Electric vehicles are being charged. Illustration: VCG

Economic partnership between China and Saudi Arabia is reaping more fruits, as the two nations extend their cooperation beyond oil as the closer bilateral relations are set to unleash more trade potential, with a focus on new-energy vehicle (NEV) manufacturing.

On June 11, Saudi Arabia signed a $5.6 billion deal with China-based electric and autonomous vehicle maker Human Horizons, to develop, produce and sell vehicles in Saudi Arabia. The agreement was reached at the 10th Arab-China Business Conference held in Riyadh, capital of Saudi Arabia.

Details haven't been disclosed, but industry observers said the arrangement, given the large value and potential cooperation across the entire industry chain, marks a significant step for their cooperation in NEV manufacturing.

The memorandum of understanding accounted for more than half of the $10 billion in investments signed on the first day of the two-day business conference. During that event, 30 investment agreements were signed, covering a wide range of sectors, including technology, renewables, agriculture, real estate, minerals, supply chains, tourism and healthcare, according to media reports.

Growth potential

As the world's top exporter of oil, Saudi Arabia is actively seeking to diversify its economy under the Vision 2023 plan, aiming to boost investment in non-oil sectors, including electric cars. Part of the Saudi plan is to develop a domestic electric vehicle manufacturing industry, and China is taking the lead assisting Riyadh.

The Middle East country has long been seeking to build its own car industry, and a transition to electric cars will give the country a better chance of "starting from scratch" as the internal combustion engine market faces barriers to entry, Yan Wei, professor with the Institute of Middle Eastern Studies of Northeast University, told the Global Times on Wednesday.

Chinese NEV makers are by all metrics the most ideal partners to achieve this leap forward, Yan noted, but the establishment of a complete and powerful NEV manufacturing chain will take some time.

"Also, problems such as high local labor costs could remain as a major barrier for factories," Yan said.

Apart from the NEV sector, observers said the two nations have far broader prospects in cooperation, from agriculture to technology and new energy generation and storage.

Arab-Chinese relations are full of potential and synergies, and the economies are complementary.

China is interested in Arab logistics centers, natural resources, consumer markets and sovereign wealth funds, while many countries in the region are interested in Chinese manufacturing, technology and innovation, new energy and investments, Ebrahim Hashem, a China-based strategist and Asia Global Fellow at the Asia Global Institute of the University of Hong Kong, told the Global Times.

"The current bilateral trade of around $430 billion is only the tip of the iceberg. There is a great potential for trade to double and triple with China in the coming years," Hashem said.

Lucrative market

Over the past several years, apart from Human Horizon, a good number of Chinese industry giants have expanded footprint in the vast Middle East nation, with some making it their next focus of business expansion.

In March, BYD, the world's largest electric vehicle maker, together with the Mobility Solutions Auto Trade Co, jointly held a press conference for the launch of BYD passenger vehicles for the Jordanian market, according to a statement BYD sent to the Global Times on Wednesday.

"This conference is not only our first stop in the Middle East market this year, but also a milestone for our in-depth integration into the Middle East market," Adam Peng, sales director of BYD's Middle East region, said at the press conference.

Industry players believe that Chinese companies, with strength in manufacturing and technology, are well-positioned to achieve success in this important and thriving Middle East market.

"Governments [in the region] are very keen to push for the transition because they recognize this is an irreversible trend that is already happening in other parts of the world. So for them, the interest is to find an ecosystem service provider that can give them and share with them the best practices so that they can leap forward to a more mature ecosystem in the near future," Alex Wu, co-founder, president and CFO of Chinese EV charging service provider NASS, told the Global Times.

"So what we're doing in the Middle East is we work very closely with the investment fund, with the government to implement a top-to-down strategy," Wu said.

The NASDAQ-listed company has participated in the Electric Vehicles Innovation Summit in Abu Dhabi in May.

"The strength we have is the full ecosystem that we've proved to others that we can deliver in China with a rather complex ecosystem, so we can replicate this best practice in the Middle East ... with much less complexity," Wu said.

Last year, China produced about 7.06 million and sold 6.89 million NEVs, jumping 96.9 percent and 93.4 percent respectively from the previous year. Exports reached 679,000 units, an increase of 1.2 times year-on-year.