Chinese firms tap into Middle East
Energy is not the only thing drawing the attention of Chinese companies to the Middle East. As countries in the region further upgrade their infrastructure, Chinese firms are finding more opportunities in the sector.
Over the next 15 years, oil-rich Middle Eastern countries are expected to allocate $4.3 trillion to upgrade their infrastructure, as they try to boost their economies and improve people's livelihoods, China's Ministry of Commerce (MOFCOM) said in a posting on its website on February 7.
Also, a report earlier this month by Ventures ME, a consultancy based in United Arab Emirates (UAE), said that the value of new construction projects to be awarded in GCC (Gulf Cooperation Council) countries this year is expected to rise 33 percent year-on-year to $64.5 billion.
Saudi Arabia, UAE and Kuwait are the most promising markets in terms of infrastructure in the area, industry insiders said.
China Harbour Engineering Co, a subsidiary of State-owned China Communications Construction Co, is trying to tap the vast market for port construction in Saudi Arabia.
The company is bidding for the phase three construction project for the Ras Al Khair Port in East Saudi Arabia, with competition from six companies including local Saudi Arabian company Huta Group.
Fast expansion
China Harbour made its debut in Saudi Arabia's port construction market in 2008, when it started the phase one construction of the Ras Al Khair Port. Since then, the company has gained an increasing share of the market.
Dai Zhanping, general manager of China Harbour in Saudi Arabia, told the Global Times Monday that the company is in a strong position in bidding for phase three of the Ras Al Khair Port, as it was the contractor for the first two phases of the project.
Ras Al Khair is expected to become the largest port in Saudi Arabia when construction is finished around 2030, with around 50 berths.
"The successful operation of the Ras Al Khair project has built a positive image for China Harbour. It shows that we are capable of managing large projects," Dai noted.
Saudi Arabia offers the largest infrastructure construction market in the Middle East, accounting for almost 50 percent of the region's market.
In 2012, the total value of new construction projects in the country reached 235 billion riyals ($62.7 billion), according to a posting on MOFCOM's website on February 23.
China Harbour is also eyeing markets in other countries in the Middle East. It has participated in the New Doha Port project in Qatar, which is expected to be the largest port in the Gulf area when construction is finished.
The company is also getting involved with other business sectors such as dredging and reclamation, and is now bidding with the Bahrain government for a major dredging project.
Local difficulties
The Middle East may be an increasingly important market for China's infrastructure companies – with over 50 Chinese firms operating in Saudi Arabia – but doing business there is not without its own difficulties.
Apart from the high political risks in the Middle East, Chinese companies also face other adverse factors, such as intense competition. Dai noted that Chinese firms account for a very small percentage of the infrastructure market in the Middle East, which is still dominated by rival firms from Western countries.
Also, not every project by Chinese companies in the region is successful.
In 2009, State-owned China Railway Construction entered a deal with two Saudi Arabian firms to build a 450-kilometer railway between the cities of Mecca and Medina. It was seen as a key project, because its primary function was to ease the traffic burden brought by the millions of Muslims who go to Mecca every year.
However, owing to a somewhat slower local working pace, as well as poor preparation and management, the project resulted in a 4.15 billion yuan ($666.9 million) loss.
In a bid to improve the employment rate, the Saudi Arabian government, and some other Middle Eastern countries, have stipulated that foreign companies must hire a certain amount of local employees.
The ratio of local staff in a company can range from 5 percent to 40 percent, depending on the size of the company and what sector it belongs to, according to a document from the Economic and Commercial Counselor's Office of the Chinese embassy in Saudi Arabia.
However, Chinese firms have struggled to deal with the slower working pace of local employees, which can become a liability for a project, according to industry insiders.
"Chinese companies may have advantages in prices compared with our international peers, but we still lag far behind in terms of management," Dai said, noting that China Harbour has had to adopt special measures to deal with staff problems.
Other sectors beckon
Apart from the construction sector, information and communication technology is another field in the Middle East that has drawn large investment from Chinese companies. US-based consultancy International Data Corporation said earlier this month that spending in the Middle East on IT will reach $32 billion in 2013 and $41 billion in 2016.
Both of China's leading telecommunications equipment makers, Huawei and ZTE, have a strong presence in the region.
Huawei, whose Middle East office is headquartered in Bahrain, told the Global Times that income from the company's Middle East operation ranks in the top three in terms of all of Huawei's overseas businesses.
In 2012, Huawei's Middle East regional office reported revenue of $2.1 billion, compared with total revenue of around $35 billion for Huawei Group, the company said.
"Huawei's products and services have penetrated widely into the market," said Xu Jun, vice president of the company in the Middle East, noting that nearly every major wireless operator in the region is a client of Huawei.
Xu said that Huawei now has a share of around 55 percent of the Middle East wireless telecommunications market. The company also intends to "pay more attention to the consumer phone market, and the enterprise sector," said Xu.