Will Strengthening Ties Between Saudi Arabia And China Transform Luxury, Business, And Tourism?

    Keen to diversify its economy, Saudi Arabia eyes Chinese tourists as business and security ties between the two countries proliferate.
    Keen to diversify its economy, Saudi Arabia eyes Chinese tourists as business and security ties between the two countries proliferate. Photo: Shutterstock
      Published   in Finance

    With the global luxury industry keeping a close eye on China as the country settles into its post-COVID-19 era, the focus for any luxury brand or group should be not only on the plan within China, but also where else they can tap traveling Chinese consumers and emerging buyers. In many ways, the rising MENA (Middle East and North Africa) market in general — and the region’s economic powerhouse, Saudi Arabia, in particular — is a test-bed for this new era of China-Middle East relations as well as business and, bit by bit, tourism and luxury consumption.

    Economic and business ties between China and Saudi Arabia continue to strengthen, as evidenced by an estimated 50 billion in public and private sector agreements signed during Chinese President Xi Jinping's December 2022 visit to the kingdom. The deals reportedly covered a wide range of industries, including green energy, logistics, cloud computing, and housing, highlighting the growing mutual interest and cooperation between the two countries.

    One crucial area of cooperation between China and Saudi Arabia is energy policy and exploration. As the world's top oil exporter, Saudi Arabia supplies 18 percent of Beijing's total crude oil purchases, a number that is only expected to grow as China looks to diversify away from relying on Russian oil and gas.

    Financial and power investments also play a significant role in the deepening ties between the two nations. China's state-owned Silk Road Fund has acquired stakes in Saudi Aramco's oil and gas pipeline businesses. It has also partnered with Saudi utility developer ACWA Power to invest in power projects both within and outside the Middle East. These collaborations underscore the expanding strategic partnership between the two countries, with potential long-term implications for the global economic and geopolitical landscape.

    More recently, in an effort to diversify the kingdom’s economy, Saudi Arabia’s Minister of Finance, Mohammed Al-Jadaan, called for Chinese companies to invest in sectors like logistics, construction, mining, industry, and renewables. Al-Jadaan also revealed ongoing discussions with Chinese companies to establish businesses in the kingdom, encouraged Chinese banks to operate in Saudi Arabia, and invited Chinese investors to participate in the country’s emerging auto manufacturing sector.

    This all fits in with the kingdom's Vision 2030 initiative, a comprehensive plan launched in 2016 that aims to decrease Saudi Arabia's reliance on oil, broaden its economic base, and enhance public service sectors such as education, healthcare, infrastructure, tourism, and entertainment. As part of this initiative, the Saudi government plans to develop four cities to boost internal trade, attract foreign direct investment, and diversify into non-oil sectors, in the process strengthening the kingdom’s luxury market.

    Already, global luxury brands like Prada, Tiffany, and Mulberry are expanding their presence in Saudi Arabia with mono-brand stores and secondary product lines catering to the middle and upper-middle classes. The establishment of upscale malls and the influence of social media and online shopping platforms have further contributed to the growth of the kingdom’s luxury market.

    Prada opened its first store in Jeddah, Saudi Arabia in 2015. Photo: Prada
    Prada opened its first store in Jeddah, Saudi Arabia in 2015. Photo: Prada

    In addition to attracting Chinese shoppers to these malls and boutiques via an increasingly diversified economy, Saudi Arabia has an opportunity to tap Chinese consumers at home. According to Lu Zhou, founder and CEO of Vanquour Wealth Management, “China presents a huge market for the Saudi Arabian luxury industry, such as its natural perfume and gourmet food (dates in particular) as a start,” adding that the market is largely untapped at the moment.

    The expectation now is that Saudi Arabia and China’s robust trade relationship will foster new opportunities for a wider range of businesses on both sides. According to Vanquour’s Lu, there are vast opportunities for Saudi businesses to access the Chinese market, and vice versa, particularly as China has made extraordinary advancements in private education and education technology in recent decades.

    For example, China could be a key source for Mandarin-language training — something in high demand in Saudi Arabia — or executive education, namely educating Saudi businesses and businesspeople on how to do business in China and effectively tap Chinese consumers. Meanwhile, high-end Saudi retailers and distributors, as well as hospitality operators, can look to China as a model to develop their fast-growing luxury and travel industries.

    Another area in which China could provide a model and resource, Lu notes, is female financial literacy. Lu says, “It could be hugely empowering for Saudi women to learn financial literacy from their Chinese counterparts, as Chinese women are known to be financially savvy among their global peers.”

    As business ties between Saudi Arabia and China increase, the growing tourist industry in Saudi Arabia has the potential to lure more Chinese travelers away from their favorite holiday spots in Europe or Southeast Asia.

    Wish you were here#

    Already, Saudi Arabia is angling to capture more of the lucrative Chinese overseas tourism market, promoting itself as an exciting alternative to well-worn destinations like North America, Thailand and Japan, or western Europe. These efforts started to gain traction just before the onset of the COVID-19 pandemic; in 2019, when Saudi Arabia opened itself up to international tourism, China led in terms of the (admittedly modest) number of tourist visas issued.

    Today, Saudi Arabia is in the midst of massive investment in mega-tourism projects that are intended to create one of the largest leisure tourism industries in the world by 2030. These projects include the 500 billion Neom, a futuristic, mega-sustainable city, the 10 billion Qiddiyah Project in Riyadh, and Amaala — or the Saudi Riviera — in the northern region.

    A model of Neom, a linear city in Saudi Arabia that will be 33 times the size of New York City. Photo: Neom
    A model of Neom, a linear city in Saudi Arabia that will be 33 times the size of New York City. Photo: Neom

    Another project involves developing a new luxury island destination in the Red Sea. According to Ahmed Al-Khateeb, Saudi Arabia's Minister of Tourism, the country has set a goal for the tourism industry to contribute 10 percent of national GDP — or an additional 70 billion to 80 billion — by 2030.

    Saudi Arabia could benefit from changing tourist attitudes throughout the post-COVID-19 world. As Julia Simpson, CEO of the World Travel and Tourism Council, recently pointed out, tourists will always have a set of preferred cities and countries they will return to, yet new destinations are challenging these traditional favorites as emerging countries prioritize their travel and tourism industries.

    New horizons#

    Considering the resources the kingdom has put behind developing its nascent tourism industry, and the large-scale and heavily promoted projects currently in the works, Saudi Arabia very well could become a compelling destination for Chinese travelers looking for something new. This is particularly true given the deepening political and economic relations between the People’s Republic of China and Saudi Arabia, which offer both countries the opportunity to more actively promote themselves as friendly destinations both for business and for pleasure.

    One key question is how enduring the burgeoning friendship between China and Saudi Arabia will be, and whether it will have long-term implications for Chinese business and tourism. Much of Saudi Arabia’s urgency in developing its relationship with China is a need to cultivate new powerful partners in its efforts to modernize and diversify its economy while maintaining control as a monarchy.

    Chinese President Xi Jinping shakes hands with Saudi Crown Prince Mohammed bin Salman at the G20 Summit in 2016. Photo: Shutterstock
    Chinese President Xi Jinping shakes hands with Saudi Crown Prince Mohammed bin Salman at the G20 Summit in 2016. Photo: Shutterstock

    Meanwhile, China is eager to use its ties with Saudi Arabia to burnish its credentials as a geopolitical counterweight to the US. In a move that signals the US' diminishing influence in the Middle East, Saudi Arabia and Iran restored diplomatic ties in March 2023 with the help of China. Both nations have agreed to reopen embassies in their respective capitals, raising hopes that their proxy war in Yemen could come to an end.

    The agreement has potential implications for Saudi-Israel relations and could pave the way for China to play a crucial role in reviving the Iran nuclear deal. As tensions remain high between the US, Iran, and China, some experts suggest that the US should consider cooperating with China in the Middle East, rather than attempting to contain its growing influence. This cooperation could — theoretically — lead to more stability in the region and foster improved relations between the involved countries.

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