The Middle East - China Investment Landscape

Welcome everyone to another edition of my China Tech Law Newsletter. While investment from the West may have slowed some into China in the last year, investment from the Middle East has picked up.

With this trend in mind, I asked a friend of this Newsletter, Cindy Xie , if she could answer some questions about this.

Cindy wrote a guest post just under a year ago on Chinese outbound investment which you can find here , and I'm thrilled to have her contribute another round of Q&A, here on the Middle East - China investment landscape.

Cindy is Managing Director at Shanghai Link Europe Co., Ltd., a cross-border M&A advisory firm, with transactions largely between Europe and China. Shanghai Link Europe has strong partners across Switzerland, Germany and Spain as well as the US.

I would strongly encourage you to reach out and connect with Cindy to explore synergies for cross-border investment.

Here is the first part of a two part Q&A series.

1. How have Middle East investors been investing in China recently??

In 2023, Middle East investors notably increased their engagement in China. Sovereign wealth management funds from the UAE and Saudi Arabia emerged as the most prominent participants in this trend.

2. Have they been investing in companies, in funds?

Middle East investors have engaged in China through both direct investments in companies and investments in funds. For example, Prosperity 7, a ventures fund owned by Aramco, has invested in over 20 companies in China, with Aramco serving as a fund of funds. Additionally, the Saudi Arabian sovereign wealth management fund, PIF, partnered with Alibaba in 2019 to establish eWTP Arabia Capital. Jada Fund of Funds, a portfolio of PIF, and has committed to participating in the fundraising for the second phase of eWTP Arabia Capital as the primary limited partner.

3.?? What industries?

Middle East investors have diversified their investments across various sectors in China, including:

E-Sports:

Savvy Games group, created by PIF, invested $265 million in VSPO, a mobile E-sports event operator.

?Automotive:

• Bin Omeir Holding Company and Chengdu Xiling Power Science & Technology Incorporated Company formed a partnership.
• CYVN Holdings, owned by Abu Dhabi Investment Authority, announced a $2.2 billion investment in Nio.
• PIF signed a joint venture agreement worth $5.6 billion with Human Horizons.

Petrochemicals:

• Aramco acquired a $3.6 billion, 10% stake in Rongsheng Petrochemicals Co., Ltd.,? and also made an investment in Eastern Shenghong.
• Aramco, Norinco, and Sincen established joint ventures.

Health care:

• Qatar Investment Authority participated in Oricell Therapeutics' fundraising.
• Mubadala and CBC group jointly invested in Hasten.

Steel:

Aramco, PIF, and BaoSteel announced the creation of a joint venture, where Baosteel holds 50% stake, and Aramco and PIF each holds 25% stake. The JV is the first green, low-carbon full-process thick plate factory in Saudi Arabia.

Food:

Platinum Peony B 2023 RSC Limited, indirectly held by Abu Dhabi Investment Authority, acquired 156 million stake in Fovo Foods.

Cross-border E-commerce platform:

Mubadala participated in Shein's fundraising.

Internet technology:

42X Fund, indirectly held by Abu Dhabi Growth Fund, initially acquired a stake, worth over $100 million in ByteDance. however, they sold the stake in Feb 2024.

Industrial supply chain technology and services:

Mubadala and 42X Fund co-led a $300 million fundraising round B for JD Industrial.

Photovoltaics:

TCL Zhonghuan (002129) and Vision Industrial Company signed a joint development agreement for a the jointly constructed crystal chip in Saudi Arabia.

?

4.?????? What are the strategic motivations for these investments?

In general, Middle East investors tend to select targets that align closely with either the national strategic development plan, such as Saudi Arabia Vision 2030, or the financial objectives of the funds, including metrics like IRR, TVPI, and DPI. They prioritize investments in sectors where they lack expertise but can contribute, such as EV, logistics, healthcare, and supply chain technology and services. Alternatively, they opt for traditional companies or joint ventures to secure sustainable oil supplies as sellers or acquire final industrial products as buyers.

Sovereign wealth management funds exhibit varied investment strategies in the Chinese market. Aramco typically invests in traditional industries like petrochemicals, energy, and infrastructure. Saudi PIF adopts a more strategic approach, investing in both traditional and emerging industries, and fostering strong partnerships with the Chinese government and businesses. Meanwhile, Abu Dhabi sovereign wealth funds pursue a diversified strategy, spanning sectors like E-sports, new energy, internet technology, healthcare, and consumer goods.

Okay, thank you again to Cindy for putting these answers together, stay tuned for part 2 coming up shortly in a future newsletter edition. And thank you for reading and subscribing! See you back here in a week!