About ten years ago I was sitting in a bar in a GCC city reading a book about Gulf politics. A local guy saw the cover and asked me about it, and I explained that I was doing a PhD and had to get up to speed on regional politics in a hurry. The first thing he said is something you hear in the Gulf all the time: “You’re not going to learn anything about how this place works by reading a book.” The second thing he said was actually useful, and I’ve probably thought about it once a week for a decade. “Politics here is simple. Don’t grow your beard too long, and don’t mess with the big guy’s money.” This wasn’t long after the Arab Spring and the beard bit meant stay away from political Islam. The money bit I think of whenever I hear about folks coming to the region with the idea that they’re going to find a huge pool of investors and go home with a fortune. People in the GCC countries have had a lot of experience with foreign companies looking for big paydays, and it’s a much more conservative and cautious landscape than you’d imagine.
In mid-May the China-Arab Entrepreneurs’ Summit was held in Abu Dhabi. During the keynote speech, China’s ambassador to the UAE said Chinese investment into the Emirates increased by 16% in 2023 to $1.3 billion, accounting for 60% of total Chinese investment in the Arab world. This is not unusual; the UAE has a reputation as an ‘FDI magnet’ and it’s a major hub for Chinese business, both in-country and across the region. The more interesting part of his speech was that UAE investment into China increased by 120% last year, and that GCC countries’ sovereign wealth funds have “directly acquired and invested in China to the amount of $2.3 billion.” My WhatsApp immediately started buzzing - lots of folks were wondering what this means, why money is flowing from the Gulf into China, and what the implications are.
Around the same time there was a lot of speculative reporting. The SCMP wrote about the ‘untapped potential’ for investment between China and the Middle East, and Caixin released a podcast episode titled ‘Why Chinese PE and VC Firms Are Chasing Middle East Money’. Potential and chasing do a lot of the work in this analysis; the real numbers of investment are less impressive than one would expect.
I have to point out that I’m a political scientist and I should probably stay in my lane on this topic. But I’ve been talking with bankers, investors, diplomats, and policy advisors a lot lately about this issue, and the one thing that keeps coming up is that there’s less happening than the headlines would have you believe.
On the $2.3 billion that Gulf sovereign wealth funds have invested in China - that sounds impressive. But according to Global SWFs 2024 annual report, GCC sovereign wealth funds manage $4.1 trillion worth of assets. So that gives a bit of context when we’re thinking of Gulf capital flows into China.
Mubadala, an Abu Dhabi SWF, is an interesting case study. On the same day of the entrepreneurs’ summit, The National reported that Mubadala has $302.2 billion worth of assets under management, and pointed out projects in Asia, citing a semiconductor plant in Singapore and an LNG discovery in Indonesia. It didn’t mention China.
If any local SWF would be deep in China, you’d expect it to be Mubadala. Its CEO Khaldoon al Mubarak was appointed the UAE’s special envoy to China in 2018, giving him a unique level of expertise on China and a deep pool of high-level contacts there. In a podcast interview with Hank Paulson in 2021, he talked about the SWF’s approach. “Mubalada’s been investing…for the last 20 years, predominantly West. So our portfolio is based on just the construct…it’s returns driven, risks driven, portfolio distribution driven, with a Western weight. The US represents by far our largest portfolio allocation.” When talking about investing in China, he said, “this is a growing economy, we have to have an exposure to that economy, we have to learn about how to invest and where to invest, and how to make the type of returns with the type of risks we’re willing to accept.” At this point he’d been special envoy for three years, and Mubadala’s stake in China didn’t seem especially deep, and the CEO spoke of it as a market they were still trying to get up to speed on.
In September 2023 Mubadala opened a long-awaited office in Beijing with a staff of “about 10-strong… focusing on direct investments and fund investments in the country”. Of course, COVID played a part in the delay, but it shows that they are still getting their feet under them in the China market. Reuters reported on Mubadala’s China portfolio, with investments in Shein, JD Industrials, and Hasten Biopharmaceutics. As far as I can tell, the JD Industrials investment is a co-led $300 million series B funding round that Mubalada undertook in 2023 with 42XFund, another Abu Dhabi global investment fund. The Hasten Biopharmaceutrics is a stake in a $315 million fundraising round with CBC Group. Mubadala, along with Sequoia Capital and General Atlantic, was part of a 2023 $2 billion fundraising round for Shein, an online clothing retailer. In 2022 Shein was valued at $100 billion, in mid-2023 it was down to $66 billion, and in January 2024 it was at $45 billion and its attempts at an IPO in either New York or London were stalled. It’s hoping for a bounce back to to $90 billion if it gets listed in London.
So Mubadala’s publicly available investments in China have grown recently, but they are modest given the assets they manage. Abu Dhabi Investment Authority, or ADIA, seems similar. The two were part of a group that bought a 60% stake, valued at $8.3 billion, in a shopping mall investment with Dalian Wanda but again, it’s not clear how that breaks down for each investor in terms of their exposure. On ADIA’s website, under ‘where we invest’, North America is between 45-60%, Europe 15-30%, Developed Asia 5-10%, and Emerging Markets, which is where I think they slot China, is between 10-20%. So again, it’s not insignificant, but it’s also not as consequential as headlines would have us believe.
Last December Saudi Minister of Investment Khalid Al-Falih led a delegation to Beijing. Al-Falih was chairman of Saudi Aramco from 2015-2019 and Minister of Energy, Industry and Mineral Resources from 2016-2019. His experience in the oil industry has given him a deep exposure to China; he is probably the most experienced China hand in the Saudi government. At the end of the six-day trip the China-Saudi Investment Conference was held in Beijing, and the headline takeaway was over 60 agreements worth $25 billion. From the press release:
Over 60 MoUs and agreements worth over $25 billion were signed at the China-Saudi Investment Conference across priority sectors, including energy, agriculture, tourism, mining, financial services, logistics, infrastructure, technology, healthcare and more.
Nine Regional Headquarter licences were handed over to Chinese companies at the Investment Conference. These include Huawei, Dahua, China Railway Construction Corporation, China Comservice, China Harbour Engineering Company, China Civil Engineering Construction Corporation, BGI, Nuctech and iMile
However, the 60 MoUs are not 60 deals, and both countries have experience with announcing big numbers that get reduced.
There has been a growth in Chinese companies coming to the Gulf; this Financial Times article talks about Chinese tech firms - Tencent, Alibaba, and Meituan - looking to expand in the region. A lot of this, however, is probably linked to a really bad domestic economy back home. The Wire China had a great article recently by Yi Liu, China Goes Global Again, in which she wrote, “The Chinese business world, it seems, has decided that the best place to make money right now is outside of China.” The article ends with an anecdote about a Chinese businessman, Zhong Liwen:
Chinese factories, he says, are choosing to relocate in order to be closer to markets with higher levels of consumption and to make exporting their goods easier.
“Every noodle shop you walk into, it’s all Chinese,” Zhong says of his experience visiting Saudi Arabia last year. “When you see people getting off the bus on the street, they’re also all Chinese entrepreneurs, coming in groups to visit the commercial areas there.”
This year, Zhong rented a warehouse in Saudi Arabia, and in the future, he plans to buy his own warehouse there.
“It’s very difficult to do business in China now; the domestic environment is not good,” he says. “Nowadays, the competition in China is too fierce. Everyone wants to grab the market first, even if it means losing money. My business can’t be done here.”
None of which bodes especially well for China in attracting Gulf capital. Thinking back to the local guy’s two rules for politics in the Gulf, conservative investors who understand the US or Europe are likely going to put their money someplace where they feel safe. They don’t want to mess with the big guy’s money. Think back to Jack Ma disappearing in 2021. Think about Evergrande, accused of inflating revenues by $78 billion. If I were managing the big guy’s portfolio, I would think long and hard about going deep in a potentially risky environment.
That said, we’ll continue to see more Gulf investment into China - they do a lot of business there. There will also be more joint investments as well, like the $1 billion fund that Bahrain’s Investcorp announced in April, “anchored by institutional and private investors from the GCC, as well as the China Investment Corporation.”
But at the same time, the numbers right now have to be measured against what Gulf investors are doing in other places, and when you do that, their positions in China are relatively modest.
Great to see you here on Substack, Jonathan. Keep the great analysis coming. Cheers. Afshin
I follow to read every time and learned a lot. Thanks Prof.