Due to the deepening political, economic and trade relations between China and Middle Eastern countries and the changes in the global geopolitical situation, it is increasingly important to further attract Middle Eastern investment to China. The rise in international oil prices in the past two years has strengthened the strength of the Middle East's sovereign wealth funds. In 2023, investment growth in Middle Eastern sovereign wealth funds has been particularly significant. As the demand for energy transition and economic diversification in Middle Eastern countries rises, emerging industries such as new energy, electric vehicles and artificial intelligence have become their key focus areas, and China has world-leading professional and technical advantages in these fields. Against this backdrop, the scale of investment in China by Middle Eastern countries has increased significantly, and the scope of cooperation between the two sides has continued to expand. The diversified investment of Middle Eastern capital will inject new momentum into China's economy and promote China's high-quality development.
Drivers of increased investment in China
Due to the transformation of the global geopolitical and economic pattern, the growth rate of investment in China by European and American countries has slowed down, while the investment in China by Middle Eastern countries has shown a rapid growth momentum. The quest for closer political, economic and trade ties with China, as well as energy and economic transformation through technical cooperation, are the main reasons for Middle Eastern countries to increase their investment in China. With the continuous expansion of investment in China by Middle Eastern countries, Middle Eastern capital is playing an increasingly important role in China's economy. The expansion of Middle Eastern investment in China is driven by several factors.
First, China's political influence in the Middle East is rising. In recent years, the United States' strategic focus has gradually shifted from the Middle East to the Asia-Pacific region, and its influence in the Middle East has begun to weaken. Driven by the needs of geopolitical and economic development, more and more Middle Eastern countries have strengthened their cooperation with China. In November 2023, China and Jordan signed a memorandum of understanding on jointly advancing the Belt and Road Initiative, marking the signing of cooperation documents on the Belt and Road Initiative between China and all member states of the League of Arab States. In March 2023, China brokered a rapprochement between Saudi Arabia and Iran. In July 2023, the Shanghai Cooperation Organization officially approved Iran's membership as a member. Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain and Egypt have also become dialogue partners of the SCO.
Second, China's economic and trade ties with the Middle East have become increasingly close. According to data from China Customs, from 2017 to 2022, China's trade volume with the Middle East increased from US$262.5 billion to US$507.2 billion, an increase of 93.22%. In 2022, the Middle East became China's fastest-growing partner in bilateral trade, with a year-on-year increase of 27.1%. In June 2023, at the 10th Entrepreneurs Conference of the China-Arab States Cooperation Forum, Chinese companies signed about 30 investment agreements with Middle Eastern investors, with a total value of $10 billion. In February 2024, the Minister of Commerce of China and the Minister of Economy of the United Arab Emirates co-chaired the eighth meeting of the Joint Economic and Trade Commission of the two countries in Abu Dhabi, and the two sides signed a document on investment cooperation in the field of digital economy. In March 2024, the President of Saudi Aramco (Saudi Aramco) delivered a speech at the first landmark event of Invest in China in 2024, emphasizing Aramco's increased investment in China, with a focus on the chemical industry, digital technology innovation, and new energy. Cooperation between stock exchanges in China and Middle Eastern countries has also deepened. In September 2023, the Shanghai Stock Exchange signed a memorandum of understanding with Tadawul Group, the parent company of the Saudi Stock Exchange; In November, HKEX successfully launched the first ETF in the Asia-Pacific region that tracks Saudi Arabian equities (an exchange-traded index fund, which is a fund product that tracks the performance of an index or industry). In December, the Shenzhen Stock Exchange signed agreements with Tadawul Group and the Abu Dhabi Stock Exchange to explore cross-border index and ETF collaborations, as well as international financing opportunities.
Third, China will continue to deepen cooperation with Middle Eastern countries on energy transition and jointly promote green energy development. In January 2022, the foreign ministers of Saudi Arabia, Kuwait, Oman, Bahrain, Turkey, and Iran, as well as the Secretary-General of the Gulf Cooperation Council, visited China and reached consensus on the green transition. In December 2022, President Xi Jinping pointed out at the first China-Arab States Summit that China is ready to work with the Arab side to jointly promote cooperation in eight important areas, including green innovation and energy security. In October 2023, Bank of China assisted the Egyptian government in issuing the first Green Panda Bond, and the proceeds will be used for sustainable development projects in Egypt. In September 2023, Bank of China Dubai Branch issued a US$534 million green bond to support solar power projects in Saudi Arabia and the United Arab Emirates. In addition, Chinese companies are deeply involved in the construction of many large-scale energy projects in Middle Eastern countries. In December 2023, the UAE announced the completion of the Al Dhafra solar project, built by a Chinese company, which will provide green electricity to 200,000 homes and reduce carbon emissions by 2.4 million tons per year.
The strengthening of economic and trade ties between China and Middle Eastern countries has laid the foundation for Middle Eastern countries to expand their investment in China. Investment in the Middle East will bring opportunities to China in politics, economy and trade, technology, and sustainable development, inject new momentum into China's economy, and promote China's high-quality development. Middle Eastern investment in China is not only about financial support, but also about technical cooperation. This will promote the two-way transfer of technology and knowledge between the two sides, and help enhance the competitiveness and innovation level of China's emerging industries. By attracting investment from the Middle East, China has the opportunity to build closer cooperation with Middle Eastern countries.
On September 13, 2023, the 8th Belt and Road Summit Forum was held at the Hong Kong Convention and Exhibition Center. For the first time, the summit forum set up a "Middle East Special Session".
Areas of focus
In 2023, global state-owned investors (SOIs) invested a total of US$205.1 billion, of which US$8.3 billion was invested in China, an increase of 333% compared to 2022. China has the world's fifth-largest investment and the world's third-largest investment growth rate. Global sovereign wealth funds (SWFs) have a total investment of $124.7 billion in 2023. Five of the top 10 sovereign wealth funds are from the Middle East: Abu Dhabi Investment Authority (ADIA), Kuwait Government Investment Authority (KIA), Saudi Public Investment Fund (PIF), Qatar Investment Authority (QIA) and Dubai Investment Firm (ICD). In 2023, the Saudi Public Investment Fund, the UAE's Mubadala, Abu Dhabi Investment Authority, Abu Dhabi Development Holding Company (ADQ) and Qatar Investment Authority invested a total of $74 billion, accounting for 58.34% of the total global sovereign wealth fund investment. Among them, the Saudi Public Investment Fund invested 31.6 billion US dollars, ranking first in the world. In 2023, global state-owned investors invested a record $26.1 billion in the new energy sector, nearly half of which came from Middle Eastern sovereign wealth funds.
In 2023, the assets under management of the five largest sovereign wealth funds in the Middle East will reach US$4.1 trillion, of which the cumulative investment in China will be about US$40 billion. The energy transition is a national strategy led by the Saudi government and a top priority of the Kingdom's Vision 2030. Currently, Saudi Arabia is focusing on China's electric vehicles, energy and industrial technology. In June 2023, Saudi Arabia's Ministry of Investment announced the signing of a $5.6 billion agreement with Chinese electric vehicle manufacturer Human Horizons; In November, Saudi Arabia's Public Investment Fund negotiated a US$250 million investment with Human Horizons. In October 2023, NIF, the investment fund of Saudi Arabia's New Future City (NEOM) project, invested US$100 million in electric vehicle company Pony.ai. In January, SABIC said it would open a joint venture and ethylene plant in Fujian with an investment of $6.4 billion and is expected to produce 1.8 million tonnes of ethylene per year. Also in January this year, Saudi Aramco and Rongsheng Petrochemical negotiated to acquire no more than 50% of Rongsheng's subsidiary, Ningbo Zhongjin Petrochemical, after Saudi Aramco acquired a 10% stake in Rongsheng Petrochemical for 24.6 billion yuan (about 3.5 billion U.S. dollars) in March 2023.
The UAE's Mubadala Investment Company, Abu Dhabi Investment Authority, Qatar Investment Authority and Kuwait Investment Authority have all made investments in China and plan to deepen their long-term presence in the Chinese market. Mubadala opened its Beijing office in September 2023, and the fund's China portfolio includes JD.com, Hasten Biotech and fashion retailer SHEIN. The Abu Dhabi Investment Authority invested US$2.2 billion in NIO in December 2023 through its investment fund CYVN. Qatar Investment Authority announced in December 2023 that it would invest approximately US$200 million to subscribe for Kingdee International's ordinary shares. The Kuwait Investment Authority increased its stake in Shenzhen Airport Group in the fourth quarter of 2022.
Facing challenges such as geopolitics
At present, China is also facing considerable challenges in attracting Middle Eastern capital, mainly in the fields of geopolitics, international competition, and ESG (environmental, social and corporate governance) standards that are integrated into the international mainstream.
On the geopolitical front, the U.S. government is putting Middle Eastern sovereign wealth funds under increased scrutiny of these funds as they increase their investment in China. According to data, Middle Eastern sovereign wealth funds traded more than $23 billion in the United States in 2023. The Committee on Foreign Investment in the United States (CFIUS) is reviewing several multibillion-dollar deals involving the Abu Dhabi Investment Authority, Mubadala Investment Company and the Saudi Public Investment Fund.
In terms of international competition, Japan is actively seeking green transition and investment cooperation with Middle Eastern countries, and sees China as a potential competitor. In July 2023, the Japanese Prime Minister visited Saudi Arabia, the United Arab Emirates, and Qatar to promote Japan's energy transition technologies. During the visit, Japan and the UAE signed 23 agreements to strengthen cooperation in areas such as energy, industry, environmental protection and circular economy. In December 2023, Japan's Minister of Economy, Trade and Industry announced that Japan and Saudi Arabia would make joint cross-border investments, with a focus on mining projects in Africa and Latin America. At the same time, Japanese financial services company SBI signed a memorandum of understanding with Saudi Aramco to establish business alliances in areas such as digital assets and semiconductor factory construction.
In terms of international ESG standards, as more and more Middle Eastern sovereign wealth funds and wealthy family offices have introduced this investment philosophy and evaluation standard, Chinese companies that fail to meet international ESG disclosure standards will easily be rejected in the due diligence process. ESG disclosure standards are mainly used to analyze the clarity of investment strategies, the transparency of trading decisions, and the degree of risk control norms of enterprises. Investors in the Middle East prefer private equity and venture capital funds that disclose project information in accordance with international ESG standards, which helps them to compare the market value of the proposed investment project with the market value of listed peers and estimate the return on investment more accurately. With Middle Eastern sovereign wealth funds setting up offices in China, they will also be able to get a closer look at the project management and reserve capacity of domestic equity investment funds, which will also pose greater challenges for Chinese companies.
Disclaimer: This article is transferred from World Knowledge, the original author is Zhang Chuanjie. The content of the article is the original author's personal point of view, and this official account is compiled/reprinted only to share and convey different views.
Transferred from丨World Knowledge
Author丨Zhang Chuanjie
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