Driving the green transition: China-Gulf Arab cooperation in the “New Three” industries

China’s export profile has experienced a notable reorientation in the past several years. The established pillars of the “Old Three” sectors — household appliances, furniture, and clothing — are gradually giving way to the innovation-driven “New Three” industries: photovoltaic (PV) products, electric vehicles (EVs), and lithium-ion batteries. 

China is currently placing a heightened emphasis on manufacturing as a strategy to revive the economy following a challenging year. At the core of Beijing’s efforts to steer the economy towards a healthier path is a plan to assert dominance in global markets in the New Three sectors. China is undertaking these efforts at a time when Gulf Arab governments are strongly committed to unlocking the potential of promising sectors that can help drive economic diversification.

At this critical juncture in the global energy transition, it is imperative for both China and the Gulf Cooperation Council (GCC) nations to navigate the challenge of balancing energy security, economic advancement, and environmentally sustainable development. By strengthening collaboration in clean energy, China and the Gulf Arab states have the potential to assist each other in meeting that challenge. 

China’s “New Three” industries and the global low-carbon transition

China has been the world’s largest and fastest-growing producer of renewable power for more than a decade, and its lead has widened with the recent acceleration of solar and wind power capacity. In 2023, China commissioned as much solar PV as the entire world did in 2022, while its wind additions also grew by 66% year-on-year. 

China is poised to solidify its position as the dominant force in renewable energy over the next five years. According to the Renewables 2023 report by the International Energy Agency (IEA) released in January, China is projected to contribute 56% of the additional renewable energy capacity from 2023 to 2028. The IEA’s forecast also indicates that China is on track to achieve its 2030 targets for wind and solar PV installations this year, six years ahead of schedule. 

China invested more than $130 billion in its solar industry in 2023 alone. Chinese companies dominate more than 80% of the worldwide supply chain for silicon solar panels, with an even higher share in polysilicon, the essential material for these panels. The growth of China’s solar manufacturing is powered by high polysilicon margins, technological enhancements, and a strategic focus on developing local manufacturing in foreign markets. A recent report issued by Wood Mackenzie, a leading energy research consultancy, forecasts that China is set to persist as the global leader in the solar supply chain, further widening the technology and cost gap with competitors.

China has made substantial strides in electric vehicle (EV) production in recent years. The surge of Chinese EVs is attributable, at least in part, to strategic choices made over a decade ago — both by individual companies and on a national scale — to build the capability for producing clean technology. In 2009, during the aftermath of the global financial crisis, China introduced subsidy programs to propel the progress of clean technology, with a specific emphasis on electric vehicles.

The role of the Chinese auto industry in the global energy transition cannot be overstated. As the world’s largest car market, China is not only leading but also accelerating the EV transition. Since 2015, the robust support from the Chinese government has propelled the electric car industry into a formidable competitor against pioneers like Tesla. Plug-in cars are expected to capture 40% of the Chinese car market by the end of 2024. Chinese automakers are estimated to have sold approximately 9.4 million EVs and hybrids in the past year, up from 6.9 million in 2022, according to the China Association of Automobile Manufacturers (CAAM). The association anticipates another increase in sales for 2024, reaching 11.5 million. BYD, the country’s leading automaker, achieved sales exceeding 3 million units last year, over half of them fully battery-powered. Great Wall Motor recently made history as the first Chinese automaker to commence EV production outside of China — an achievement even more noteworthy in that it occurred in a plant that was previously owned by General Motors GM). These developments underscore China’s swift expansion in the EV market.

Lithium-ion batteries play a pivotal role in the daily lives of millions, energizing devices ranging from laptops to cell phones. They also dominate the EV and battery cell component production landscape. China holds a significant grip on battery manufacturing, creating a reliance among global carmakers on Chinese partners at various stages. Chinese battery manufacturers contribute around 80% of cells globally. China’s Contemporary Amperex Technology Co. and BYD Co. together account for more than half the worldwide EV battery market. This large-scale production capacity is supported by a mining and processing chain increasingly under China’s control. And although mining remains the least controlled area by China, its investments in African lithium mines and Indonesian nickel producers still confer substantial influence.

China’s unprecedented investment in low-carbon technology manufacturing supply chains signifies a major economic and financial commitment to the success of the global energy transition. China now has a substantial financial stake in the worldwide success of the low-carbon transition.

China’s New Three export boom

Technology-intensive green products are becoming the new growth drivers for China’s exports. In fact, Chinese authorities are increasingly banking on new-energy products, such as EVs, lithium-ion batteries, and solar batteries, to play vital roles in propelling the country’s export sector forward.

China’s State Council reported that the combined export value of electric vehicles (EVs), lithium-ion batteries, and solar batteries in 2023 surpassed 1.06 trillion yuan ($141bn), marking a growth rate of 29.9%. Guangdong Province in southern China has positioned itself as a vital global manufacturing hub for New Three products, with the European Union (EU) standing out as the largest market for these items. Chinese auto manufacturers are motivated to expand into the Middle East independently of official encouragement from the CCP. The intensely competitive domestic Chinese EV market has led these manufacturers to seek overseas expansion as a strategic move to enhance profitability. 

Meanwhile, though, China’s dominance in every facet of EV battery technology has spurred foreign competitors to implement diverse measures to counterbalance its strong foothold in the battery value chain. The U.S. is fortifying its market against the influx of imports by strengthening local producers, with American car manufacturers intensifying their involvement in the battery value chain and reducing prices. Simultaneously, the European Commission (EC) is seeking to enact a comprehensive set of industrial policy measures, incorporating minimum local production targets. Both American and European automakers are striving to emerge as leading battery manufacturers to supply their respective fleets. And new players in the battery value chain are positioning themselves to address existing gaps. 

The challenges that China might encounter in sustaining export growth in EV batteries also apply, to varying extents, to exporting EVs and solar products. However, China possesses a cumulative advantage in technology, market size, and industrial chains that presents formidable barriers for other countries to surmount in the short term. Yet, facing the longer-term potential downside risks, Chinese officials are redoubling efforts to diversify the country’s trade relationships, directing a higher percentage of exports toward countries involved in the Belt and Road Initiative (BRI). The goal is to reduce dependence on any individual market and alleviate the impact of sluggish external demand. Consequently, some Chinese experts propose actively exploring emerging markets and regions witnessing growing consumption power.

Renewable energy expansion in the GCC sub-region

The Middle East and North Africa (MENA) region, notably the Gulf Arab states, are emerging as attractive destinations for Chinese state and private companies in the New Three industries, as they seek to extend their exports and explore overseas business opportunities.

Renewable energy deployment in the region has gained momentum, largely driven by policy incentives capitalizing on the cost-effectiveness of solar PV and onshore wind power. The United Arab Emirates (UAE) and Saudi Arabia, the largest economies in the Gulf Cooperation Council (GCC), remain at the forefront of climate-related endeavors in the region. Despite being the leading greenhouse gas (GHG) emitters in absolute terms within the GCC, these countries have made the largest investments in renewable energy. 

To date, GCC countries have used solar generation more than any other renewable technology. According to IAE projections, in the coming five years, the rate of growth is set to accelerate, exceeding three times that of the previous five-year period. Solar PV is expected to account for over 85% of this increase, with additional contributions from onshore wind and concentrated solar power. More than one-third of the growth will be in Saudi Arabia alone, followed by the United Arab Emirates (UAE), Morocco, Oman, Egypt, Israel, and Jordan. 

Encouraged by partners in Europe and Asia, Gulf fossil fuel producers are increasingly keen to promote hydrogen energy, and state-backed efforts to develop hydrogen are now found in the UAE, Saudi Arabia, and Oman. In many cases, these projects are framed as key to transforming the region into future “green” hydrogen hubs. Though the timeline for achieving cost-competitive green hydrogen production in Gulf countries might span years, they perceive green hydrogen as a critical factor in sustaining their positions as major energy players amid the ongoing decline in fossil fuel demand.

It is also important to mention that the Gulf states are simultaneously moving towards localizing a portion of the renewables value chain and investing in renewable energy abroad. For example, while embarking on the large-scale construction of solar farms, Saudi Arabia aims to establish itself as a solar energy producer by constructing solar panel factories in industrial cities across the country. Saudi Arabia is a step closer to becoming part of the global battery industry after deals to develop domestic lithium processing and anode material projects. The deals could make Saudi Arabia’s lithium-ion supply chain the most developed in the Middle East, which right now has virtually no battery material capacity. 

On the international front, ACWA Power, a Saudi company, has invested in renewable energy projects in 14 countries. Similarly, Abu Dhabi-based Masdar Clean energy has stakes in solar parks, wind farms, and geothermal energy operations in 20 countries. And AMEA Power, an Emirati renewable energy developer, is rapidly expanding its investment project portfolio in the Middle East and Africa.  

The electric vehicle market in the Middle East is in its early phases, yet the global launch of new EV models is hastening their adoption. The GCC EV market size is estimated at $4.36bn in 2024, and is expected to reach $10.42 bn by 2029. Governments and consumers are actively embracing the shift from the conventional internal combustion (IC) engine. It is therefore not surprising that the region has attracted the presence of some of the world’s most prominent EV manufacturers, sparking intense competition for market dominance. Popular brands like Volkswagen, Nissan, Hyundai, BMW, and Tesla have garnered significant favor among local consumers. Yet, new entrants are steadily exploring opportunities in the region and expanding their reach through forming local partnerships. While Tesla is the current leader in the Middle East EV market, other electric models available in the region include the MG ZS EV, Renault Zoe E-Tech, the Volvo XC40 Recharge Pure Electric, and the newly launched Swedish brand, Polestar. In a statement to Bloomberg, Chris Noel, the Managing Director of Ford Middle East, revealed that Ford is gearing up to launch its initial EVs in the Gulf countries before gradually expanding its reach throughout the wider Middle East.

The focus of Gulf Arab countries extends beyond the adoption of electric vehicles to encompass the localization of production and the establishment of joint ventures, aiming to foster a robust EV ecosystem. The UAE has recently revised its National Electric Vehicles Policy to fast-track the nation’s adoption of electric mobility and establish the required supporting EV ecosystem. Dongfeng-backed BeyonCa signed an MoU with the Saudi Arabia-based Al Faisaliah Group to explore opportunities for electric vehicle development, encompassing research and development, manufacturing as well as trade, charging and insurance. 

Ceer, a joint venture between the Public Investment Fund (PIF) of the Kingdom of Saudi Arabia and Taiwanese manufacturer Foxconn, marks the debut of a Saudi automotive brand dedicated to the production of EVs in Saudi Arabia. M Glory is in the process of establishing an extensive EV manufacturing facility at Dubai Industrial City. Mays Motors (Oman). Germany-based NWTN Motors has forged a partnership with Sultan Investments for setting up an EV factory in Khalifa Industrial Zone Abu Dhabi (KIZAD)US-based Lucid Motors has signed agreements with government agencies in Saudi Arabia for their first international manufacturing plant located in King Abdullah Economic City. Starting as early as 2026, Hyundai expects to begin local production of combustion engine and EVs. 

China-Gulf Arab cooperation and the “green transition”

Collaboration between China and Gulf countries in the oil and gas sector, combined with China's influential position in clean energy supply chains, has created opportunities for relationship-building and trust that have enabled state-owned firms from both sides to extend these ties into the renewables sector. As a result, the Saudi and UAE markets are crucial export destinations for Chinese companies. Notable Chinese contractors, such as the China Energy Engineering Group and Shanghai Electric, have played key roles in constructing initial utility-scale projects.

At the utility scale, leading module manufacturers like Jinko Solar, the world’s largest, are spearheading consortiums that secure substantial solar tenders in Saudi Arabia. Jinko has also collaborated with Emirati state-owned Taqa on the Al Sweihan project in Abu Dhabi. China’s state-owned Silk Road Fund, having acquired a 49% stake in ACWA Power Renewable Energy in 2019, has invested an estimated $10 billion in the latter’s projects. Moreover, a joint venture agreement between Saudi Arabia’s Public Investment Fund and China’s Longi Solar, a major module manufacturer, established Longi as the Fund’s favored module supplier for mega-scale solar PV projects. 

China and Gulf Arab countries have continued to make progress in jointly promoting renewables. During the Third Belt and Road High-Level Forum for International Cooperation in China last October, a workshop co-hosted by Peking University’s Institute of Energy and the King Abdullah Petroleum Studies and Research Center (KAPSARC) focused on energy and sustainability collaboration between China and the Gulf Cooperation Council (GCC) countries within the framework of the Belt and Road Initiative (BRI). Saudi Arabia’s investment minister Khalid al-Falih told the China-Saudi Investment Conference called for further facilitation of green transition collaborations with Chinese companies.

During the two-day 10th Arab-China business forum hosted by Saudi Arabia last June, Mohammed Abunayyan, founder and chairman of the Board of Directors of ACWA Power, declared: “If you want a trusted partner in the world — one of the best partners in the world — it’s the People’s Republic of China.” Similarly, speaking at an industry event held in Riyadh last November, Mohammed Albalaihed, head of energy and utilities at the Public Investment Fund (PIF), stated: “We have huge demands for renewables and it makes a lot of sense for us from an economic development perspective and from a security of supply perspective to localize these products in the KSA (Kingdom of Saudi Arabia) … I’m talking about PV (photovoltaic) panels; I’m talking about wind turbines; I’m talking about electrolyzers and batteries, and in all honesty, we don’t see better partners in that field than the Chinese companies.” 

In what has emerged as a dynamic and crowded Gulf Arab EV market, Chinese automakers are actively seeking partnerships. Faced with a slowdown in domestic EV demand and substantial import tariffs in the US, Chinese automakers see the region as a substantial growth prospect that remains mostly unexplored and is muscling into the Gulf market. Last November, BYD launched its Han sedan in the UAE. Several months after having announced its entry into the Israeli EV market, ZEEKR, a subsidiary of Geely, reported it had signed new partnerships to sell its vehicles with four top car dealers in the UAE (AW Rostamani Holdings), Saudi Arabia (Wallan Trading Company), Qatar (Blue Lake Motors), and Bahrain (Y.K. Almoayyed & Sons). China’s state-owned premium car maker Hongqi, which partnered with one of Saudi Arabia’s oldest auto dealerships, Altawkilat in 2021 and since then has seen significant sales growth, is also present in Qatar and Oman and expanding into Abu Dhabi. 

Notably, Chinese EV manufacturer Nio received a substantial $2.2 billion cash injection from CYVN Holdings, an investment entity backed by Abu Dhabi. At the Arab-China business conference last June, Saudi Arabia’s Ministry of Investment signed a $5.6bn deal with Chinese electric car maker Human Horizons to set up an automotive research, development, manufacturing, and sales joint venture. Dongfeng-backed BeyonCa signed a memorandum of understanding (MoU) with the Saudi Arabia-based Al Faisaliah Group to explore opportunities for electric vehicle development, encompassing research and development, manufacturing as well as trade, charging, and insurance. 

The fiercely competitive Chinese electric car market is driving local automakers to introduce vehicles with advanced technology not currently available from Tesla in the country. In some cases, these vehicles are offered at prices lower than Tesla’s. Moreover, the focus of competition has shifted from primarily emphasizing driving range to a rapid introduction of new models with a plethora of in-vehicle technological features — models that could potentially attract customers in the Gulf.

However, it would be shortsighted to assess the potential for progress based only on possible customer appeal, company growth strategies, or aspirational government objectives. Consider, for example, Saudi Arabia’s PIF, which has set a target of manufacturing 500,000 electric vehicles (EVs) annually by 2030. The several hundred vehicles assembled by CEER to date were reliant on kits imported from the United States. Some experts question the feasibility of this ambitious goal, citing concerns about high labor costs in Saudi Arabia, limited local suppliers, and the size of the market — challenges that may impede the realization of the target in the short term and that could affect, positively or negatively, the role of Chinese automakers in the kingdom’s EV ecosystem.

Conclusion

The synergy between China and Gulf countries in the oil and gas sector, along with China’s dominant role in clean energy supply chains, has paved the way for cooperation in renewables. The surge of manufacturing investment into China’s New Three sectors has been accompanied by a push to expand exports and diversify trade relationships, with an emphasis on deepening ties with BRI partners, including with the Gulf Arab countries. This development aligns with the Gulf states’ efforts to exploit their cost-effective renewable potential to help drive broader economic diversification while meeting the challenge of the energy transition. 

Gulf Arab and Chinese officials acknowledge the importance of incorporating sustainable energy as a fundamental element of their national development policies. China and the GCC countries, with Saudi Arabia and UAE, leading the way, have built a solid foundation for cooperation on energy transition and green development and have pledged to work together to advance cooperation initiatives in areas including green innovation and energy security. While Beijing is pushing forward with the New Three industries, and Gulf Arab nations are advancing renewable projects despite ample fossil fuels, Sino-Gulf relations are now entering a new phase of development.

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