22 ASIAN LEGAL BUSINESS CHINA • 亚洲法律杂志-中国版 AUGUST 2024 the Middle East, Jia says: “The attraction is all-round. Chinese clients from all industries have shown strong investment interest”. In fact, Chinese companies are no strangers to investing in the Middle East and developing business there. The pioneers among them are infrastructure and construction engineering companies. As projects, financing and dispute resolution in this field are exactly Jia’s specialization, he has witnessed first-hand recent changes in relevant investments. “Large central or State-owned engineering enterprises from China have almost all set up regional offices or branches in Dubai, and the projects undertaken by Chinese contractors range from power stations and solar energy to roads, bridges, ports and high-rise buildings, covering all industries. This group of contractors has gained experience over many years, and many have managed to localize their operations. In the past two years, more Chinese companies of a smaller size have begun to enter the Middle East to meet huge infrastructure renewal needs in the Middle East, especially from Saudi Arabia.” According to Jia, the GCC countries, by virtue of their strong oil economy, have attracted a large number of landmark infrastructure and engineering projects and accordingly well-known contractors, sub-contractors and suppliers in the global construction scene, and thus represent “a global stage”. Therefore, the projects and deals he and his team get involved in on behalf of Chinese companies actually have a very strong international flavor. “We have created a dispute resolution service chain covering Beijing, Dubai and London,” says Jia. For example, in 2022, he led the successful withdrawal of a RMB 130 million bank letter of guarantee case faced by a Chinese contractor of the Abu Dhabi Airport project, and assisted the Chinese EPC contractor of a major photovoltaic project in the Middle East in responding to and wining the ICC London arbitration filed by a Spanish subcontractor. As the industries represented by Chinese companies coming to the Middle East have become more diverse in the past two years, Hou shares several fields that she pays special attention to. “The first is the new energy vehicle (EV) industry. In terms of business logic, the Middle East, although a very good consumer market, is relatively expensive on the production side for labor and R&D costs. However, given the intensified competition in the domestic market this year, some auto companies have begun to entertain the idea of setting up factories in the Middle East. For example, in one project that we are currently involved in, the client plans to set up a sales company and build a sales network in Saudi Arabia first and will consider setting up a R&D and manufacturing base there after its products are accepted by the local market.” The second is traditional manufacturing. Since 2023, Hou and her team have been involved in a metal smelting project in Saudi Arabia with investment of tens of billions of dollars. According to her, “on the one hand, a project like this consumes a lot of energy, and energy cost is relatively low in the Middle East. On the other hand, such energy-intensive enterprises currently find it difficult to obtain quotas for production capacity increase in China.” The challenge of such projects often lies in their huge size, and “from early-stage site selection, project planning, to financing, etc., detailed technical work is required in all aspects.” Hou also pays attention to two other relatively new areas. One is the financial industry, “including traditional large banks and private equity investment funds. For GPs, the Middle East has become a good option for raising funds overseas. We have seen that a large number of Chinese private equity firms are considering setting up offices in the Middle East, but how much money can actually be raised and how to meet the back-home investment requirements of local funds need further observation.” The other is e-commerce. “According to public reports, Shein, Temu and Alibaba already have business presence in the Middle East via the business model of selling low-cost Chinese products to the Middle East through digital platforms. Chinese products are said to have influenced the consumption and lifestyle of people living in the Middle East to a certain extent, and this is very interesting.” Ma, on the other hand, has noticed opportunities in industries such as culture and tourism, advertising and gaming. “Saudi Arabia is promoting secular development under its ‘reform and opening up’ campaign. Industries related to culture will gradually be liberalized, and there is expected to be a large supply gap. Many Chinese companies hope to seize this market space.” Ning Ren is currently advising a client who is exploring Saudi Arabia for investment in entertainment and gaming projects. SPECIAL RISKS The Middle Eastern market undoubtedly has many opportunities, but amid this investment wave, lawyers are reminding companies to be cautious and not to invest in the Middle East with a herd mentality. “Companies should not make investment decisions by blindly believing that China and the Middle East enjoy good bilateral relations and that the Middle East is relatively wealthy,” reminds Hou, “They still need to verify the business logic of specific projects. If you value the local consumer market, you must consider whether your products can be successful in the Middle East. On the other hand, if geopolitics prompt you to think about setting up a factory in the Middle East to produce products for export to Europe and the US, you must consider production cost and whether the Middle East-made products face the risks of anti-subsidy and anti-dumping investigations in Europe and the US.” “Of course, the friendly relations between the Middle East, especially Saudi Arabia, and China, provides the macro context for ensuring the stability of commercial investment. However, while politics are macro, projects are micro and which destination is suitable for each project must be judged based on the underlying business logic.” In addition, the Middle Eastern society itself has certain peculiarities. Hou points out: “The Arab society is very interesting. On the one hand, the OUTBOUND INVESTMENT
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