The global economic landscape is shifting at an unprecedented pace. China recently announced a historic trade surplus approaching $1 trillion, a record that underscores the nation’s manufacturing dominance and aggressive export strategy. Simultaneously, Chinese investment in Saudi Arabia is surging dramatically, particularly in the industrial sector, creating a competitive landscape that European companies can no longer afford to ignore.
For European businesses across multiple sectors, from HORECA (hotels, restaurants, and catering) to construction, machinery, and technology, the Saudi market represents not just an opportunity but an imperative. The window for European companies to establish meaningful market presence is narrowing as Chinese competitors rapidly occupy strategic positions across the Kingdom’s burgeoning economy.
China’s Economic Momentum: Record-Breaking Numbers
China’s trade surplus reached a staggering $990 billion in 2024, eclipsing the previous record of $838 billion set in 2022. In the first half of 2025 alone, China’s goods trade surplus hit $586 billion, a 34% increase year-over-year, with experts projecting the full-year surplus could reach $1.2 trillion. China now accounts for approximately one-third of the world’s manufactured goods, surpassing the combined production of the United States, Japan, South Korea, Germany, and the United Kingdom.
This export powerhouse status gives Chinese companies significant advantages: economies of scale, competitive pricing, state-backed financing, and increasingly sophisticated technological capabilities. When such capabilities are directed toward strategically important markets like Saudi Arabia, the implications for European competitors become profound.
Chinese Investment Surge in Saudi Arabia: The Numbers Tell the Story
The expansion of Chinese capital into Saudi Arabia has been nothing short of remarkable. Chinese foreign direct investment (FDI) stock in the Kingdom surged by 28.8% in 2024, reaching SAR 31.1 billion (approximately USD 8.2 billion), up from SAR 24.1 billion in 2023. Investment inflows jumped 164% year-on-year to SAR 8.6 billion, while net inflows more than tripled to SAR 7 billion.
This investment acceleration reflects deepening strategic alignment between Beijing and Riyadh. Bilateral trade between China and Saudi Arabia exceeded $100 billion annually, making China the Kingdom’s largest trading partner for over a decade. In September 2024 alone, 42 investment agreements valued at over $1.74 billion were signed during the Saudi-Chinese Business Forum in Beijing, spanning advanced industries, smart vehicles, energy solutions, medical devices, equipment, and mineral resources.
Chinese companies are not simply exporting to Saudi Arabia: they are embedding themselves in the Kingdom’s industrial fabric. More than 750 Chinese companies now operate within Saudi Arabia, contributing significantly to major projects including NEOM and strategic industrial cities like Jubail and Jazan. 35 Chinese companies have established Regional Headquarters (RHQs) in Riyadh, demonstrating long-term strategic commitment rather than transactional engagement.
Between 2021 and late 2024, China ranked as the top source of greenfield FDI into Saudi Arabia, with investments worth $21.6 billion, primarily focused on clean tech, digital infrastructure, and manufacturing, all critical sectors for Saudi Arabia’s Vision 2030 economic diversification strategy.
The Saudi Market Opportunity: Size, Growth, and Strategic Importance
Saudi Arabia’s economic transformation under Vision 2030 has created exceptional opportunities across multiple sectors where European companies traditionally excel.
HORECA Sector: Explosive Growth Driven by Tourism and Mega-Projects
The Saudi hospitality market reached $13.23 billion in 2024 and is projected to grow at a CAGR of 5.03% to reach $16.91 billion by 2029. More dramatically, some estimates place the broader hospitality market at $27.14 billion in 2025, expanding to $54.32 billion by 2030 at a CAGR of 7.37%.
The Kingdom currently boasts 149,400 existing hotel keys, with an additional 102,100 keys under construction or in final planning stages. Projections indicate Saudi Arabia will add 320,000 new hotel rooms by 2030, representing an estimated development cost of $104 billion. Significantly, 82% of this upcoming supply will comprise luxury, upper-upscale, and upscale hotels, precisely the segments where European HORECA equipment, design, and service providers have traditionally dominated.
The foodservice market presents equally compelling opportunities. Valued at $30.12 billion in 2025, the Saudi foodservice market is expected to grow at a CAGR of 8.20% to reach $44.67 billion by 2030. The Quick Service Restaurant segment alone is projected to reach $10.35 billion in 2025, expanding to $14.19 billion by 2030.
For European manufacturers of commercial kitchen equipment, hotel furnishings, restaurant technologies, food processing machinery, and hospitality management systems, these numbers represent extraordinary potential, provided they can compete effectively against increasingly sophisticated Chinese competitors offering aggressive pricing and turnkey solutions.
Construction Sector: Unprecedented Infrastructure Investment
Saudi Arabia’s construction market was valued at $104.76 billion in 2024 and is expected to reach $138.4 billion by 2034, growing at a CAGR of 3.52%.The Kingdom plans to invest over $3.2 trillion by 2030 through public and private sector initiatives, with construction being a key focus area.
The scale is breathtaking: 660,000 new homes by 2030, over 320,000 hotel rooms, 5.3 million square meters of retail space, and 6.1 million square meters of new office space. Mega-projects like NEOM ($500 billion), Qiddiya ($40 billion), New Murabba ($50 billion), and numerous others are proceeding simultaneously.
European construction materials, building technologies, specialized equipment, and engineering expertise remain highly valued in the Saudi market. However, Chinese competitors are increasingly offering integrated solutions combining competitive pricing, rapid delivery, and technological innovation.
Machinery and Equipment: Massive Import Dependency Creates Opportunity
Saudi Arabia imported $43.4 billion in machinery in 2023, making it the 32nd largest importer of machinery globally and the number one most imported product category in the Kingdom. China supplied $16.2 billion of this total, more than triple the amount from the second-largest supplier, the United States ($3.98 billion).
European suppliers from the UK, Germany, and Italy collectively provided approximately $6.81 billion, demonstrating continued market presence but also revealing the competitive disadvantage compared to Chinese suppliers’ market share.
Significantly, Saudi Arabia estimates that approximately 80% of machinery and equipment is currently imported, creating enormous potential for companies that can combine sales with localized production and assembly, a strategy Chinese firms are aggressively pursuing.
The construction equipment market alone is expected to reach $1.78 billion in 2025 and grow at a CAGR of 6.27% to reach $2.41 billion by 2030, driven by mega-developments like NEOM, the Red Sea Project, Diriyah Gate, and Qiddiya.
Technology Sector: Digital Transformation Creating High-Value Opportunities
Saudi Arabia’s ICT market reached $48.76 billion in 2025 and is projected to grow at a CAGR of 9.10% to reach $116.50 billion by 2035. The digital economy has reached approximately SAR 495 billion, contributing 15% to national GDP.
Government ICT spending increased by 20% in 2023 to $11.16 billion, while cloud computing permits surged 40% in the same period. The telecommunications industry is forecasted to grow at a CAGR of 3.92% through 2029, fueled by government initiatives and rising demand for high-speed internet, with 5G coverage reaching 78% of the population by April 2022.
European technology companies, particularly those specializing in enterprise software, cybersecurity, industrial automation, smart city solutions, and advanced manufacturing technologies, face substantial opportunities but also fierce competition from Chinese tech giants offering competitive pricing and increasingly sophisticated capabilities.
The Localization Imperative: Why Exporting Is No Longer Sufficient
Saudi Arabia’s economic strategy has fundamentally shifted toward localization. This shift is not merely aspirational but is being enforced through powerful policy mechanisms that create both obstacles for purely export-oriented companies and exceptional opportunities for those willing to invest in local manufacturing.
Non-Tariff Barriers and Local Content Requirements
The Local Content and Government Procurement Authority (LCGPA), established in 2019, now enforces comprehensive local content requirements across government procurement and, as of 2024, all state-owned enterprises (SOEs) where the government holds at least 50% ownership. This expansion dramatically increases the scope of contracts subject to localization requirements.
Government agencies and SOEs must now track and report local content usage, comply with mandatory local content product lists, and prioritize SMEs.
For companies without local manufacturing presence, these requirements create significant disadvantages. Even when foreign companies can technically compete, contracts often require minimum local content thresholds as a condition of eligibility.
The Price Advantage for “Made in Saudi” Products
Perhaps most significantly, government procurement evaluation criteria now distinguish between imported products and locally manufactured goods. While price remains a primary consideration for imported products, locally produced items benefit from evaluation criteria that emphasize local content percentage rather than lowest price.
Strategic Benefits of Localization Beyond Regulatory Compliance
Localizing production in Saudi Arabia offers European companies advantages extending far beyond avoiding non-tariff barriers:
Preferential access to government mega-projects: With government and SOE procurement representing hundreds of billions of dollars annually, local manufacturers gain inside track positioning.
Enhanced competitiveness in private sector sales: Even private companies increasingly prefer local suppliers for faster delivery, easier after-sales service, and alignment with national economic objectives.
Proximity to end-users: Local presence enables better customer understanding, faster customization, and superior technical support—competitive advantages particularly valuable in complex B2B sectors.
Reduced logistics costs and lead times: Manufacturing locally eliminates international shipping delays and costs, increasingly important as global supply chains face persistent disruptions.
Currency risk mitigation: Local production in SAR reduces exposure to currency fluctuations affecting import pricing.
Saudi Arabia’s Investment Incentive Ecosystem: Making Localization Economically Attractive
The Saudi government has constructed a comprehensive incentive framework specifically designed to attract foreign investment in manufacturing and industrial sectors. European companies localizing production can access substantial financial and operational support.
Standard Incentives Program for Industrial Sector
Launched in January 2025 with $2.66 billion in allocated funding, the Standard Incentives Program offers support covering up to 35% of initial project investment, capped at $13.3 million per qualifying project.
Tax Credits and Financial Support
Tax Credits: Up to 50% tax credit on Saudi national payroll and training costs for 10 years, significantly reducing operational expenses while supporting Saudization objectives.
Industrial Financing: The Saudi Industrial Development Fund (SIDF) finances up to 75% of industrial projects through favorable multi-purpose loans, reducing capital requirements for new manufacturing facilities.
Land and Infrastructure: The Saudi Authority for Industrial Cities and Technology Zones (MODON) provides industrial land and ready-made factories at reduced prices with extended grace periods and expedited approval processes.
Special Economic Zones: Enhanced Incentive Packages
Saudi Arabia has established five Special Economic Zones (SEZs) offering additional benefits for investors. Companies operating in SEZs benefit from:
Corporate Income Tax: Reduced to 5% for up to 20 years (compared to standard Saudi corporate tax rates)
Withholding Tax: 0% permanently for repatriation of profits from SEZ to foreign countries
Customs Duties: 0% deferral for goods inside the SEZ
VAT: 0% for all goods exchanged within zones and between zones
Flexible Labor Regulations: Supportive regulations around foreign talent during the first five years of operation
Streamlined Procedures: Simplified licensing and regulatory compliance through dedicated SEZ authorities
ALAT: Saudi Arabia’s Sustainable Technology Manufacturing Giant
ALAT, funded by the Public Investment Fund (PIF), represents Saudi Arabia’s most ambitious industrial transformation initiative. With a commitment to invest $100 billion by 2030, ALAT focuses on nine priority sectors including robotics, semiconductors, advanced electronics, smart health, AI infrastructure, and electrification.
European companies partnering with ALAT gain not only financial backing but also strategic positioning within Saudi Arabia’s industrial ecosystem and preferential access to the Kingdom’s massive infrastructure projects.
The Regional Springboard Effect: GCC, Africa, and Central Asia Market Access
Perhaps the most compelling strategic advantage of localizing production in Saudi Arabia extends beyond the Kingdom itself: it’s the platform for regional market expansion across three continents.
Gateway to the GCC Common Market
Saudi Arabia’s membership in the Gulf Cooperation Council provides companies manufacturing in the Kingdom preferential access to the GCC common market encompassing UAE, Qatar, Kuwait, Bahrain, and Oman, collectively representing over 450 million potential consumers when including broader regional trade agreements.
The GCC common external tariff of 5% for most products and duty-free movement of goods between member states manufactured with sufficient local content creates significant competitive advantages. Products “Made in Saudi Arabia” benefit from streamlined customs procedures and preferential treatment across GCC markets.
Saudi Arabia accounts for 55% of the total GCC logistics market and is strategically positioned for cost-effective distribution throughout the Arabian Peninsula, with cost advantages exceeding 10% for Greater Arab Free Trade Agreement (GAFTA) countries.
Africa: Proximity and Growing Demand
Saudi Arabia’s geographic position on the Red Sea provides natural access to rapidly growing African markets. The Kingdom is investing heavily in port infrastructure, including expansions at Jeddah Islamic Port and King Abdullah Port, specifically designed to facilitate trade with African nations.
Central Asia: Emerging Strategic Corridor
The first joint meeting of GCC and Central Asian countries (the CA+GCC summit) in July 2023 established a joint action plan for 2023-2027, focusing on trade, logistics, transportation, energy, infrastructure, agriculture, and digitization cooperation. Central Asia’s market of 75 million people and abundant natural resources creates complementary trade opportunities.
Saudi Arabia’s participation as a dialogue partner in the Shanghai Cooperation Organization further strengthens these connections, creating institutional frameworks that facilitate trade and investment flows.
Strategic Location: Asia-Europe-Africa Nexus
Saudi Vision 2030 explicitly positions the Kingdom as a global hub connecting three continents. Located between key global waterways, Saudi Arabia serves as an epicenter of trade and a gateway linking Asian manufacturing centers, European consumer markets, and African growth economies.
The National Industrial Development and Logistics Program (NIDLP) aims to transform Saudi Arabia into one of the top 25 global logistics hubs. Massive infrastructure investments, including the Riyadh Metro, expansion of airports, development of high-speed rail networks, and creation of nearly 60 logistics zones nationwide by 2030, are designed to operationalize this vision.
For European companies, manufacturing in Saudi Arabia means positioning products within four hours’ flight time of 40 fast-growing markets, with access to over 3.5 billion potential customers across three continents through integrated logistics infrastructure.
The Competitive Reality: Act Now or Lose Market Position Permanently
The convergence of China’s record trade surplus, surging Chinese investment in Saudi Arabia, and the Kingdom’s aggressive localization policies creates a narrow window for European companies to establish meaningful market presence.
Chinese competitors are not simply exporting products, they are building factories. Each passing month sees more Chinese companies achieving “local manufacturer” status, gaining the preferential treatment and competitive advantages that accompany it.
European companies that continue viewing Saudi Arabia purely as an export market will find themselves systematically disadvantaged.
European businesses that dedicate resources now to establishing manufacturing presence in Saudi Arabia will position themselves to:
Compete effectively against Chinese manufacturers already establishing dominant positions
Access government mega-projects worth hundreds of billions through compliance with local content requirements
Leverage substantial Saudi incentives covering up to 35% of initial investment costs
Build long-term competitive advantages through local relationships, market knowledge, and operational presence
Utilize Saudi Arabia as a regional platform for expansion across GCC markets, Africa, and Central Asia, serving over 3.5 billion potential customers
The window for strategic positioning is open now but narrowing rapidly.
The choice is clear: invest in localization now and secure long-term competitive position, or watch from the sidelines as Chinese competitors and other first-movers capture the opportunities that Saudi Arabia’s extraordinary transformation offers.
The time for European companies to act is not tomorrow: it is today.