Deciding whether to make Dubai or Riyadh the stronghold for expanding into the Middle East market, Chinese companies need to carefully consider the region that is becoming a new hotspot for Chinese enterprises going global.

Amidst the increasingly complex geopolitical landscape that is affecting the direction of international trade, some Middle Eastern countries have become an attractive factor for Chinese companies going global due to their relatively neutral stance.

These countries are attempting to reduce their dependence on oil and gas resources and achieve economic transformation, presenting a market that cannot be ignored by Chinese companies.

"Several Chinese people inquire about the Dubai market every week, and China is also one of our major trade partners," said Mohammad Al Kamali, Chief Operating Officer of the Manufacturing and Export Development Department at the Dubai Economy and Tourism (DET), in an interview with Caijing magazine in May 2024.

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Dubai is the largest city in the United Arab Emirates (UAE) and the capital of the Emirate of Dubai, one of the seven emirates in the UAE.

As a logistics and trade hub connecting the East and West, Dubai covers markets in the Middle East, Africa, South Asia, and even Europe, and has become the first stop for many Chinese companies entering the Middle East.

The first Chinese companies going to Dubai were state-owned enterprises in infrastructure and foreign trade.

After China joined the World Trade Organization, the Dragon Mart in Dubai opened in the suburbs of Dubai in 2004 and has become a distribution center for Chinese small commodities in the Middle East over the past 20 years, driving a large number of private enterprises to engage in overseas trade.

The Chinatown where the Dragon Mart is located has gathered about 100,000 Chinese people, accounting for about a quarter of the Chinese population in the UAE.

The hall of the Dragon Mart in Dubai.

Photography by Han Shulin.

With the continuous upgrading of Chinese manufacturing, photovoltaic and electric vehicles, these "new three items" have also started to go global to the Middle East and, with the help of Dubai as the trade center of the Middle East, radiate to the Middle East, Africa, Central Asia, and the North Caucasus region.

The export of products is upgrading, and the export of production capacity is the new focus of this round of Chinese companies going global, and Dubai is facing competition from Riyadh, the capital of the Kingdom of Saudi Arabia, which has the largest area and the most population on the Arabian Peninsula.

In 2016, Saudi Arabia launched the Vision 2030 transformation plan, proposing a transformation goal with a huge investment scale.

Saudi Arabia is also using this plan to guide foreign investment to establish factories in Saudi Arabia, otherwise, it is difficult to obtain government orders.

Dubai has an open business environment, an international logistics center, and relatively convenient visa policies, which has led many multinational companies to use it as a regional decision-making and sales center, covering the Middle East, Africa, and Central Asia regions.

However, in terms of establishing factories and building local production capacity, Saudi Arabia has more comprehensive policies in line with its domestic market, and Dubai and Riyadh have begun to form competition.

Chinese companies need to carefully choose whether to make Dubai or Riyadh the stronghold for expanding into the Middle East market.

Upgrading overseas, from small commodities to the new three items, Chen Zhihua, the president of the Chinese Digital Innovation Association in the UAE, has been doing foreign trade business in the UAE for more than 20 years, and he is also developing the second phase of the Dragon Mart, "Guangzhou-Shenzhen Smart Plaza."

He introduced to Caijing that before 2000, export trade was mainly dominated by state-owned enterprises.

After China joined the World Trade Organization, private enterprises were encouraged to do foreign trade business, and a large number of enterprises went overseas to open stores.

In 2004, the Dragon Mart in Dubai opened, not only with local wholesale and retail but also with transit trade, gradually becoming a distribution center for overseas Chinese goods.

"Logistics and transit trade are its core competencies."

Chen Zhihua said that Dubai has a developed information, logistics, human flow, and capital flow, and the local exhibition industry is also very developed, and dealers from surrounding countries will come here to purchase.

Now, the Dragon Mart has thousands of Chinese merchants, and the mall is a collection of small shop counters, selling electronic products, home appliances, lighting, building materials, clothing, and other types of small commodities.

The Dragon Mart is located in the Dubai International City on the outskirts of the city, and there are about 400 Chinese restaurants, with about 100,000 Chinese people operating locally, accounting for about a quarter of the total Chinese population in the UAE, and a large Chinese community has been formed locally.

It is not easy to see Chinese people in the stores of the Dragon Mart, and the staff are mostly employees of Indian and Pakistani descent, with a basic monthly salary of about 2,000 to 3,000 dirhams (AED, equivalent to about 4,000 to 6,000 RMB), and there are commissions based on sales.

"It's cheaper to employ people here than in China, Chinese people earn a lot here, and the salary of one Chinese person can support three foreigners," Han Zhenli, who runs a two-wheeled electric vehicle business in Dubai, said to Caijing reporters.

He now has multiple stores in the Dragon Mart, relying on domestic factories for supply.

"I don't want to do business in China, the competition is too fierce, and it's too hard," Han Zhenli lamented to Caijing.

The Dragon Mart is a typical example of Chinese traders going overseas in the past, and new overseas enterprises have already taken root in Dubai.

The Dubai Chamber of Commerce, established in 1965, now has more than 5,000 Chinese company members, and the President and CEO of the Dubai Chamber of Commerce, Mohammad Ali Rashed Lootah, said that many Chinese investors are engaged in trade, and recently, there have been more and more consultations from Chinese digital companies, and e-commerce is developing rapidly, with companies like Shein and Temu having a significant market share locally.

He also introduced that the chamber has received more and more consultations from financial technology companies (Fintech) and more and more asset management funds.

A more representative new change comes from photovoltaic and electric vehicles, these "new three items."

The photovoltaic leader Longi Green Energy set up an office in Dubai in 2022, and now has more than 30 employees, including Chinese employees dispatched abroad in sales, product, delivery, business, legal, finance, and marketing fields, as well as local employees recruited from Pakistan, Lebanon, Jordan, Africa, and other countries and regions.

Liu Xiaoqian, the head of the strategic marketing department of Longi Green Energy's Middle East and Africa region, introduced to Caijing that the Dubai office covers the entire Middle East, Africa, Central Asia, Pakistan, and the three countries of the North Caucasus.

Dubai has a stable political environment, an open economic and cultural environment, has a complete port logistics facility, and trade is free.

Most Middle Eastern countries have set green transformation goals, and they have excellent light resources, with great development potential, and most Chinese engineering contracting companies (EPC) are also in Dubai.

Considering all these factors together, Longi decided to set up the regional decision-making center in Dubai to better "reach customers."

China's automotive industry has developed rapidly in the past two years and has also gained a stronger presence in the Middle East.

Traders have changed from parallel imports of Middle Eastern cars to China for sale to parallel exports of domestic cars to the Middle East for sale.

Parallel import and export refer to the trade method where traders purchase cars on their own in the car market for import and export without the authorization of the brand owner.

Juno, the regional sales director of the Dubai-based Huanqiu Automobile Trade Company, told Caijing that Huanqiu has been engaged in automobile import and export trade in Dubai for five years, initially parallel importing cars from the Middle Eastern market to China, some cars sold in the Middle Eastern market are different from domestic configurations, and there is a market in China.

In mid-2021, the company began parallel export business, exporting Chinese-made cars through Dubai to local and neighboring countries.

In the past three years, the parallel export business has shown exponential growth, while domestic customs rules have become stricter, and domestic purchasing power has declined, making it difficult to digest inventory, and the parallel import business has basically stagnated.

With the help of Dubai's logistics system, Huanqiu has sold a large number of Chinese cars to other Middle Eastern countries and North Africa, Central Asia, and the North Caucasus region.

Behind the change in trade trends is the improvement of China's automobile manufacturing capabilities.

There are both foreign brands manufactured in China and more and more Chinese local brands.

Legend Automobile is the largest Chinese automobile trader in Dubai, and its parent company, Legend Holding Group, has been engaged in trade in the UAE for more than ten years.

Ma Qian, the commercial head of Legend Holding Group, said to Caijing that the company mainly did parallel imports before 2019.

After 2020, Legend began to contact domestic car companies to discuss export trade, and with the explosion of China's new energy vehicles, the business also achieved explosive growth.

"Caught up with the trend of the rise of China's automotive industry," said Ma Qian.

Now, Legend sells about 10,000 cars a year, of which Chinese brands account for about 90%, parallel exported to Dubai and transshipped to the surrounding market, with fuel cars and electric cars basically accounting for half each, and the remaining 10% is parallel imported to domestic Toyota and other foreign brands locally.

Car companies themselves are also strengthening their presence locally.

About 15 kilometers away from the Dragon Mart, located in the center of the Dubai business district at the Dubai Festival City Mall, BYD has opened a flagship store here.

BYD's local dealer is the UAE family business Al-Futtaim Group, which is also the dealer of Toyota, the most popular car brand in Dubai.

In the list of the 100 most influential Middle Eastern family businesses released by Forbes in March this year, the Al-Futtaim Group ranked second.

The more chaotic the world is, the more prosperous Dubai becomes.

As a trade and logistics center connecting the East and West, Dubai is also benefiting from the new geopolitical game.

Dubai is open earlier among Middle Eastern cities, and its logistics facilities are well-developed, which has allowed it to continue to prosper in several geopolitical conflicts.

Marked by the Jebel Ali deep-water port, which was initially completed in 1979, plus the nearby Al Maktoum International Airport in Dubai South, which is mainly for cargo, and the Dubai International Airport, which is mainly for passengers and close to the city center, they form the core of Dubai's logistics infrastructure.

Mohsen Ahmad, CEO of the Dubai South Logistics Zone, said that 14% of the UAE's GDP comes from the logistics industry, and the UAE ranks in the top 12 globally in the World Bank's Logistics Performance Index in 2023.

Dubai International Airport connects to 234 global destinations, and Jebel Ali Port provides connections to more than 180 sea routes, with more than 80 routes having ships departing every week.

With its excellent logistics capabilities, although the local market in the UAE is not large, it can radiate to the surrounding regional markets through Dubai, including the Gulf countries, the Middle East, Africa, India, and some European markets.The Russia-Ukraine conflict and the pandemic have tested the resilience of supply chains, benefiting Dubai once again amidst new changes.

Chen Zhihua told Caijing that after the pandemic, there have been many domestic enterprises and government delegations coming to inspect.

After the Russia-Ukraine conflict, a lot of hot money has flooded into Dubai.

Among the three major free trade zones in the world, Hong Kong, Singapore, and Dubai, Dubai has relatively benefited, with housing prices rising by about 30% compared to before.

He often laments that "the more chaotic the world is, the more prosperous Dubai becomes."

Ma Qian told Caijing that Dubai's trade policy is relatively open, with a high acceptance of new things.

As a country where religion and politics are combined, it is also more tolerant of other religions, thus being able to attract people from all over the world.

Coupled with Dubai's geographical location advantage and developed infrastructure, many multinational companies have placed their Middle East and Africa regional headquarters in Dubai, making it a hub for information exchange.

The influx of hot money and the increasing population have driven up housing prices and have also driven the real estate-related industries.

Compared to before, Dubai has become noticeably "more expensive."

Ma Qian introduced that since 2023, the cost of living in Dubai has increased by about 30%, and the rent for prime office space has nearly doubled.

Openness brings not only good things.

More than one local Chinese businessman has told Caijing that after China strengthened its international cooperation to crack down on Southeast Asian telecom fraud, some fraudsters have fled to Dubai.

Property owners often talk about which office rented by someone with an unknown background has recently been "busted" by the police.

In the past few years, some supply chains have been disrupted, and this is an opportunity for Dubai as a logistics hub.

Saud Abu Alshaware, Executive Vice President of Dubai TECOM Industries, former General Manager of Dubai Industrial City, and Chief Operating Officer, told Caijing that over the years, supply chain disruptions caused by the pandemic, the Russia-Ukraine conflict, and other factors have led many companies to consider diversifying their businesses to avoid supply chain obstructions, and the UAE and Dubai are benefiting from this trend.

The UAE is one of the safest countries in the world and is also one of the countries that attract the most foreign investment in the world, and the government has a clear plan.

Dennis Lister, Senior Vice President of Product and Innovation at Emirates Sky Cargo, said that geopolitical factors have indeed been bringing changes to air cargo logistics, but this is a good change.

When one door is closed, another door will open.

"Our goal is to ensure that trade flows naturally.

Nowadays, a lot of Chinese goods pass through Dubai to Africa, and Africa is also a huge market.

Trade wars, geopolitical factors, and other factors will bring more demand for logistics, and our goal is to support these needs."

Go to Dubai or Riyadh?

In addition to Dubai, Saudi Arabia's "Vision 2030" transformation plan has also attracted a large number of overseas investors.

Dubai and Riyadh have formed a competition in an intangible way, especially in attracting overseas production capacity to land, and Saudi Arabia has more comprehensive policies and financial support.

In July 2024, Saudi Arabia's Public Investment Fund (PIF) executives visited China and signed agreements with three Chinese photovoltaic and wind power companies, TCL Zhonghuan, Jinko Energy, and Vision Technology Group.

The three Chinese companies will jointly invest with Saudi Arabia to build factories locally, respectively manufacturing photovoltaic wafers, cells, and components, and wind power equipment.

In May 2024, Lenovo Group received a $2 billion convertible bond investment from the Saudi Public Investment Fund.

Lenovo set up its Middle East and Africa market headquarters in Saudi Arabia and built a new manufacturing base for personal computers and servers in Saudi Arabia.

The export of Chinese manufacturing capacity to the Middle East is a significant cooperation.

Why build factories in Saudi Arabia?

A person from a related company told Caijing that the site selection should comprehensively consider the location advantage, the determination of the local government to attract investment, the financial strength, the support strength, the sustainability of support, and the help to the company's globalization.

Some places are more market-oriented, and the layout can be very fast, but the local support strength is not great; some places are similar to "Singapore", other conditions are very good, but it is difficult to do manufacturing.

Overall, Saudi Arabia is the best choice.

The UAE is also attracting Chinese-funded new energy companies.

In June 2024, Xiechen Technology announced that its wholly-owned subsidiary Xiechen Suzhou signed a cooperation agreement with MDC POWER, a wholly-owned subsidiary of Mubadala Investment Company PJSC, to explore the construction of the UAE's first polysilicon production facility.

Mubadala is the second-largest investment fund in the UAE, headquartered in the capital, Abu Dhabi.

Earlier, Trina Solar announced plans to invest in the construction of a vertically integrated large base project in the Khalifa Economic Zone in Abu Dhabi, including about 50,000 tons of high-purity silicon material, 30GW of monocrystalline silicon wafers, and 5GW of battery components, to be built in three phases.

Whether to go to Dubai or Riyadh is a question that every company going to the Middle East needs to consider.

In order to attract foreign investment, Saudi Arabia launched a regional headquarters plan in January 2024, which stipulates that if a foreign company has not established a regional headquarters in Saudi Arabia but has set up a regional headquarters in other parts of the Middle East and North Africa, the company will be prohibited from participating in Saudi government projects and cannot enjoy the support policies of the Saudi government.

Saudi Arabia's "Vision 2030" plan and the "New Future City" construction plan under the plan mean a huge infrastructure market.

The regional headquarters plan means that foreign companies need to strengthen their presence in Saudi Arabia to share this big cake.

After the introduction of the plan, according to the ZAWYA news website, in the first quarter of 2024, 127 international companies moved their regional headquarters to Saudi Arabia, a year-on-year increase of 477%.

Another important policy of Saudi Arabia to improve local employment with the help of foreign capital is the "Nitaqat" requirement.

This policy is organized and implemented by the Ministry of Labor and Social Development of Saudi Arabia.

According to the size and industry of the company, the proportion of foreign enterprises employing Saudi local employees is graded, divided into red, low-level green, intermediate-level green, high-level green, and platinum five levels.

Different ratings have different policy treatments.

The higher the rating, the more convenient it is in work visa application and renewal, employee recruitment, etc.

Enterprises rated as red may face fines.

Previously, Dubai was often the first choice for foreign companies to set up regional headquarters in the Middle East.

Data from the consulting firm Infomineo shows that among the Fortune 500 companies, 196 have offices in the Middle East and Africa, and 70% (138) of the regional headquarters are located in Dubai.

Lin Wei, the director of overseas strategic investment of a certain manufacturing group responsible for local manufacturing and joint venture projects in the Middle East, analyzed to Caijing that if the company's main business source is the government or government-related projects, it needs to move to Saudi Arabia.

If the company is mainly facing the consumer market, Dubai has more advantages, and the work visa in Dubai is also easier to apply for than in Saudi Arabia.

It is also possible to set up a regional headquarters in Saudi Arabia and place the decision-making center in Dubai.

The group's Middle East and Africa decision-making center is in Dubai.

Lin Wei said that the landing of manufacturing in the Middle East, in addition to considering whether the customer is the government, should also comprehensively consider whether labor is easy to obtain, the convenience of port logistics transportation, and whether the market is large enough.

If it is facing a single market, Saudi Arabia's economic volume has a clear advantage over the UAE, and this point cannot be compensated even if the UAE introduces similar preferential policies to Saudi Arabia.

In addition, although the foreign labor visa in the UAE is relatively easy to obtain, for manufacturing to go overseas, factories in the Middle East are unlikely to be labor-intensive factories.

Dubai is also working hard to develop its own industry.

The "Dubai 2030 Industrial Strategy" has formulated six development directions: aviation, maritime, pharmaceuticals, aluminum and metals, fast-moving consumer goods, and mechanical equipment, aiming to build Dubai into an international industrial center supported by knowledge, innovation, and sustainability.

In 2021, Dubai's industrial GDP was 41 billion dirhams, and the strategy plans to add 18 billion dirhams of industrial GDP by 2030.

A Caijing reporter once visited a dairy factory in Dubai, which is a microcosm of Dubai's local manufacturing.

The factory was invested by a Nigerian company, with core processing equipment and control equipment from Sweden's Tetra Pak and Germany's Siemens, raw materials from New Zealand, employees mainly from India, and the factory has a high degree of automation, with products sold to the Middle East and Africa.

By importing equipment and raw materials from overseas, building a production line with a high level of automation, and facing the local and Middle East and Africa consumer market, this is the current typical Dubai manufacturing.

Regarding the potential competitive relationship with Saudi Arabia in attracting foreign investment, Mohammad Al Kamali said that Dubai does not emphasize competition with other regions, but competes with itself.

The global market is very important, and Dubai has more than 200 ethnic groups living together, which is a very open and international market.

Overall, Saudi Arabia has a larger government procurement market, stronger government guidance and support for the landing of manufacturing capacity, and a larger local market size.

Dubai has a more mature business environment, a longer history of openness, a more convenient labor market, and a more developed logistics and financial system.

Chinese companies going to the Middle East need to combine their own business characteristics and target markets to choose the right place to land.