China’s Middle East building boom comes at a price
Cut-throat competition in Saudi Arabia and the UAE eats into ‘thin profit margins’ for Chinese companies
Chinese construction companies are piling into the Middle East after the boom-and-bust years at home. But cut-throat competition in the key markets of Saudi Arabia and the United Arab Emirates proves that not all the roads there are paved with gold.
In 2024, US$39 billion in investment flooded into the region, a 102% year-on-year surge, as part of Beijing’s Belt and Road Initiative. Infrastructure and green energy projects were bankrolled in major Silk Road ventures across Saudi Arabia, the UAE, and Iraq.
“Demand is immense. Last year, Chinese contractors signed contracts worth $32.6 billion in Saudi Arabia, the largest for any single country, the China International Contractors Association [confirmed],” Caixin, the Beijing-based media group, reported this week.
Still, Chinese builders have become frustrated, citing harsh contractual terms, fierce competition, and local hiring rules. Rigid building standards have also eaten into their “thin profit margins,” Caixin pointed out.
Five years on, China’s property crisis has no end in sight.
The New York Times
Wall of pain:
- Back in 2020, the construction sector was hit by an avalanche of bricks after China’s building crash popped the greatest property bubble in history.
- Overnight, the industry was plunged into recession, while an estimated US$18 trillion of household wealth was wiped out, as well as up to 30% of GDP.
Delve deeper: Already there are fears that real estate sales will continue to fall in 2025. If, as expected, they do, that would extend the property slump for a fifth straight year, crushing hopes of a turnaround, S&P Global Ratings reported last month.
Between the lines: “Five years on, China’s property crisis has no end in sight,” The New York Times stated in the summer. “The government set out to slow speculation, kicking off a slowdown in real estate values that is still grinding on with wide economic consequences.”
Big picture: For Chinese construction companies, the only way to stay alive is to boost their bottom line overseas. Since the large conglomerates have close ties to the government, they can undercut rivals, even if the costs are shrinking margins.
China Factor comment: But as the Chinese economy struggles with rising debt, how long this will last is the $1 trillion question. After all, the building boom in the Middle East’s rich nations, such as Saudi Arabia and the UAE, will not go on forever.