Chinese Money Managers Eye Middle East Oil Wealth

• Chinese banks and hedge funds have boosted their activity in the Middle East.
• This year, several state-held Chinese banks, the Chinese $1.35-trillion sovereign wealth fund, and a number of asset managers from the world’s second-largest economy have established offices and businesses in Dubai.
• State-owned China International Capital Corp, which has also boosted its presence in the Middle East, hopes to attract funds from the Gulf to the Chinese economy.

China’s sovereign wealth fund and a number of banks and hedge funds have boosted their presence in the Middle East, aiming to get a larger slice of the oil-wealth pie and raising concerns in the United States over closer cooperation between China and the U.S. allies in the Gulf region.   

This year, several state-held Chinese banks, the Chinese $1.35-trillion sovereign wealth fund, and a number of asset managers from the world’s second-largest economy have established offices and businesses in Dubai, Abu Dhabi, and other financial centers in the Middle East, where the revenues from oil are expected to be used in high-tech and AI sectors.

The Chinese financial institutions are set to compete with the established presence of the top Wall Street banks in the Middle East.

The countries in the Gulf, for their part, are looking at China for investments and are welcoming banks and asset managers with knowledge of the Chinese market.

Chinese Wealth Managers Seek Strategic Presence in the Middle East

This year alone, Infini Capital Management, a Hong Kong-based alternative investment firm, announced the opening of an Abu Dhabi office. Infini became the first Asian hedge fund to set up business in the United Arab Emirates (UAE), “as it looks to tap into deepening ties between Asia and the Middle East,” Emirates news agency WAM reported in March. Related: U.S. Shale Mergers Could Bring Steadier Oil Prices

“We believe in the tremendous potential of the region as an alternative investment hub,” said Tony Chin, founder, CEO and CIO of Infini Capital.

China Merchants Bank International launched operations in Dubai’s financial center in April, while China’s sovereign wealth fund has partnered with Bahrain’s Investcorp to establish a $1 billion investment pot in the Middle East.

Investcorp and China Investment Corporation (CIC), one of the world’s largest sovereign wealth funds, launched Investcorp Golden Horizon in April to invest in high-growth companies across Saudi Arabia, the rest of the countries of the Gulf Cooperation Council (GCC), and China. The investment platform has a target size of $1 billion and will be anchored by reputable institutional and private investors from the GCC, as well as CIC.

“During the past couple of years, we have built several bilateral funds with leading financial institutions to facilitate industrial cooperation between China and major economies in the world,” said Bin Qi, Executive Vice President and Deputy CIO of CIC.

“Currently we are working closely with Investcorp to build a similar bilateral fund to strengthen financial and industrial ties between China and GCC countries.”  

State-owned China International Capital Corp, which has also boosted its presence in the Middle East, hopes to attract funds from the Gulf to the Chinese economy.

“We know that understanding China in a granular way is not easy to achieve without a presence in China or access to true China specialist institutions,” Richad Soundardjee, regional managing director at CICC, told Bloomberg.

“This has kept a number of investors in this region on the fence about adding China to their geographical mix,” Soundardjee added.

China-Middle East Trade to Surge Beyond Energy

With closer investment ties, China and the Middle East are looking beyond oil and gas for their future relations.

UK-based banking giant HSBC, which has a huge presence in Asia, said last month that the Asia–Middle East trade, investment, and travel corridor is set to thrive in the coming years.

Two-way investment, led by the China-Saudi Arabia and India-UAE corridors, could surge to $36 billion annually by 2035, said HSBC’s Simon Williams, Chief CEEMEA Economist, and Frederic Neumann, Chief Asia Economist.

Asia–Middle East trade in goods totaled $954 billion in 2022. Per HSBC’s projections, this figure could surge to $1.9 trillion by 2035. For reference, US-China trade in 2022 only totaled around $750 billion.

In addition, “Northeast Asian investors are increasingly pouring funds into the Middle East, with flows in the opposite direction also rising,” HSBC’s economists wrote.

The U.S. could find some China-Middle East investments particularly sensitive, especially in technology and AI, considering the fact that the U.S. has the UAE and Saudi Arabia as key defense partners in the Middle East region.

China-Middle East Energy Ties Grow Stronger

Even as China, and Asia as a whole, seek ties beyond energy imports from the Middle East, the world’s second-biggest economy is bolstering oil and gas ties with the major energy exporters in the Gulf region, particularly Saudi Arabia, the UAE, and Qatar.

Saudi Arabia, while looking to diversify its economy away from oil, continues to bet big on China for its future oil sales and is ramping up its presence in the Chinese downstream sector.

Earlier this year, Saudi state oil giant Aramco proceeded with plans to boost its downstream presence in its most important export market, China, with discussions to buy a minority stake in a Chinese petrochemical company.

Aramco has entered into discussions with Hengli Group Co., Ltd. regarding the potential acquisition of a 10% stake in Hengli Petrochemical Co., subject to due diligence and required regulatory clearances. A preliminary agreement on the talks “aligns with Aramco’s strategy to expand its downstream presence in key high-value markets, advance its liquids-to-chemicals program, and secure long-term crude oil supply agreements,” the Saudi oil giant said in April.

The potential deal would not be the first transaction in the petrochemicals sector for Aramco in China.

Last year, Saudi Aramco completed the purchase of a 10% stake in Rongsheng Petrochemical for the equivalent of $3.4 billion. Earlier in 2023, Aramco announced two major refinery and petrochemical deals in China, which not only give the world’s largest oil firm a share of the Chinese downstream market but also an additional export outlet for 690,000 bpd of Saudi crude in China. 

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