Trade Promotion

Cracking the Bottleneck of Information Asymmetry between China-Arab Cooperation

2019-9-23 17:15:10

Driven by the “Belt and Road” initiative, China-Arab States economic and trade cooperation has been growing continuously. Meanwhile, due to the information asymmetry between the two parties, some Chinese companies have been conservative in “going global”. For the new stage of high-quality co-construction of the Initiative, the experts, officials and entrepreneurs at the 4th China-Arab States Expo gave their valuable advice.

Recent years have witnessed steady growth in the China-Arab economic and trade cooperation. From 2016 to 2018, the average annual trade volume between China and Arab States increased by nearly 20%. Meanwhile, China has been gradually increasing investment in Arab countries. In 2018, China’s direct investment in the region reached $16.97 billion. China’s energy cooperation with countries including Saudi Arabia, the United Arab Emirates, Sudan kept progressing; cooperation with Morocco, Egypt, Algeria and other countries in infrastructure developed in a steady manner; breakthroughs in cooperation with Saudi Arabia, and Egypt in high-tech fields such as nuclear energy and space satellites have been seen frequently. In recent years, capacity cooperation projects between Chinese private enterprises and Arab countries has also increased rapidly. For example, more than half of the 120 Chinese-funded enterprises investing in Egypt are of private nature.

Officials present at the Expo from the Arab countries are very much looking forward to joining hands with China on capacity cooperation. Farina Mazhar, Executive Director of the Pakistan Investment Authority, said that Pakistan has prioritized the development of textiles, automobiles, minerals, petrochemicals, and information technology. Magdi Gezi, Chairman of General Administration of the Industrial Development, Ministry of Trade and Industry of Egypt, hoped to combine Egypt’s Sustainable Development Strategy (SDS): Egypt Vision 2030 with China’s “Belt and Road Initiative to strengthen capacity cooperation between the two sides. Yahya Al Jabri, Director of the Investment and Export Development Agency of Oman, also stated that the agreements signed by China and Oman for the construction of industrial parks effectively enhanced the industrial cooperation between the two sides and the prospect of the China-Oman (Duqm) Industrial Park was satisfactory. The Oman government is stepping up its infrastructure development and will provide more favorable policies for Chinese companies, hoping to strengthen cooperation between the two sides.

However, despite the continued growth in investment, Chinese companies’ direct investment flows to the Arab states in 2018 were only $1.2 billion. Chinese companies are still very cautious about investing there.

LIANG Shaorong, Chairman of Ningxia Rongguang Technology Group, said that he had visited the Arab countries in 2010. Although the Group’s cooperation with Saudi Arabia and Egypt exceeded ¥ 200 million yuan, the business scope was still limited to providing equipment and technical guidance for Saudi Arabia and Egypt due to lack of information on the local conditions. For the same reason, they currently have no plans to invest in Arab countries.

Dr. ZHAO Yang from the Research Center of Country Risk of China Export & Credit Insurance Corporation (SINOSURE), expressed that due to war and political turmoil, some Arab countries have a higher level of risks. In addition, they mainly rely on oil and gas resources to stimulate economic growth. This, combined with geopolitical factors, which have a great impact on the economy, are the reason for the cautious view of their growth rate and inflation.

In the future, the “Belt and Road” between China and Arab States will obviously move toward high-quality development. Experts and entrepreneurs at the Expo believed that to solve the problem of information asymmetry between the two side, it is necessary to continuously strengthen country-specific research and analysis, establish and improve the database of Arab countries’ enterprises, and build a long-term platform for China-Africa economic and trade cooperation, as well as deepen the China-Arab cooperation.

First, it is proposed to strengthen country research and pre-judgment. While avoiding risks, Chinese companies can thus find new opportunities for cooperation. The government should integrate data from various sources, continuously improve the database of Arab enterprises, and promote the construction of the credit system of China and Arab states. At present, SINOSURE has built a global enterprise database, which can facilitate comprehensive risk assessments for foreign companies and avoid the pits, which has a deterrent effect to a certain degree on Arab enterprises.

Secondly, it is suggested to build a long-term platform for pragmatic cooperation between the two parties to enhance mutual understanding. LIANG Shaorong and other experts believe that in addition to the China-Arab States Expo, it is still necessary to establish a long-term platform, to strengthen understanding and matching between China and Arab States, and facilitate cooperation projects.

Thirdly, the State should launch favorable policies to encourage policy-based financial institutions to provide more risk protection and financing support for private enterprises on the process of globalization. In order to reduce risks, many Chinese companies have purchased insurance in China-Arab economic and trade cooperation. GUO Xinshuang, Deputy General Manager of SINOSURE, said that the company has supported China’s foreign trade and investment of $ 4 trillion, serving 150,000 customers, and supported enterprises to obtain financing of ¥ 3 trillion in cooperation with the banks. From 2013 to the end of July this year, SINOSURE has supported export and investment of about $ 130 billion to Arab countries, and paid nearly $ 1.3 billion in compensation, which effectively guaranteed the smooth implementation of a number of major projects.

Lastly, the Chinese enterprises should benchmark against the international standards and continuously improve their innovation capabilities. When competing with foreign top-ranking companies, despite the own advantages in terms of prices of the Chinese enterprises, there is still a certain gap in terms of equipment and technology. Chinese enterprises need to continuously increase their R&D input, enhance their innovation capabilities, raise the technical level of domestically produced equipment, and continuously expand the space for cooperation between China and the Arab States.

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