Chinese firms bullish on the Gulf despite geopolitical storms

“If you missed Southeast Asia, you cannot afford to miss the Middle East.” This sentiment — which generally means that while Southeast Asia is essential, the Middle East is a must-have —  has increasingly circulated among Chinese business circles in recent years. As outbound investment demand continues to intensify, Chinese companies have entered a phase of multi-regional exploration, with Southeast Asia, Latin America, the Middle East and Africa emerging as parallel pillars of overseas expansion. 

Southeast Asia remains the first stop for many Chinese companies going global, benefiting from geographic proximity, cultural familiarity and early-mover advantages that have already shaped highly competitive markets. By contrast, the Middle East — particularly the Gulf — has increasingly been framed as the next “blue ocean”. Since 2023, often described within corporate circles as the first year of large-scale overseas expansion by Chinese firms, momentum toward the region has been gaining steam. As infrastructure investment accelerates and urban skylines continue to rise, the region’s consumption potential has become an equally powerful draw, transforming the Middle East from a resource-centric market into a broader arena of commercial opportunity.

What makes this shift striking is that it appears to run counter to a long-held assumption about China’s overseas expansion strategy: a strong preference for stability above all else. For decades, Chinese firms were widely seen as prioritising politically predictable environments, making the growing willingness to commit capital, personnel and long-term strategies to a region synonymous with geopolitical volatility particularly noteworthy. 

This contradiction is partly explained by how the Gulf has been assessed at the operational level. Despite periodic conflict and wider regional tensions, the region offered a degree of predictability that mattered most to businesses. Energy flows remained stable, transport corridors functioned reliably, and major Gulf states maintained pragmatic economic policies toward external partners.

For many Chinese firms, a perceived insulation between headline geopolitics and day-to-day business shaped investment decisions. Cost efficiency, project scale, financing terms and execution capacity mattered more than political risk, allowing companies to pursue expansion while discounting broader geopolitical uncertainty.

That perception, however, is now being tested. Heightened regional volatility, including a potential US strike on Iran, security risks affecting transport routes, and growing strategic competition among Gulf states themselves, has brought geopolitics closer to corporate operations, particularly through its impact on connectivity and operational costs. This raises a deeper question for Chinese companies going global: is continuing geopolitical uncertainty in the Gulf changing how firms reassess risk and opportunity?

For much of the past decade, Saudi Arabia and the United Arab Emirates acted in broad strategic alignment on regional security, economic coordination and diplomatic positioning. This relative cohesion allowed external actors, including China, to treat the Gulf as a largely unified strategic space.

That coherence is weakening. While Saudi Arabia and the UAE remain formal partners, their interests are diverging sharply across regional security arrangements, port and logistics competition, energy transition strategies, and influence over emerging technologies.

These tensions between the two nations broke into the open in December last year, when Saudi Arabia declared that it would not tolerate what it described as weapons shipments from the UAE destined for southern Yemeni separatists and carried out airstrikes on the port of Mukalla in eastern Yemen. Riyadh framed the strikes as a necessary response to an imminent national security threat, while Abu Dhabi denied the allegations. Following the operation, Yemen’s Saudi-backed Presidential Leadership Council ordered UAE forces to withdraw from the country within 24 hours, underscoring how bilateral frictions had moved beyond diplomatic dispute towards a more overt security dimension.

At the core of Saudi Arabia’s concern lies the linkage between developments in southern Yemen and security in the Red Sea. From Riyadh’s perspective, a consolidation of control by the Southern Transitional Council in southern Yemen could, in theory, affect the balance of power around the Bab el-Mandeb Strait, a critical global maritime chokepoint. Saudi officials view the UAE’s reliance on local proxies as a potential catalyst for altering Red Sea security dynamics, including the prospect of a deeper Israeli presence in areas Saudi Riyadh considers strategically sensitive.

These concerns are not merely abstract. Israel’s reported intelligence footprint on Socotra Island and its broader positioning in the Horn of Africa overlap closely with port infrastructure and military access long cultivated by the UAE along the Red Sea and western Indian Ocean corridor. These developments suggest that the Saudi-UAE rift is no longer confined to policy differences, but is increasingly spilling over into the broader regional environment, with implications for the Red Sea, maritime routes and proxy theatres beyond Yemen.

The risk is not only heightened bilateral tension, but the emergence of a more visible and high-profile split within the Gulf Cooperation Council itself. As a result, the Gulf is no longer a single strategic arena, but a more fragmented and competitive mosaic of overlapping political and economic interests, increasing the importance of differentiated strategies and deeper local knowledge.

For businesses, the implication is a sharper rise in political and operational complexity. Market access, partnerships and project visibility are more likely to be interpreted through political lenses than before. While no formal diplomatic or commercial restrictions have been announced, several individuals familiar with the matter note that international companies with operations in both countries have begun internal contingency planning to mitigate potential disruption should the climate deteriorate further. 

For foreign investors, these developments have revived memories of the 2017 blockade of Qatar, when Saudi Arabia, the UAE, Bahrain and Egypt imposed a prolonged diplomatic and economic embargo that disrupted regional supply chains and corporate operations.

Against an already strained geopolitical backdrop, recent statements by US President Donald Trump regarding naval deployments to the Middle East and continued military pressure on Iran have further heightened market sensitivity to regional stability. Even a limited US strike on Iran would likely expose Gulf states to retaliatory risks, particularly through missile, drone or proxy attacks targeting energy and infrastructure assets. It is one reason America’s closest allies in the Gulf have sought to dissuade Washington from military action.

But for Chinese private companies, geopolitical risk is rarely experienced as an abstract strategic concern. Instead, it is felt through concrete operational channels: Transport connectivity, logistics reliability, personnel mobility and cost predictability. In this sense, geopolitics functions not as a barrier to entry, but as a variable that shapes how business is conducted.

Aviation connectivity offers a clear illustration. During the escalation of the Israel-Iran conflict in June 2025, airspace closures and heightened security concerns across Israel, Iran and neighbouring states forced international airlines to cancel or reroute flights. Key corridors linking Europe, the Gulf and Asia were disrupted, increasing travel times and complicating project coordination. More recently, in January this year, renewed tensions linked to Iran prompted European carriers, including Lufthansa, Air France and KLM, to reduce or suspend services to parts of the region amid elevated risk assessments.

Against this backdrop, Air China nonetheless launched a direct Beijing-Abu Dhabi route in January this year, expanding connectivity with one of the Gulf’s most important commercial hubs. This move reflects a longer-term assessment that core Gulf transport corridors remain resilient despite episodic geopolitical stress.

For Chinese firms operating in the region, the stability of air routes matters less as a diplomatic signal than as an operational one. Reliable connectivity shapes executive mobility, project coordination and the predictability of cross-border business activities. When routes remain open, geopolitical risk is perceived as manageable; when they close, its costs become immediately tangible.

Conversations with Chinese entrepreneurs operating in the Gulf offer a clearer picture of how geopolitical risk is interpreted at the corporate level. Insights drawn from executives with direct, long-term exposure to local markets suggest that day-to-day commercial considerations often diverge sharply from headline geopolitical narratives.

Chinese executives with longstanding experience in Dubai frequently describe the city as the most attractive business environment in the Middle East, even amid regional tensions. Growth opportunities across sectors, a strong sense of security, and high policy flexibility are commonly cited advantages. Dubai’s ability to attract global capital and talent has continued largely uninterrupted, drawing comparisons not with other Middle Eastern cities but with Shenzhen — a city defined by momentum and institutional pragmatism — two decades ago. In such a context, local operating conditions often outweigh regional political considerations.

When it comes to Saudi Arabia, perceptions are shaped by different considerations. Executives overseeing large-scale infrastructure projects tend to view regional political frictions, including the growing Saudi-UAE competition, as a normal and universal feature of inter-state relations, rather than a disruptive shock to commercial cooperation. From this perspective, episodic rivalries among neighbouring states are unlikely to derail long-term economic engagement.

More significantly, they argue, is a strategic shift in how Chinese firms approach overseas markets: from globalisation to localisation. This transition requires a deeper understanding of local regulatory systems, labour markets and social contexts. Geopolitics forms part of that environment, but it is treated as one variable among many, rather than a decisive constraint. Confidence in the long-term path of the Middle Eastern market therefore, remains strong among firms that have already committed to localisation strategies.

Huawei offers a frequently-cited example. As one of the first Chinese enterprises to go global, the company has trained more than 18,000 local IT engineers in Saudi Arabia over the past two decades, built a network of over 500 local suppliers, and established local cloud data centres, illustrating a sustained, investment-led approach to deepening its presence in the local market.

According to the Saudi-Chinese Business Council, more than 5,000 Chinese companies visited the Kingdom in 2025 to explore investment opportunities. The council now comprises over 1,800 members, and has achieved more than 85% implementation of cooperation agreements. Some projects in Saudi Arabia have already achieved localisation rates above 40%, indicating long-term commitment.

These corporate perspectives do not contradict broader concerns about rising geopolitical volatility. Instead, they reveal a structural gap between macro-level risk assessments and micro-level business decisions. Firms already inserted in Gulf markets tend to discount short-term political shocks, relying on local conditions, sectoral demand and long investment horizons. Whether this gap ultimately proves to be a source of resilience or a hidden vulnerability will depend on how quickly firms can adapt if geopolitical shocks begin to disrupt the operating conditions they currently take for granted.

The Middle East is entering a period of sustained political fluidity. Rivalries among regional powers, intermittent security crises, and shifting alignments are likely to persist. For Chinese companies going global, this environment undoubtedly raises uncertainty.

Yet the evidence suggests that geopolitics functions more as a frictional cost than a prohibitive barrier. Transport connectivity, regulatory environments and local market conditions continue to shape business decisions more directly than diplomatic tensions alone. Firms that combine localisation strategies with disciplined risk management remain confident of the region’s long-term potential.

A recent PwC survey of 136 Chinese enterprises shows that confidence in the Middle East remains strong: Nearly 90% of firms plan to enter or expand their footprint in the region, and roughly 44% have already formalised detailed business plans, up seven percentage points from 2022, signalling a move beyond general interest towards more operationally grounded engagement. The survey also reports that around 40% of Chinese companies in the Middle East are now profitable, while only about 15% remain loss-making. Moreover, more than a third of respondents indicate that Middle East revenue accounts for at least 20% of their overall business, underscoring the region’s growing strategic importance.

In a Gulf defined less by fixed blocs than by evolving relationships, resilience matters more than certainty. For Chinese companies, success will depend not on avoiding geopolitics, but on understanding how to operate alongside it, absorbing uncertainty through diversification, flexible project timelines, local partnerships, and contingency arrangements, and adapting to risk, rather than retreating from it — a counter-intuitive approach, but one which they have shown to work, increasing their appeal to Gulf and other nations.

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