A veteran investor and co-founder of a global asset allocation firm said Chinese companies eyeing the Middle East should focus on digital infrastructure and green energy, as more firms look to the region for growth opportunities as China struggles through a weak economic recovery and persistent tensions with the West.

Opportunities are opening up, as the accelerated green and digital transitions in many Middle Eastern nations has fueled an array of infrastructure projects and put Chinese in high demand across a wide range of industries, Vanessa Xu, also executive chair and chief investment officer of VS Partners, said in an interview with Caixin.

These projects include digital infrastructure, such as telecoms and cloud data centers, said Xu, who has two decades of experience in global capital markets and was one of Fortune China’s Most Powerful Women in 2022.

Eco-friendly new materials companies will also be highly sought after in the Middle East as many industrial and residential buildings under construction require further energy savings, she said. Some energy storage companies are also suited to the solar-rich region.

A growing number of Chinese companies, such as new-energy vehicle manufacturers and cloud service providers, are entering Middle East markets to capitalize on Beijing’s strengthening ties in the oil-rich region and the Gulf states’ accelerating shift to a digital and green economy. At home, Chinese firms are struggling with a fragile economy and heightened geopolitical tensions with the West.

Facing the current global status quo, Chinese companies need to break away from traditional models and seek new growth points, Xu said.

“Despite the current military conflicts and instability in the Middle East, the region’s commitment to economic transformation” offers many opportunities for Chinese businesses, she added.

The United Arab Emirates (UAE), for example, has offered “strategic level support” for areas such as artificial intelligence, digital asset management and biopharmaceuticals, while Saudi Arabia is encouraging foreign investment in finance, renewable energy and tourism to diversify its oil-dependent economy, Xu said.

The Middle East can also serve as a “key transit point” for companies seeking to enter other emerging markets such as Africa, India and Southeast Asia, Xu said. The UAE has signed free trade agreements with India, Vietnam and many European nations, making it an attractive jumping off point for companies looking to enter these regions.

China is the largest trading partner for many Middle Eastern countries. Trade with the region exceeded $500 billion in 2022, according to a January report from state-run People’s Daily.

Chinese annual investment in the six Gulf states soared from $10 million in 2003 to $1.7 billion in 2021, according to a 2023 report by KPMG LLP.

But Chinese companies still need to prepare for challenges they may face when investing or expanding in the Middle East, said Xu. They need to fully understand and respect the region’s diverse cultures in order to better adapt to local society.

The firms also need to gain a deeper understanding of local policies, including market access rules, while ensuring that their products or services meet local needs, she added.

“The Middle East is not just a regional market, but a key link in the globalized trade landscape,” Xu said, calling on Chinese businesses and investors to look at the region with a global perspective.