In 2025, global trade remains clouded by uncertainty, shaped in part by shifting US tariff policies. For Chinese firms expanding abroad, the environment has become more complex and challenging.
Yet Chinese businesses continue to demonstrate adaptability. They pivot quickly, seeking out new footholds in Southeast Asia, Mexico, and increasingly, the Middle East. Rather than treating policy shifts as barriers, they use them as signals to identify fresh growth opportunities. External shocks have become springboards into new markets.
Among Middle Eastern markets, the UAE stands out. Bilateral trade between China and the UAE is projected to reach USD 200 billion by 2030.
The UAE was the first Gulf state to form a strategic partnership with China. On January 1, 2024, it joined BRICS as a full member. That same year, China and the UAE signed 19 cooperation agreements and MoUs (memorandums of understanding) across Belt and Road initiatives, investment, trade, and technology.
As ties deepen, Chinese businesses face key questions: How can they identify viable investment entry points in the UAE? What regulatory and compliance risks lurk beneath pro-business policies? And how can they build localized, sustainable commercial ecosystems?
These issues were addressed at a recent conference co-hosted by 36Kr and Qiantang Construction Investment Group. A subforum featured UAE stakeholders, outbound service providers, and Chinese companies active in the Middle East. Together, they examined opportunities and evolving models for outbound investment.
Chinese carmakers test the UAE market
The UAE is transitioning toward clean energy, with new energy vehicles (NEVs) added to the national agenda. This opens space for Chinese automakers, though market penetration is still low. So far, only Xpeng, Arcfox, and IM Motors have entered the UAE, with total sales still in the hundreds.
By contrast, the UAE’s 2024 automotive leaderboard is led by legacy fuel vehicle brands. Toyota tops the list with 84,000 units sold, followed by Nissan and Hyundai. Tesla leads in the electric vehicle segment with 11,600 vehicles sold.
Liu Yanjun, vice president of ZMEV, sees the slow uptake as expected. Chinese brands are newcomers, and local demand for NEVs is still nascent. Charging infrastructure is underdeveloped, and gasoline costs about RMB 4 (USD 0.6) per liter, reducing the EV cost advantage.
Still, local dealers anticipate strong demand for premium NEVs. Vera Tang, vice president of outbound operations at IntelliPro Group, noted that major UAE dealerships are actively seeking distribution rights for Chinese EV brands. One high-end Chinese brand has shown strong interest in entering the market.
“The outlook for Chinese carmakers in the Middle East is bright,” Liu said. “But each brand must find its own differentiated path.” While large players pursue autonomous and smart vehicles, niche players like ZMEV are targeting smaller, more immediately profitable segments.
ZMEV is building a commercial vehicle assembly plant in Saudi Arabia, with Phase 1 targeting 5,000 units. Its initial focus is on microvans with 6–8 cubic meters of cargo space. The company is also investing in charging infrastructure and after-sales centers, aiming to build an ecosystem around its product line.
Extreme temperatures pose another challenge. “In the UAE, 50–60 degrees Celsius is not unusual,” Liu said. “But most Chinese EVs are tested for up to 40 degrees Celsius. Battery systems need to be optimized for this climate.”
Policy advantages, and compliance traps
The UAE draws foreign investment with low corporate tax rates (0–9% in free zones), no personal income tax, and tax exemptions on capital gains. But cross-zone transactions may still be taxable. Overlooking this can result in back taxes or penalties.
Bian Jiang, vice president of U&I Group, noted that the UAE’s new tax laws align with OECD standards, including transfer pricing. Since 2023, Dubai has introduced guidelines requiring intra-group transactions to reflect market value.
PwC’s Li Biliang stressed that tax planning should begin even before profitability. Incentives at entry can turn into liabilities later.
Labor compliance is equally important. Tang explained that many firms adopt an “employer of record” model to hire locally without immediately setting up an entity—helping them onboard talent quickly.
One leading electronics brand used this model to hire a local manager who later helped position the company as a category leader.
As companies scale, HR compliance becomes more complex. Employment contracts must be in Arabic, and local practices like Dubai’s 4.5-day workweek must be followed.
Culture also shapes compliance. During Ramadan in Saudi Arabia, for example, Muslims work six hours daily, but employers must still pay full wages. In the UAE, all food and beverage businesses must be halal-certified to import products. Alcohol sales are tightly regulated, especially in Abu Dhabi and Sharjah.
Local currency settlement, cash management, and sukuk
Access to financing and cross-border payments remains a persistent hurdle for Chinese firms. For NEV makers, long payment cycles can strain cash flow.
“Frontend clients face foreign exchange challenges, while backend suppliers demand advance payment,” Liu said. “A shipment can take 45–60 days, tying up capital.”
Many of ZMEV’s target markets, including African countries, face USD shortages and trade deficits. Buyers often lack the currency to pay for vehicles.
To ease these challenges, local currency settlement is gaining traction. On May 27, China and the UAE launched a pilot for direct RMB-AED settlement. PwC’s Li said this can reduce transaction costs and improve efficiency. While the dirham’s USD peg limits volatility, the real benefit lies in eliminating conversion layers.
Larger firms are also setting up offshore cash pools, often in Hong Kong, to reduce FX costs. However, cross-border interest payments may still incur withholding and corporate taxes.
Bian from U&I Group highlighted sukuk, which refers to Islamic bonds, as a financing tool well-suited to the region. These instruments comply with Islamic finance principles and are popular across the Middle East and Southeast Asia. Still, they must be carefully structured to align with treasury centers and cash pools on both sides of the border.
Localizing talent, supply chains, and partnerships
The larger question facing outbound Chinese companies is whether they aim to be exporters or global-native enterprises.
According to Tang, talent strategies should evolve over time. At market entry, Chinese-speaking marketers help navigate channels. For branding, local staff familiar with the culture are essential. At scale, such as running a factory, a fully localized team is critical. “If you’re still seen as a Chinese company at that point, not a global one, then you’ve failed,” she said.
Dubai allows greater hiring flexibility than Saudi Arabia, which enforces nationalization quotas. Emiratis make up just 10% of Dubai’s population, with a highly international workforce considered the norm.
Beyond recruitment firms, companies can tap local talent platforms, university partnerships, and initiatives by Dubai Chambers.
For manufacturers, localizing supply chains and after-sales support is key. In African markets, where wages are low and infrastructure weak, EV adoption remains slow. ZMEV is taking a “boots on the ground” approach by building charging networks, service centers, and local plants to draw in suppliers and grow the market. This diverges from the product-led model often used with fast-moving consumer goods.
Building a localized ecosystem often starts with partnerships. Li from PwC noted that joint ventures (JVs) aren’t always necessary, and companies should assess whether they need capital, resources, or both.
State-backed partners or sovereign funds offer more than capital, providing visibility and access. For large-scale projects like factory construction, JVs with upstream or downstream players can align long-term interests. Ownership structures should reflect regulatory and tax realities.
Bian suggested a phased approach: early entrants can work with local distributors or suppliers. Mature players might adopt a “Huawei-style” model—pairing the JV model with licensing to meet compliance requirements while scaling efficiently. Automotive firms can also use Hong Kong’s financial infrastructure to establish UAE-based entities, then form JVs under outbound direct investment (ODI) channels.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Feng Yaling for 36Kr.