Saudi's search for China investments tough - Jeffrey Towson

Jeffrey Towson

Saudi Arabia’s King Salman bin Abdulaziz Al Saud met with Chinese President Xi Jinping seeking investments to move his country away from its oil addiction. But that might be tough, says Beida business professor Jeffrey Towson, and former employee of Prince Alwaleed in the Kingdom of Saudi Arabia(KSA), on his weblog. He lists three reasons, and this is one.

Jeffrey Towson:

So why aren’t such deals happening? I argue it is mostly not because of any of the commonly cited reasons, such as language barriers (both Saudis and Chinese speak English), inconvenient flights or visas, security issues (such as Yemen), or a lack of opportunities. 

My experience has been that it is a lack of trust and necessity. Private deals are face-to-face, relationship-based and long-term. And Chinese and Saudi business people just don’t trust each other very much. There is no history of working together. There are few close friendships. There is no history of going to university together. And the deals thus far have been prone to problems. There just isn’t a lot of trust or comfort. And when you are operating in environments without clear rule of law and easily enforceable contracts(such as in both China and Saudi), you rely on close relationships far more. 

The other problem is necessity .There actually is no need to do private China-KSA deals. Chinese companies can make investments in lots of places. And Saudis can continue to work with Western companies, just like they have for decades. China-Africa have the same trust issues but the deals happen because there is a real need for resources. China-Germany deals happen because there is a need for technology (by China) and market access (for Germany). But there is no such need for KSA and China. And absent a compelling need, the lack of trust is not overcome. 

So the Chinese and Saudi groups meet, drink tea, take photos and express interest in working together. Maybe they even sign an MOU. But then, outside of basic trade, not much happens. Ultimately, nobody writes big checks or makes long-term commitments. So we have not and I do not think we are going to see hundreds of private deals between Saudi and Chinese private companies in the near future.

Much more at Jeffrey Towson's weblog.

Jeffrey Towson is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

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