Saudi business environment

Although Saudi Arabia is a major oil-producing country, in order to achieve a more sustainable development method, Crown Prince Mohammed put forward the 2030 vision, hoping to reverse the dependence on fossil energy and promote economic diversification. At present, Saudi Arabia is also introducing policies to attract foreign companies to invest in Saudi Arabia.

From 2024, Saudi Arabia will implement the Regional Headquarters Program (RHQ) system, and only foreign companies with regional headquarters in Saudi Arabia are eligible to sign contracts with Saudi government agencies. However, in order to obtain an RHQ license, companies need to employ at least 15 locals as full-time employees, and at the same time, personnel and accounting positions must be set up in Saudi Arabia.

Although the RHQ system in Saudi Arabia has not yet been finalized, the Saudi government announced on January 6, 2023 to relax the restrictions on foreign companies in the RHQ system. Foreign companies that have established RHQs in West Asian or North African countries other than Saudi Arabia are expected to give priority to government public utility projects even if they have no RHQs in Saudi Arabia.

In order to promote the development of private companies, Saudi Arabia will implement the new company law from January 19, 2023. First of all, when registering a company, Saudi Arabia has newly established a simple joint stock company clause (SJSC, Article 4). According to the regulations of SJSC, even only one person can register a company, ensuring the flexibility of business management.

At the same time, Saudi law has also relaxed restrictions on company business activities, company dissolution or bankruptcy. In addition, in order to facilitate mergers and acquisitions of commercial companies, the new company law also revised the regulations on business mergers and divisions, and allowed for the simplification of asset handling procedures, and introduced a stock option system.

As far as the investment cost of Saudi Arabia is concerned, the labor cost of Saudi Arabia's manufacturing industry will be at the middle level among Middle Eastern countries in 2022, and the logistics price will also return to parity after the end of the epidemic. The 2022 Saudi Telecom Company (STC)-Alibaba joint project was one of the largest investments the country received last year.

Risks that Chinese enterprises should pay attention to when investing in Saudi Arabia

The Middle East is the most complicated geopolitical place in the world today. Although the current situation in the region has eased, it will still face challenges brought about by extremism in the future. Chinese-funded enterprises should pay close attention to the political and economic situation in Saudi Arabia and neighboring countries and regions, as well as the impact of major power conflicts, and take risk prevention and control measures.

The social and cultural environment in Saudi Arabia is quite different from that in China. Chinese enterprises should pay attention to the differences between China and Saudi Arabia when investing, and cannot copy the domestic business model. When investing in Saudi Arabia, Chinese companies should pay close attention to the following three types of investment risk factors:

One is the risk of changes in investment promotion policies. The Saudi royal family has great power in Saudi Arabia, so the investment promotion policy of Saudi Arabia will be adjusted according to the decision of the royal family, and Chinese enterprises need to pay attention to the movements of the Saudi government.

The second is the risks caused by differences in the operating models of the infrastructure industry. Chinese enterprises need to investigate the local project contracting model, labor environment and laws and regulations. In terms of project cost, if Saudi Arabia adopts the typical European and American model of outsourcing projects, that is, the contractor is only responsible for the construction, and the materials, equipment and construction details will be managed by European and American consulting engineering management companies. Chinese companies cannot quote according to the turnkey projects that domestic companies are used to. Because according to the former, the project cost is not completely controlled by the contracting enterprise. Moreover, local companies in Saudi Arabia generally implement an 8-hour working system. According to the Saudi Labor Law, 12:00 noon to 14:00 is not considered outdoor working hours. In addition, due to religious customs, Saudi employees are required to participate in religious activities during designated periods, and non-Muslim workers cannot enter specific religious places.

Third, the field of e-commerce investment needs to pay attention to the risks of the local macro economy and logistics industry. First of all, one of the pillars of Saudi Arabia's economy is oil, and international oil prices will directly affect consumers' spending power. If the price of oil plummets, it is easy to cause unsalable products and temporary returns; Clearance, house number is complicated, and the male owner is not at home, so it is inconvenient for Muslim women to open the door for strangers. As of 2021, the average delivery rate of Saudi express parcels is lower than 70%; third, because Saudi consumers tend to Payment, underdeveloped logistics also means that companies have risks in receiving payments; fourth, emergencies will greatly impact Saudi logistics, such as the frequent suspension of routes in the Middle East due to geopolitical conflicts. Editor/Xu Shengpeng