In the past year, Middle East investors have been discussing deals with Chinese venture capital funds, three U.S. dollar-denominated firms stated, wishing to remain anonymous.Supposedly, Chinese venture capital firms will be bringing in around 20% of U.S. dollar funding, the source assumed.Preqin reports that the biggest eight Middle East sovereign wealth funds created a total of above $3 trillion in assets in the previous year.
Chinese venture capitalists that formerly drew on U.S. investment are now being wooed by Middle Eastern money. In the last few months, multiple meetings and business visits have taken place, a possible indication of a rising trend in international capital flows.
According to three Chinese firms with U.S. dollar-funded funds (who spoke anonymously since they are not permitted to publicly disclose their fundraising discussions), there have been a considerable number of negotiations between Middle East investors and Chinese venture capital funds in the last year.
It appears that although U.S. money is not getting supplanted altogether, it is predicted to be replaced by approximately 20% from the Middle East. One source stated that the Arab investors are presently examining Chinese opportunities with an eye to later investing modestly to assess their viability. Tech startups, fresh consumer trends and biotechs have been identified as particularly attractive industries for Middle Eastern investors.
The investment trend has been reinforced by a range of diplomatic, financial, and economic developments. China's relationship with the Middle East has been greatly improved since Saudi Arabia and Iran began negotiations mediated by Beijing. Simultaneously, tensions between the United States and China have been growing, which has caused many investors from the United States to reconsider throwing money into Chinese venture capital funds denominated in US dollars. These funds would eventually have their startups listed on American stock exchanges. With countries such as Saudi Arabia and Qatar desiring to reduce their dependency on fossil fuels, Middle East capital has began looking into taking part in the process, yet many potential investments in Chinese funds remain in the discussion stages, according to the venture capital funds.
By February 2022, Preqin, a research organization for alternative investments, had noticed that Middle East financiers' investment in North American properties was still considerably greater than their allocation to Asia-Pacific ones. Alternative assets, such as venture capital, are included in this, not publicly traded stocks and bonds. Over the course of 2021 and the first half of 2022, the proportion of Middle East SWFs' investment in worldwide alternative assets nearly doubled. cumulatively, the eight greatest Middle East sovereign wealth funds had more than $3 trillion in assets combined as of 2021, the most recent estimates by Preqin.
The relationship between Saudi Arabia and China is progressing from one primarily focused on trade towards a "core investment relationship," deemed Khalid Al-Falih, Saudi Minister of Investment, in a discussion with CNBC's Dan Murphy this week. Other than Saudi investments in oil refining and petrochemical sectors of China, Al-Falih highlighted investments in technology by the nation's Public Investment Fund and private businesses. The PIF declared having roughly $700 billion in assets under management, per data indicated on its webpage. However, the fund did not react to a notice inquiring regarding the amount devoted to China investments.
At the Arab-China Business Conference in Riyadh, Saudi Arabia's capital, Al-Falih addressed the attendees and reported that a $5.6 billion deal had been signed with the Chinese parent of the renowned electric car brand HiPhi. Earlier in late May, Aramco-backed Prosperity7 Ventures had made an investment of "tens of millions" of yuan in Hyperview, a Shanghai-based assisted driving technology company.
Aysar Tayeb, executive managing director at Prosperity7, highlighted that trucking is relatively more prominent in China and that any successful venture in this field has a greater scope of scaling up in this country. He said in a phone interview earlier this month that the portfolio of about 30 startups by Prosperity7 is balanced between U.S.-based businesses and Chinese companies. Even though the Covid-19 pandemic had disrupted China's deal flow in the past two years, Tayeb remarked that they "are beginning to see more activity in China for sure." This was backed up by the Abu Dhabi hosting of the "Arab China Unicorn Investment Conclave" in May which drew the attendance of China's "top 50 unicorns".
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Massimo Falcioni, secretary general and vice president of the Business Council of Dubai, stated that the conference is likely to stimulate greater investment from China in the United Arab Emirates. “China is a major source of technology and commerce,” he stated, “Making it a partner is one of the most significant components of the UAE’s successful transformation.” Governments in countries like Saudi Arabia and Dubai have been toiling to build up their economies for the distant future. Chinese organizations bring the ownership of infrastructure and production expertise, as Niol Ma – a Chinese native who has been residing in Dubai for two decades – pointed out. The region’s enthusiasm for doing business with China has quickly swelled, and Ma declared that his company, Gulf Ferry Management Consultancies, received more than 100 prospective clients in the past year, playing a part in those Chinese firms raising over $350 million. Many of these Chinese customers are attempting to rebrand themselves as local firms in the Arab world that are competent to list on the Nasdaq. – Per CNBC’s Natasha Turak.
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