Why China's tech giants are better suited to Saudi Arabia than Google and Facebook

Published Fri, Oct 27 20178:40 AM EDTUpdated Fri, Oct 27 20178:46 AM EDT

Key Points

Technology companies from China, and not the U.S., will win the race to capture Saudi Arabia's young, lucrative market, one chief executive told CNBC
Chinese companies' diversified structure and confidence working alongside government mean that they lend themselves well to foreign markets structured like Saudi Arabia's, he reasoned
Chinese companies are more comfortable than their U.S. counterparts in working with early-stage markets, as demonstrated by the Middle Kingdom's massive Belt and Road project

Tencent's headquarters in Shenzhen, China, pictured in August 2016.

Bloomberg | Getty Images

With two-thirds of its population under 30 and an economy it is keen to diversify away from oil dependence, Saudi Arabia offers fertile ground for foreign expenditure.

But according to one investment bank chief executive CNBC spoke to, it is technology behemoths from China, and not the U.S., that will win the race to capture this lucrative market.

"China's large tech companies like and Tencent have a conglomerate structure and are pursuing more businesses than their U.S. counterparts like or Facebook," Fan Bao, CEO of China Renaissance, told CNBC.

Bao explained that "housing a diversity of businesses under one roof" is useful for "attracting top engineering talent," key for emerging markets in which workers with the right knowledge base can be difficult to source.

In addition, Bao added that "a critical aspect of the Chinese business model is the ability to work with the government." Feeling comfortable when operating in close contact with the state "can be particularly effective in countries like Saudi Arabia and the Middle East, where the government has a large role to play in economic growth and development."

Business with a relative lack of autonomy from the government can also bring positives. Mohamed Abdelmeguid, Middle East and Africa analyst at the Economist Intelligence Unit, told CNBC: "The Saudi government, with its large holdings of assets, can provide sovereign guarantees that lessen the risk factor for a given investment—particularly at a time of low oil prices."

Regardless of these assurances, Abdelmeguid agreed with Bao that Chinese companies are more comfortable than their U.S. counterparts when moving into early-stage markets. This is exemplified by Beijing's Belt and Road initiative, an umbrella term for the Middle Kingdom's push beyond its borders in the world's largest foreign investment project.

Winston Cheng, president of international for Chinese e-commerce firm JD.com, told CNBC Wednesday at the Future Investment Initiative conference in Riyadh, Saudi Arabia, that he saw "significant opportunity in the region" with "so much change going on here." Cheng added that JD.com was "looking for partners in the international market."

Abdelmeguid said that China's connection to the Saudi Arabian market was strong, not least as the largest buyer of its oil.

But the relationship has a useful symbiosis. "While Saudi Arabia is looking for new sources of funding for its economic diversification plans, China is keen to secure lucrative investment opportunities in the Kingdom—such as the forthcoming initial public offering of a stake in the national oil company, Saudi Aramco," he said.