Bahrain highlighted as gateway to the Gulf

The tiny Kingdom of Bahrain, off the eastern provinces of Saudi Arabia, is promoting itself as the perfect gateway from which Chinese companies can expand their business interests throughout the Gulf.

There is already a growing list of Chinese companies eyeing future projects in Bahrain, and beyond, and according to the acting chief executive of its Economic Development Board, its tax-free business economy and strategic position offer great opportunities for many more.

"Bahrain started economic and social reforms more than a decade ago, and today, more than any time, we need Chinese investments to grow our country, not only economically, but also in helping us advance the reforms," said Kamal bin Ahmed Mohamed, who is also its minister of transportation.

With a population of 1.2 million, Bahrain is located in the heart of the Gulf, lying less than 50 kilometers from many of Saudi Arabia's major oil production facilities, and 29 km north of Qatar, which is also considered one of the region's economic powerhouses.

Although Bahrain's oil production is the smallest of all the members of the Gulf Cooperation Council countries - Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Bahrain and Oman - its role in the region has for years been as an economic and financial center.

"Chinese investors and companies can receive a good return from any investment in Bahrain," added Mohamed.

"The GCC market is of great potential, and Bahrain can act as the gateway to that because of its close relations with its neighboring countries."

Chinese telecom giant Huawei Technologies Co Ltd moved its Middle East headquarters from Dubai to Bahrain in 2009.

Lu Shujun, its director of public relations for the region, said: "A favorable business environment including attractive policies for foreign direct investment, high government efficiency, a low cost of living, and low office rents, as well as a friendly social environment - these are all factors that come together to make Bahrain an attractive location for our headquarters.

"Some might consider Bahrain itself as offering a limited local market, but it does radiate its influence, especially in the eastern part of Saudi Arabia, with its major oil fields and operations and heavy population.

"And that reputation also extends into Iran, Kuwait and Iraq," added Guo Hu, first secretary at the economic and commercial office of the Chinese Embassy in Bahrain.

It takes about 20 minutes to drive from Bahrain's capital Manama to Saudi Arabia. The Saudi capital Riyadh is 400 km away, and Bahrain remains a weekend leisure spot for local Saudis and expats alike.

"Saudi Arabia is a relatively closed market, including its financial market. That's why just six or seven foreign banks operate there but most of the world's banks have operations in Bahrain, from where they can do business easily with countries throughout the region," Guo said.

The six countries of the GCC collectively made up China's eighth-largest trading partner in 2011 with a bilateral trade volume of $133.8 billion, up 44.6 percent year-on-year.

The GCC's combined nominal GDP expanded by nearly 31 percent to a record high of about $1.4 trillion in 2011, according to the Institute of International Finance, and the combined economic volume is projected to reach $1.6 trillion in 2012.

"China's trade with the GCC will maintain an annual growth of about 15 to 20 percent in the coming years.

"But China needs to optimize its trade links with the GCC because at the moment its exports of textile and apparel products make up almost all its regional business.

"China's exports of transportation machinery and expertise, such as automobiles, aircraft and yachts, accounted for less than 1 percent of the GCC's imports, for instance," Guo said.

"We need to encourage domestic enterprises to invest more in the Gulf region in future. High energy-consumption companies, and high-tech companies need to tap into the GCC markets, and Chinese service companies could also have a very bright future here, investing in Bahrain, expanding throughout the region, making use of the cheap energy and labor," Guo said.

Mohamed added that "China and Bahrain share great scope for cooperation in areas such as manufacturing, construction and telecommunications, particularly, in view of Bahrain's continued future development plans".

Another Chinese company already in Bahrain is China Harbour Engineering Co Ltd, which has two ongoing projects there - a resort project worth about $200 million, and a shopping mall funded by the government's National Security Agency of Bahrain.

Zhou Jie, deputy general manager of China Harbour Engineering's Bahrain branch, said: "Bahrain's construction market is warming up, stimulated by a series of projects by its government. Governmental and private investment is now flowing into the country."

Mohamed added that one of the flagship projects which would certainly be open to Chinese involvement is its planned new airport, expected to start construction at the end of the year and take two years to build at a cost of about $800 million.

There is also the planned 2,200-km GCC rail network, which will link up countries in the Gulf at a total cost of $30 billion, as well as a rapid transit network for Bahrain itself, expected to cost $8 billion.

Officials point out that Bahrain's business costs, especially utilities and labor, are a major appeal for investors.

"The industrial power price is a little more than 0.2 yuan ($0.031) per kilowatt-hour in Bahrain while the cost in China is around 0.8 yuan per kWh," added Guo.

"Local water costs a little more than $1 per cubic meter, almost the same as that in Beijing or Shanghai, but gas costs $2.25 per mmbtu (million British Thermal Units), an eighth of the cost in China, which could mean huge savings for high energy consumption companies."

Industrial land rents in Bahrain are $1.33 per square meter a year while warehouse rents in Shanghai are about 34 yuan ($5.32) per square meter a month.

Labor costs in Bahrain remain low because 80 percent of its 400,000 workforce is foreign. The monthly cost of a foreign employee is about 200 Bahraini dinars ($533.9) and in the construction industry that can be as low as Bahraini dinars 100 a month, according to Guo.

The average monthly salary in Beijing was $733 in 2011.

"Telecommunications and transportation are very convenient; and the visa-on-arrival policy between China and Bahrain, which came into force in April, has also eased business and tourism," Guo added.

The Bahraini government has introduced a series of favorable policies to attract foreign investment.

"Bahrain has no corporate tax, no personal tax, no capital gains tax, no withholding tax, and no restriction on the repatriation of capital, profits, dividends," said Bader Al Saad, chief of Bahrain International Investment Park.

Guo added that "the favorable policies mean products from foreign companies coming into Bahrain pay no import tariffs when destined for the GCC market, a similar arrangement for foreign companies using Dubai's free zones".

Two sectors being highlighted as offering great opportunities for Chinese small and medium-sized enterprises are light industry and food processing.

"We have great demand for Chinese food products," said Khalid Ali Al Ameen, a board member of the Bahrain Chamber of Commerce and Industry. He said as much as 99.9 percent of Bahrain's food is imported and the country has almost no food processing sector.

Profit margins for food wholesale businesses in Bahrain can be as high as 100 percent as a result, and retail food businesses can see profit margins of 10 to 25 percent, according to Ameen.

As long as Chinese companies are registered in Bahrain and reach the requirement of local employment, they are entitled to enjoy financial support from Tamkeen, an enterprise fund established in August 2006 as part of Bahrain's national reform initiatives tasked with supporting its private sector.

That support includes financial aid, government grants, and programs to enhance companies' productivity, Ameen said.

Bahrain is scheduled to launch online registration services for foreign investors next year.

The country is also planning a 100,000-square-meter commercial center named Dragon City, which the authorities hope will be in business in two years, to attract as many as 400 Chinese merchants, according to Guo.

Dong Liang has spent more than 20 years in Bahrain, and specializes in private healthcare services, another sector which many expect to boom in the coming years.

"Chinese hospitals have some of the world's best technology and management. And I believe investment in this area will also be very bright," he said.

lijiabao@chinadaily.com.cn

(China Daily 09/05/2012 page17)