Another Middle Eastern tycoon group is coming.

Following the success of the first two Saudi ETFs landing on the A-share market in the first half of the year, Saudi Arabia's sovereign wealth fund (PIF) signed six agreements worth a total of up to $50 billion with major Chinese financial institutions at the beginning of August. These financial institutions include the four major state-owned banks of ICBC, Agricultural Bank of China, China Construction Bank, and Bank of China, as well as the Export-Import Bank and Export Credit Insurance Corporation, which are all the main force of China's national financial institutions.

Signing a memorandum of understanding means that PIF can come to China for investment, and China can also invest in Saudi Arabia. The most important change may be the direct use of the local currency for trade settlement, rather than the US dollar.

It can be seen that in the past two years, the economic and trade relations between the Middle East, represented by Saudi Arabia, and China have become increasingly warm, and the deep meaning behind this is really surprising.

01

Among the top 10 sovereign wealth funds in the world, Middle Eastern funds alone occupy four seats, including the Abu Dhabi Investment Authority, Saudi Public Investment Fund (PIF), Kuwait Investment Authority, and Qatar Investment Authority. The total assets of these four companies are as high as $3.42 trillion.

These Middle Eastern sovereign wealth funds have a higher proportion of assets in the European and American markets and have already started investing in China, and in recent years, they have become more conscious of increasing their investment scale.

As early as 1992, the Abu Dhabi Investment Authority was already included when the Chinese market was first opened to foreign investors. Later, it was not until the Industrial and Commercial Bank of China's IPO in 2006 that Middle Eastern tycoons made big contributions-Kuwait Investment Agency and Qatar Investment Bureau respectively subscribed for $0.72 billion and $0.206 billion.

From 2008 to 2012, sovereign wealth funds such as Abu Dhabi, Kuwait, and Qatar successively obtained QFII (Qualified Foreign Institutional Investor) certification and continued to lay out investments in the Chinese market, but the investment scale was small.

In 2022, the outbreak of the Russia-Ukraine conflict shocked the world as the United States and other Western countries froze Russia's $600 billion foreign exchange reserves. Since then, Middle Eastern sovereign wealth funds may have accelerated their investment in China with a focus on diversification of investments, and have continued to sweep assets in the primary and secondary markets.

As of the end of the first quarter of this year, the Abu Dhabi Investment Authority has entered a total of 27 of the top ten circulating stock companies in the A-share market, adding eight new ones, with a total holding market value of up to CNY 11.289 billion. The top three shareholders are Zijin Mining, Wanhua Chemical, and BOE Technology Group, with a holding market value of CNY 2.435 billion, CNY 1.829 billion, and CNY 1.414 billion, respectively.

Among them, the Abu Dhabi Investment Authority entered the top ten shareholders of Zijin Mining in the fourth quarter of 2021, with a holding ratio of 0.54% and a holding market value of CNY 1.368 billion. After a small fluctuation, it currently holds a holding ratio of 0.55% and a holding market value of up to CNY 2.435 billion. This is a very successful investment.

In addition to A-shares, the Abu Dhabi Investment Authority also holds a large amount of new energy vehicles of new forces in the domestic market. In July 2023, it strategically invested CNY 5.27 billion in NIO, and just five months later, it invested another CNY 15.7 billion in NIO. After the two rounds, it has a total of 20.1% stake in NIO and has become the largest shareholder, but the actual controller is still Li Bin.

Looking at the Kuwait Investment Agency, which is the world's first national wealth sovereign fund, it used to have a relatively conservative investment style, but has been more adventurous since 2000, and invested in high-risk asset categories, including equity assets, real estate, hedge funds, private equity, and so on.

According to Global SWF statistics, by 2022, global equity assets of the Kuwait Investment Agency will account for nearly 50% of total assets. In the A-share market, a total of 30 of the top ten circulating shareholders have appeared in the first quarter of this year, adding 11 new ones, with a total holding market value of more than CNY 4.5 billion.

The top three shareholders by market value include M&G Stationery, Jiangsu Hengli Hydraulic, and Betteni, all of which exceed CNY 0.3 billion. However, the three dragon heads have suffered huge setbacks compared to the peak in 2021, and the Kuwait Investment Bureau has clearly recorded not small losses.

Of course, compared with the Abu Dhabi and Kuwait Investment agencies, Saudi Arabia's sovereign wealth funds have been much more aggressive in investing in China in recent years.

02

The Saudi capital investment network is not complicated, mainly divided into PIF and Saudi Aramco. The relationship between the two is very close. PIF is the main shareholder of Saudi Aramco, and Saudi Aramco is also the main source of funds for PIF. Both belong to Saudi national capital.

Saudi Aramco mainly focuses on direct investment in the oil-related industry chain. In addition, it also invests through Prosperity7, and the projects it has invested in include Fullhan Tech and Hongjing Zhijia. PIF directly or indirectly invests in China through capital injection, subsidiary or regional investment, and venture capital funds for investment in subsidiary investment projects.

Compared to other Gulf countries, Saudi capital has only been open to foreign investment for just over eight years.

Before 2015, PIF's investments were mainly focused on Saudi domestic infrastructure, accounting for as much as 98%, while overseas investments accounted for only 2%.

In 2016, Saudi Arabia released the "2030 Vision", listing 300 specific transformation goals, pledging to change the economic pattern of extreme dependence on oil in the past. Since then, PIF has accelerated overseas investments.

In September of that year, PIF announced a $45 billion investment in SoftBank Fund. It is rumored that at the time, the younger Salman only talked to Masayoshi Son of SoftBank for 45 minutes and chose to invest, averaging $1 billion per minute. Of course, Son was then the helm of the world's first trillion-dollar fund.

At first, SoftBank's Vision Fund hit many technology giants in China and the United States, including Nvidia, ByteDance, and Didi Chuxing. Later, the Vision Fund continued to stumble, and coupled with the significant devaluation of domestic technology companies due to anti-monopoly policies, PIF's return was far from ideal, far from the initial goal.

Later, PIF changed its investment philosophy, from indirect investment in the past to direct investment, from only focusing on the Internet in the past to covering new and traditional industries such as new energy, petroleum and petrochemicals.

Since 2019, PIF has successively established the China-Saudi Industrial Investment Fund (CSIIF) with China Investment Corporation (China's sovereign fund), Yida Capital, and Lanhai Asset. The latter two focus on major projects related to the Belt and Road Initiative and the Saudi 2030 Vision, invest in Chinese technology companies, and promote the landing of related projects in Saudi Arabia.

As of July this year, PIF's investment in the Chinese market has reached $22 billion, or about RMB 160 billion, focusing on emerging fields such as automobiles, healthcare, and information technology.

In addition, Saudi Aramco invests more aggressively in China's petrochemical industry. In 2023, it invested RMB 24.6 billion to take a 10% stake in Rongsheng Petrochemical. In the same year, Saudi Arabia and the other three major petrochemical giants planned to acquire a 10% stake in Shenghong Petrochemical, Hengli Petrochemical, and Yulong Petrochemical. After multiple rounds of investment, Saudi Aramco became one of the foreign companies with the most investment in China in 2023.

According to the Economist's report in June, the Chinese petrochemical industry may absorb another $100 billion in Saudi investment in the next 10 years. Currently, Saudi Aramco can convert about 2 million barrels of crude oil into petrochemical products per day. Saudi Aramco CEO Nasir stated in China that their ultimate goal is to convert about 4 million barrels per day.

03

Why are sovereign investors in the Middle East, including Saudi Arabia, increasingly interested in the Chinese market and accelerating their investment in China?

This is actually a two-way journey between the Middle East and China.

In recent years, trade frictions between China and the United States and between China and Europe have intensified. Based on various considerations such as geopolitics, more and more European and American foreign companies have implemented the "China+1" business strategy, trying to reduce their dependence on the industrial chain in China. In this context, the growth rate of European and American countries' investment in China has slowed down significantly.

In this way, China also has more room to accommodate Middle Eastern investors to complete the map of foreign investment. In fact, starting in 2023, more and more Chinese companies have led teams to the Middle East to seek fundraising.

For Middle Eastern countries, they also have their own deep-seated considerations.

On the one hand, putting assets in one basket carries too much risk. In the past, almost all Middle Eastern sovereign wealth funds have focused on betting on European and American markets, but after the outbreak of the Russo-Ukraine conflict, a series of financial sanctions have greatly shocked Middle Eastern countries, driving a part of assets to be deployed in a diversified manner, including the central banks of emerging market countries constantly increasing their holdings of gold. On the other hand, China has risen in many emerging industries such as new energy vehicles, photovoltaics, e-commerce, and artificial intelligence, which has enabled Middle Eastern countries to see the possibility of expanding into new economic fields and provided good examples for economic restructuring.

In fact, in recent years, besides valuing long-term value and returns, Middle Eastern sovereign wealth funds have also paid particular attention to bringing emerging businesses into their own countries to drive local industrial transformation and upgrading. For example, in May of this year, Lenovo Group received a strategic investment of RMB 14.4 billion from Alat, a new company under PIF, but Lenovo needs to establish a regional headquarters in Saudi Arabia and arrange relevant production facilities.

Of course, it's not just Middle Eastern tycoons who are "buying" in China. China's investment in the Middle East is also deepening. In the primary market, since 2023, more than one well-known VC has set up companies in the Middle East with a clear goal of promoting cooperation between domestic and Middle Eastern enterprises. In the financial market, the first batch of two domestic investment Saudi Arabia ETFs was approved in June this year, and once listed, it received crazy pursuit from domestic investors. Of course, more Chinese enterprises are layout and investment for physical projects in the Middle East.

This two-way trip is still being played enthusiastically. (End of text)