Hong Kong must tread cautiously in its Saudi business dealings

As it recovers from the Covid-19 pandemic, Hong Kong desperately needs new trading partners and new markets. The government has been building bridges to the Arab world, and in particular, Saudi Arabia. Chief Executive John Lee Ka-chiu, Financial Secretary Paul Chan Mo-po and West Kowloon Cultural District CEO Betty Fung Ching Suk-yee have led delegations to Riyadh, promoting commercial and cultural exchange. Lee is pushing for the creation of an economic and trade office in Riyadh. Meanwhile, Hong Kong has introduced new measures as it strives to cultivate ties with the Islamic world. These include the Q mark scheme for certifying halal products in the city and a “Muslim-friendly” private jet lounge. The city has hosted the Saudi Super Cup and announced plans for a US$1 billion investment fund between the Hong Kong Monetary Authority and Saudi Arabia’s Public Investment Fund. But is boosting ties with Saudi Arabia all it’s cracked up to be? When it comes to urban and economic development, iconic architecture, especially skyscrapers like Hong Kong’s Bank of China Tower and Shanghai’s World Financial Centre, often serves as powerful symbols. So when the Burj Khalifa opened in 2010, it helped put Dubai, United Arab Emirates, on the map as a must-visit city midway between Europe and the rest of Asia. Not to be outdone, Saudi Arabia is erecting the 1,001-metre-tall Jeddah Tower, set to surpass the Burj Khalifa as the tallest in the world upon its expected completion in 2028. However, this is far from being the Gulf kingdom’s most ambitious project if one has heard of the planned desert metropolis of Neom, which is to include a grandiose project called The Line. This is envisioned as a futuristic car-free city, just 200 metres wide and 170km long, so narrow that an expected 9 million residents would commute by high-speed rail and walk no more than five minutes to get anywhere. The project also aims to promote clean energy, sustainable living, preventive healthcare and work-life balance. Sounds too good to be true? As far as we know, people have never lived in a city organised like The Line. It may end up pioneering the world’s most sustainable living environment or it might fail miserably and become a white elephant in the desert. The Line is the type of visionary project too expensive for countries without serious oil money to experiment with. The Wall Street Journal has reported that Neom is seeing delays and cost overruns, with its price tag running up to an astronomical US$8.8 trillion. The report also mentioned suspected financial irregularities. To scale back, the initial phase of The Line has been reduced from 16km to 2.4km. Neom planners are scrambling to find new investors from around the world, including China. Saudi Arabia’s Public Investment Fund is reassessing the feasibility of The Line; this is the very same fund that signed the memorandum of understanding with the Hong Kong Monetary Authority. Hong Kong has long been an international city where East meets West. It makes sense for us to establish strong partnerships with the Arab world. But while Hong Kong should be open-minded in exploring new opportunities, we must also tread cautiously. One would think Hong Kong could offer top-notch professional services in exchange for Saudi investment in the city’s development, including projects like the Northern Metropolis, as suggested by Real Estate Developers Association chairman Stewart Leung Chi-kin. However, Saudi Arabia is also eyeing investment from Hong Kong. I once heard a businessman say, “The Chinese and the Saudis both want each other’s money; they have been waiting to see who blinks first.” Neom’s financial woes shouldn’t discourage Hong Kong from working with Saudi Arabia. There are other sectors, companies and projects to consider. However, businesses conduct due diligence for a reason. Confidence is built on proven track records, professional trust and shared values. Saudi Arabia doesn’t have a strong record on ambitious projects. For example, the King Abdullah Economic City was announced 20 years ago, but has largely failed to attract enough residents or investment to be a logistics and manufacturing hub. Hong Kong officials who travel to Riyadh should venture a little further and learn more about Saudi Arabia’s visionary projects, challenges and response strategies. Hong Kong can’t afford to just dive in and hope for the best. As oil-rich as Saudi Arabia is, the country is still an emerging market exploring new economic sectors beyond natural resources. In his book Fooled by Randomness, Nassim Nicholas Taleb wrote that “‘Emerging market’ is the politically correct euphemism to define a country that is not very developed”. One might consider underdevelopment not only through the lens of infrastructure but also through a country’s conduct, customs and business environment. Beyond cultural exchange, Hong Kong must learn how Saudi Arabia conducts business. Hong Kong has some of the most experienced developers who know how to maximise land potential and financial returns. The city should encourage them to help assess Saudi Arabia’s potential. An economic and trade office could be our eyes and ears in Riyadh. As for who is going to blink first, let’s celebrate only when real investment dollars are secured.

Hong Kong must tread cautiously in its Saudi business dealings

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Both economies can help each other, but the city must learn more about the Gulf kingdom’s projects, challenges and response strategies