Middle Eastern capital is continuing to pour into China.
According to Reuters news on June 4, Qatar's sovereign wealth fund, Qatar Investment Authority, has agreed to buy a 10% stake in ChinaAMC, China's second largest public fund company, through Primavera Capital.
According to the company's data, the largest shareholder of China AMC Fund is CITIC Securities, which holds 62.2% of the shares, the second largest shareholder is McKathy Financial Company, a foreign-funded institution with 27.8% of the shares, and the third largest shareholder is Tianjin Haipeng Technology Consulting Co., Ltd., which is controlled by Primavera Capital, with a shareholding ratio of 10%.
Shareholder information of China Asset Management Co., Ltd. / Source: Qichacha
In other words, if the transaction between Qatar Investment Authority and Primavera Capital is completed, Qatar Investment Authority will become the third largest shareholder of ChinaAMC's public offering of "big factories".
The 10% stake of Primavera Capital has been "sold" for a long time, and since 2022, there has been news that Primavera Capital wants to resell and cash out. Now, it has finally arrived at a Middle Eastern buyer.
According to the "waiver of pre-emptive rights" announcement issued by CITIC Securities in March 2024, the Qatar Investment Authority may purchase the 10% stake at a price of no less than US$490 million.
However, this is not the first time that Middle Eastern sovereign wealth funds have taken notice of Chinese assets. On the contrary, Middle Eastern investors, who have been heavily invested in Europe and the United States, have been making moves in China in recent years.
For example, in June 2023, the Abu Dhabi Investment Authority, through its subsidiary CYVN Holdings, injected US$1.1 billion into NIO, and NIO received another investment in the second half of the year, with a second investment of up to US$2.2 billion.
In 2023, six sovereign wealth funds, including Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, have made a total of $2.3 billion in direct investments and acquisitions in China, according to Global SWF data. In 2022, that figure was only $100 million.
If we add in the investment of sovereign wealth funds in China through their institutions and companies, the amount of investment by Gulf countries in China in 2023 will well exceed US$2.3 billion.
Abu Dhabi Investment Authority and Kuwait Investment Authority's A-share investment status in recent years/Data source: Wind (as of the end of Q3 2023)
In addition to investment, Middle Eastern investors are also "keen" to set up offices and build local teams in China.
In 2023, Mubadala Investment Company, the third largest sovereign wealth fund in the United Arab Emirates, will set up an office in Beijing; In 2022, Saudi Arabia's Public Investment Fund set up a China office in Hong Kong; As early as 2011 and 2018, the Kuwait Investment Authority set up offices in Beijing and Shanghai respectively, and in 2019, it invested 200 million yuan in the Jinan-Qingdao high-speed railway.
It cannot be denied that after 2023, China is increasingly perceiving the heat from the Middle East. But not everyone understands the meaning behind this. We still need to know where they came from and why.
Middle East consortium, who is it?
When it comes to why we need to focus on sovereign wealth funds from the Middle East, there are two reasons.
First, Middle Eastern sovereign wealth funds are indeed among the most powerful investors in the world; Second, compared with ordinary investment institutions, Middle Eastern sovereign wealth funds have "speciality", and their investments not only pursue economic goals, but also reflect the possible economic and political intentions of the governments of Gulf countries.
Around the abundant oil and gas resources in the region, the Gulf countries have accumulated considerable wealth and occupied an unshakable place in the financial world. According to Global SWF, the assets under management of sovereign wealth funds in the Gulf region have reached an all-time high of $4.1 trillion in 2023.
In 2023, the assets under management of sovereign wealth funds in the Gulf region reached an all-time high of US$4.1 trillion
Their investment horizons are all over the world, and through global asset allocation, they develop economic relationships and reduce economic risks. Correspondingly, the Gulf region's sovereign wealth funds, which hold large stakes in the world's listed companies, have effectively the power to influence the international financial system.
This power was first demonstrated during the subprime mortgage crisis in 2007. The tens of billions of dollars injected into the market during this period are one of the proofs.
Today, sovereign wealth funds from the Gulf countries occupy four of the world's top 10 sovereign wealth funds on the list of the world's top 10 sovereign wealth funds published by the Sovereign Wealth Fund Institute.
They are the Abu Dhabi Investment Authority, which manages $993 billion in assets, the Public Investment Fund (Saudi Arabia), which has $925 billion in assets, the Kuwait Investment Authority, which has about $923.45 billion in assets, and the Qatar Investment Authority, which has nearly $526.05 billion in assets.
Needless to say, the strength of the Gulf sovereign wealth fund is so strong that it is needless to say.
Although the different countries in the region have different investment strategies and generally show diversified investment preferences, there is one key common denominator that cannot be ignored – their investment strategies are backed by national governments or ruling families, and are largely aligned with specific national agendas and long-term economic development expectations.
Middle Eastern sovereign wealth funds' investment in Chinese companies can be traced back to 1992. In that year, the Chinese market was opened to foreign investors for the first time, and the Abu Dhabi Investment Authority was already listed. Since then, from 2008 to 2012, the Abu Dhabi Investment Authority, the Kuwait Investment Authority and the Qatar Investment Authority have successively obtained Qualified Foreign Institutional Investor (QFII) certification, and in the past 20 years, Middle Eastern capital has continued to flow into China.
Current investment in Chinese companies in the Arab region Source: Oliver Wyman analysis
Overall, Middle Eastern sovereign wealth funds have focused more on developed markets, mainly in the United States and Europe, where their portfolios vary geographically.
But what has also changed is that while inflows into Europe and the United States still account for a larger share of the market, Middle Eastern sovereign wealth funds are recently consciously increasing their Asian portfolios, especially with China.
Middle Eastern sovereign wealth funds investing in China-related industries are not new. The "new" thing is that after years of "flat" development, the Middle East's eyes on China have suddenly become hot.
Cooling and heating
Why, then, is it at this time that Middle Eastern investors are showing "greater interest" in investing in China?
It is a fact that cannot be ignored that from the perspective of the Chinese market, the growth rate of investment in China by European and American countries has slowed down in recent years.
For example, the Biden administration signed an executive order in 2023 restricting U.S. venture capital firms and private equity firms from investing in Chinese start-ups working in semiconductors, artificial intelligence, and quantum computing. Due to geopolitical and economic considerations, more and more foreign-funded enterprises are implementing the "China+1" development strategy.
This means that there is more "investment space" in the Chinese market to accommodate investors from the Middle East, and it is also hoped to attract more investment from the Middle East to "fill the gap".
As a result, China has shown more "goodwill" towards the Middle East – partly in economic cooperation and partly in political proximity. To some extent, it was the increase in interest between China and the countries of the Middle East that ultimately led to the "increase in investment from the Middle East".
Since 2023, more and more Chinese enterprises and investment institutions have led teams to go to the Gulf region countries to raise funds and seek capital support from the Middle East. As a result, some Chinese companies have already reached cooperation with Middle Eastern sovereign wealth funds.
For example, Lenovo partnered with a subsidiary of Saudi Arabia's sovereign wealth fund, the Public Investment Fund, in May 2024. Under the cooperation framework, the Public Investment Fund invests in Legend through its subsidiaries; Correspondingly, Lenovo will set up a regional headquarters in Saudi Arabia and set up related production facilities.
Interestingly, Saudi Arabia is focusing on its Vision 2030. In this vision, Saudi Arabia will become an investment power by 2030 through the Public Investment Fund. In addition, it is an investment powerhouse with a diversified economy, abundant employment opportunities and a good business environment.
Saudi Arabia's "National Vision 2030" / Source: Saudi Vision 2030
In other words, from Saudi Arabia's point of view, its investment in companies is not limited to "how much profit the company can bring". The extent to which it can meet the requirements of economic diversification and giving back to the local community is also in Saudi Arabia's investment considerations.
Not only focusing on their own development, but also establishing corresponding industrial chains in the local area, moving forward according to the local "political agenda" and economic development track, is a layer of embodiment of the signal of "friendly cooperation".
Broadly speaking, "interdependent" cooperation in the economic field is not only reflected in the "investment fever". It has become a cliché that China is the largest trading partner of most Middle Eastern countries. What's new is that more and more Chinese companies are already gearing up to go global to the Middle East, such as Meituan's plan to make the Middle East its first overseas expansion point.
But that's not all. This is especially true when the Middle East sovereign wealth fund itself has a political component.
It is difficult to measure the extent to which political motivation plays a role in the investment behavior of Middle Eastern sovereign wealth funds, but the impact is certainly there. A small proof is that after the increase in financial interaction between China and the Gulf countries, at the end of 2023, foreign media reported that the Biden administration is conducting a stricter review of the investment transactions of Middle Eastern sovereign wealth funds in the United States.
It is not difficult to find that in recent years, China and countries in the Middle East have been getting closer. In the Middle East, China already has a prominent presence.
In March 2023, a bombshell news came. China, Saudi Arabia and Iran issued a joint statement in Beijing, noting that Saudi Arabia and Iran reached a "reconciliation" agreement, agreeing to restore diplomatic relations that have been severed since 2016 and reopen their embassies. It is worth noting that in the breakthrough rapprochement between Saudi Arabia and Iran, it is China that plays the role of mediator.
On June 6, 2023 local time, in Riyadh, Saudi Arabia, Iranian Deputy Foreign Minister Bigdeli (right), Saudi Deputy Foreign Minister Ali al-Youssef (center), and Hassan Zarnegar, Director of the Consular Department of the Iranian Embassy, attended the reopening ceremony of the Iranian Embassy in Saudi Arabia
At the end of 2022, China and Saudi Arabia reached the Comprehensive Strategic Partnership Agreement between the People's Republic of China and the Kingdom of Saudi Arabia, and signed corresponding commercial agreements in the fields of energy, technology and manufacturing.
It is worth mentioning that since then, the first China-Arab States Summit has also kicked off in Riyadh, Saudi Arabia. The relationship between the two sides is heating up rapidly.
Investment Rules
Still, as Middle Eastern investors turn their attention to Asia, they are following a strategy.
The "cooperative" investment between Saudi Arabia and Lenovo has shown that some Middle Eastern sovereign wealth funds have a preference for investment that is closely linked to local development needs and preferably promotes "common goals".
From the investment orientation of the Public Investment Fund, we can repeatedly glimpse the figure of Saudi Arabia's "Vision 2030" - looking forward to the energy transition and changing the economic structure and international image of Saudi Arabia. As a result, it invests in the world's largest technology investment fund, as well as in sports such as golf. This is also in line with Vision 2030, which states that Saudi Arabia has "high hopes" for public investment funds.
In recent years, sovereign wealth funds in the Middle East have invested more than traditional government bonds, banks, real estate and other fields. Globally, its portfolio has become more diverse, with an increased focus on emerging technologies, sports, gaming, renewable energy and healthcare, and a willingness to focus more on unicorns.
In the overall investment portfolio, the Abu Dhabi Investment Authority still takes "stocks" as the main investment method, and frequently appears in the A-share market, preferring non-ferrous metals, biomedicine, automobiles and other fields. Coincidentally, in the A-share market, the Kuwait Investment Authority has a strong preference for the biomedical sector, as well as related industries such as energy and automobiles.
To some extent, such industry preferences are not "special cases in China", but can be seen as their "investment inertia". In past investment cases, such a preference has been repeated.
For example, in 2022, Abu Dhabi Holding Company (ADQ; Abu Dhabi, one of Abu Dhabi's three sovereign wealth funds, has acquired Turkish pharmaceutical manufacturer Birgi Mefar Group, hoping to build a "fully integrated healthcare and life sciences platform" in the UAE.
Abu Dhabi Development Holdings Limited (ADQ) has become yet another very active and widely focused strategic investor
In any case, the increase in investment in China means that Middle Eastern consortia are bullish on Chinese assets. After all, for an investment fund that pursues long-term economic goals, the profit and future prospects of a specific investment object must be taken into account.