China’s banks deepen Gulf ties as capital flows accelerate

Chinese lenders are stepping up their financial presence in the Gulf, translating years of diplomatic courtship into a sharp rise in cross-border capital as the region becomes a focal point of Beijing’s overseas banking push. Lending by Chinese banks to Gulf borrowers surged to a record $15.7 billion in 2025, nearly three times earlier levels when bilateral state-to-state loans are excluded, with Saudi Arabia and the United Arab Emirates accounting for the bulk of the activity.

The scale of that expansion stands out against the retreat of Western lenders. Banks from the United States, the United Kingdom and the eurozone together provided about $4.6 billion to Gulf borrowers over the same period, underscoring a shift in the balance of external financing for the region. The divergence reflects differing risk appetites, regulatory pressures on Western banks, and a strategic decision by Chinese institutions to align financing with Beijing’s trade, energy and technology priorities.

For Gulf governments, the influx of Chinese credit offers diversification at a time of heavy capital needs. Saudi Arabia’s economic transformation agenda and the United Arab Emirates’ drive to expand logistics, clean energy and advanced manufacturing require large pools of long-term funding. Chinese banks have positioned themselves as partners willing to underwrite infrastructure, energy and industrial projects, often alongside contractors and suppliers from China, creating an integrated financing and delivery model that appeals to project sponsors.

Policy banks and large state-owned commercial lenders have led the charge, extending loans for petrochemical complexes, renewable power plants, port upgrades and data infrastructure. Commercial banks have followed with trade finance, project lending and yuan-denominated facilities designed to support cross-border commerce. The growing use of the Chinese currency in settlements and financing, while still modest relative to the dollar, signals a broader ambition to internationalise payment channels linked to Gulf-Asia trade flows.

Executives and officials in the region say the appeal is not only price. Chinese lenders are perceived as patient capital providers comfortable with long tenors and complex construction risks. In energy, financing has backed downstream and value-added projects that support Gulf strategies to move beyond crude exports. In transport and logistics, loans have underpinned port and rail assets that strengthen the region’s role as a hub between Asia, Europe and Africa.

The momentum has been reinforced by diplomatic initiatives that elevated economic cooperation. High-level visits and investment forums over several years have produced memoranda covering banking, capital markets and digital finance. Those frameworks are now being activated through concrete transactions, from syndicated loans to export credits and guarantees that reduce funding costs for borrowers.

Western banks’ smaller footprint does not imply an absence of interest, but reflects constraints. Tighter capital rules, a more cautious stance on long-dated project risk and a reassessment of exposure to carbon-intensive sectors have limited balance-sheet deployment. Some lenders have prioritised advisory roles, capital markets issuance and asset management over direct lending, leaving space for competitors with different mandates.

That space has been filled swiftly. Chinese banks have increased staffing in Gulf financial centres, deepened relationships with sovereign wealth funds and local banks, and tailored products to regional needs. Partnerships with domestic lenders have helped navigate regulatory requirements while spreading risk. In parallel, Chinese insurers and export credit agencies have expanded coverage, enabling larger ticket sizes.

The trend carries implications for financial geopolitics. Greater Chinese lending strengthens economic interdependence with Gulf states that already count China as a top trading partner. It also advances Beijing’s objective of building financial infrastructure that supports supply chains resilient to external shocks. For the Gulf, diversified funding sources enhance bargaining power and reduce reliance on any single bloc.