New investment opportunities are emerging for Chinese firms in the Gulf Cooperation Council (GCC) as member countries explore alternative means to finance construction and real estate (CRE) projects.
"There is a growing market for public-private partnerships (PPP) in the region as the CRE sector looks at alternative ways to finance the completion of these projects," said Gan Mei, Director, and China Desk Lead at PwC Middle East.
Most GCC countries are enacting PPP laws and embarking on initial projects, which could be an attractive opportunity for Chinese State-Owned Entities (SOEs) with access to export credit guarantee schemes and financing, she said.
China's President Xi Jinping proposed a package of $20 billion in loans, and about $106 million in financial aid, to Middle East countries, at the 2018 China-Arab States Cooperation Forum, as Beijing wants to revive the region's economy through various schemes including BRI.
To capitalise on the regional opportunities, Mei said, Chinese companies need to understand local development strategies and government initiatives, such as the Saudi Vision 2030 or the Kuwait National Development Plan 2035 (KNDP).
"They also need to understand more specialised local policies and targets, including smart city strategies and building technology initiatives where China can showcase the innovation from some of their fast-growing cities such as Shenzhen," she said.
China has been making huge capital expenditure over the past several years, with 13.4 percent of its Gross Domestic Product (GDP) in 2015 going towards developing economic and social infrastructure, compared to an average 3.2 percent in other BRICS countries, according to International Monetary Fund (IMF) estimates.
"This has provided key learnings for the Chinese, building a leadership position in innovation and application of emerging technologies within the infrastructure and construction space," said Ravi Suri, KPMG Global Head of Infrastructure Finance and Regional Head of Infrastructure Advisory, MESA.
He cited the example of Chinese companies that are at the forefront in the application of 3D printing, bioplastics, and prefabricated prefinished volumetric construction. Some newer urban developments in China also exhibit high standards of sustainable design and architecture, concepts that resonate regionally and globally.
"These concepts have massive potential in the GCC construction market where an increasing number of construction and real estate development is undertaken at a significant scale with sustainability being a key theme," said Suri.
Mei agreed that specialisation and sophistication would be a key factor for developers, particularly in markets like Dubai, where the development market is maturing but slowing down with decreasing property prices, the recent halt on Al Maktoum Airport construction and government calls for fewer new developments. These are clear signals that a focus on quality over quantity will increasingly become a competitive advantage for developers.
"Any strategy for the Middle East region must be up to date and agile, customised to selected local markets as there is no cookie-cutter approach for the region. It has to be updated constantly and even with variations from city to city," she said.
Suri suggests major Chinese developers and contractors form a partnership with local firms to create a differentiated value proposition in the market as the GCC has many prominent regional developers and construction companies with international experience.