At the beginning of 2023, a wave of "Middle East fever" is coming.

This popularity is reflected not only at the government level, such as the Hong Kong delegation led by Hong Kong Chief Executive Li Jiachao, and the economic and trade delegations led by the Inner Mongolia and Guangxi Departments of Commerce visiting the capital of Saudi Arabia, Riyadh, but also in China's GP rushing to the Middle East to seek money.

If you don't go to the Middle East to raise funds again, you'll be out. "" Since the beginning of this year, domestic investors have started retaliatory business trips to the Middle East. "" The increase in airfare and five-star hotel prices in the Middle East has already explained everything. Chinese GPs should come quickly! "... According to media reports, the heat in the Middle East in early 2023 was comparable to Singapore in 2022.

The heat is mutual. The "Middle East craze" at the beginning of the year is also reflected in another aspect - the frequent appearance of Middle Eastern sovereign wealth funds in the domestic capital market.

In the latest report on Saudi Arabia in Caixin Weekly, a photo of former CEO of the Hong Kong Stock Exchange, Li Xiaojia, and others attending a dinner party in the local area is depicted. In the photo, a Chinese face dressed in a suit and holding an Arabic long sword, shines with local businessmen and celebrities wearing robes - an unusual spring has begun.

'Tuhao' buy buy buy buy buy

In the established impression of the public, the Middle East is like a land of honey and milk, and "money" is a common understanding of the public towards the Middle East. The "moat" atmosphere of the 2022 Qatar World Cup further deepens this understanding. In the eyes of Chinese investors, the attractiveness of the Middle East lies in the strong Middle Eastern sovereign wealth funds.

As of 2022, the total asset management scale of Middle Eastern sovereign wealth funds is as high as $3.64 trillion, accounting for one-third of the total global sovereign wealth funds. In addition, over 4000 global millionaires flooded into Dubai in 2021, and the funds brought by the family wealth office also made the Middle East region attractive.

In the beginning of 2023, Middle Eastern sovereign wealth funds have started to "buy and buy" in China.

According to insiders, recently, a fund named 42X continued to buy shares of ByteDance for several months, and finally bought shares worth more than 100 million dollars. The 42X Fund, also known as G42 Expansion Fund, is a technology fund under the artificial intelligence and cloud computing company G42 in the United Arab Emirates, with a fund size of $10 billion. The investor behind G42 is the Abu Dhabi Growth Fund (ADG), a sovereign fund established by the Abu Dhabi government in 2021.

The actions of the Abu Dhabi Sovereign Fund go beyond that. According to Cailian News Agency, a new round of financing for Chinese fashion cross-border brand SHEIN is about to be completed and delivered: in addition to old shareholders such as Sequoia China and Tiger Tiger Fund, new investors include Abu Dhabi sovereign fund Mubadala Development Company, with an investment amount of up to $1 billion.

On March 22nd, JD Industrial, a subsidiary of JD Group engaged in industrial supply chain technology and services, announced the completion of the B-round financing, totaling $300 million. Mubadala and 42X Fund jointly led the financing, with Sequoia China and others following suit.

Recently, Yuanqi Biotech has also gained the favor of Middle Eastern capital. Yuanqi Biotechnology is committed to the development of innovative tumor immunotherapy drugs, and has recently completed a B1 round of financing of $45 million. The investor behind this has once again appeared as a Middle Eastern tycoon - Qatar Investment Authority (QIA).

Another powerful Middle Eastern sovereign wealth fund, the Saudi Arabian Public Investment Fund (PIF), has been operating frequently since January and February this year. It first partnered with Futian District in Shenzhen to establish Blue Ocean Pacific (Shenzhen) Private Equity Investment Fund Co., Ltd. in China, with the first fund exceeding $1 billion, Later, through its Savvy Games Group, it invested $265 million in Tencent supported esports company Hero Sports VSPO, becoming the single largest shareholder of VSPO.

In addition, the fundraising of Sequoia China and Kaihui Fund in July last year also featured the presence of Middle Eastern sovereign wealth funds.

The cross influence of various factors such as the Federal Reserve's interest rate hike, changes in the political environment, and the pandemic has led to European and American funds being slightly hesitant towards the Chinese market, resulting in a decrease in investment willingness. On the contrary, Middle Eastern sovereign funds still seem to be interested in the emerging market of China.

Another example is that at the end of 2021, the Saudi Arabian Public Investment Fund submitted a QFII (Qualified Foreign Investor) application to the China Securities Regulatory Commission and planned to open a China office in 2022. In February of this year, the Hong Kong office had already opened. In 2021, the Abu Dhabi Investment Office established an office in Beijing, and its head stated in an interview with the International Finance Daily in 2022, "In recent years, the level of foreign direct investment and trade circulation between Abu Dhabi and Beijing has been very high, and we see enormous potential for sustained growth. As an extension of the Abu Dhabi Investment Office, the Beijing team directly serves investors in the Chinese market

The establishment of an office of the Middle East sovereign wealth fund in China is no longer news. For example, the Kuwait Investment Authority (KIA) has opened a representative office in Beijing as early as 2011, an office in Shanghai in 2018, and the Qatar Investment Authority (QIA) has also set up a China office in Beijing as early as 2014.

The fact that Abu Dhabi and Saudi Arabia still chose to open Chinese offices during the pandemic indicates a trend. According to reports, Bank of America Securities recently met with Middle Eastern investors, and local investors tend to make medium to long-term deployments to the mainland Chinese market. Local sovereign wealth funds have teams dedicated to investing in the mainland Chinese market, with some recently establishing relevant investment teams in Beijing and Singapore.

When Middle Eastern capital frequently appears in the domestic capital market, Chinese GPs are also rushing to the Middle East to seek money.

This is determined by the large investment environment.

In May last year, a well-known chairman of a domestic private equity fund talked about the difficulty of fundraising in the primary market in an interview with Shenwang The phenomenon of slow investment pace: "There may be several reasons for the slow pace. Firstly, it is estimated that everyone is not having a lot of money in their pockets right now. To be honest, the overall fundraising environment is not very good now, and there are also a few estimates that the market is still fundraising today. In addition, in many markets, (USD) Funds, whose main LPs and investors are in North America, have seen some changes in their views on China, which still poses certain challenges for them

In January of this year, Kuang Ziping, the founding managing partner of Qiming Venture Capital, stated in an article: "The fund financing environment is in a cold winter. US dollar investors have greatly increased their concerns about China's economy and policy environment compared to the past, and have begun to ask fundamental questions such as' whether China is still suitable for investment '. In the past 20 years, their investment judgment mainly depends on factors such as industry selection, stage selection, and team selection. Most US dollar LPs have not been to China for 3 years

All of this has led the domestic US dollar GP to seek more ways out, and after Singapore was cold, it naturally turned its attention to the Middle East, which has equally strong capital strength.

In February, GGV Jiyuan Capital Fu Jixun published an article titled "Money Becomes Expensive, Let's Talk about My Prediction and Judgment for 2023", which tells the story of his global business trip after Shanghai was lifted, with one stop being the Middle East.

The chairman of the well-known domestic private equity fund mentioned above also made the Middle East one of their business trips. In August last year, in an interview with First Financial, he stated that several countries in the Middle East are quite important capital exporting countries, but their overall capital allocation is mainly in the European and American markets. "As far as we know, most investments in China in the entire Middle East region, especially sovereign funds, are less than 5% allocation. In the Middle East, since 2009, China has surpassed the United States as the largest trading partner in almost every country except Israel. The Middle East's investment in China has significantly decreased.

He also mentioned the obstacles to Middle Eastern capital investing in China today: "Overall, they are not particularly familiar with China's investment environment and path, and lack a truly trust based bridge. It is interesting that in the past, many of their investments in China were made through European and American managers

There are many GPs who go to the Middle East to change money, but how many can open the door to Middle Eastern capital still requires a question mark.

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Middle Eastern capital's investment in China actually started very early.

For example, Abu Dhabi Investment Authority (ADIA) started to invest in China in 1992 when the Chinese market was first opened to overseas investors. In 2009, Abu Dhabi Investment Authority obtained the QFII qualification. By June 2019, it had accumulated a QFII investment quota of 3.5 billion US dollars, only less than the Monetary Authority of Macao's 5 billion US dollars. In 2020, the QFII limit was lifted. Kuwait Investment Authority (KIA) obtained QFII qualification at the end of 2011.

In 2006, there was an impressive piece of financial news - "Middle Eastern guests swept through top luxury properties in Shanghai for 600 million yuan." Gateway Capital, a fund from the Middle East, spent 600 million yuan to buy all 102 units of Ruian Group's latest residential project, Cuihu Tiandi Yuyuan Phase II, with an average price of 40000 yuan per square meter.

This can probably serve as the first high-profile appearance of Middle Eastern capital in mainland China, and also serve as a small epitome of the investment style of Middle Eastern capital - early Middle Eastern capital tended to invest in real estate and state-owned banks.

In 2006, when Industrial and Commercial Bank of China IPO, Kuwait Investment Authority subscribed 720 million US dollars and Qatar Investment Authority subscribed 206 million US dollars. The China chairman of lead underwriter Merrill Lynch described in an interview with Sanlian Life Weekly that these Middle Eastern investors "are simply sitting on a flying carpet to invest in ICBC". The same situation occurred four years later in the IPO of Agricultural Bank of China. The Kuwait Investment Authority once again subscribed for USD800 million shares of ABC, and the Qatar Investment Authority, as a cornerstone investor, subscribed USD2.8 billion shares of ABC.

When commenting on the IPO of Agricultural Bank of China, the First Financial Daily quoted analysts as saying that in the past, funds in the Middle East were mainly concentrated in countries such as Europe and America. However, after 9/11, Islamic countries began to realize that these regions had higher risks. In addition, due to the continuous decline of the US dollar, Middle Eastern funds began to tilt towards Asia from 2005 to 2006.

Since then, Middle Eastern capital has made frequent moves.

Establishing a cooperative fund is another preferred investment method for Middle Eastern capital.

In 2014, the Qatar Investment Authority and CITIC Group signed a memorandum of understanding and cooperation, each contributing 50% to establish a $10 billion regional investment fund. Prior to this, the Qatar Investment Authority had already invested in CITIC as its fourth largest shareholder. In 2015, the China UAE Investment Cooperation Fund (referred to as the "China Arab Fund") was established with a total scale of $10 billion, with an initial investment of $4 billion, jointly funded by China Development Bank (CDB Finance), State Administration of Foreign Exchange, and Mubadala. In 2017, the first publicly disclosed investment of the China Arab Fund was announced: it participated in the new round of $4 billion financing by Meituan Dianping. As of 2020, Mubadala has invested approximately $2 billion in over 15 industries in China through the China Arab Fund.

The Saudi Public Investment Fund and Mubadala have also used Sun Zhengyi's hand to invest in China by investing in SoftBank Vision. Before August 2021, about 1/3 of the Vision Fund will invest in China, including Didi, Ant, ByteDance and other well-known Internet enterprises.

In addition, Middle Eastern capital has also started to invest more directly.

Abu Dhabi Investment Authority has invested in Gree Electric, Dongfang Fortune, Hengli Hydraulic, PICC, CICC and other A-share companies in recent years. The Saudi Arabian Public Investment Fund has invested in Bank of China, Pudong Development Bank, PetroChina, Sinopec, Alibaba, Tencent, Baidu, Zuobao, Xiaohongshu, Keep, Truck, Guazi second-hand cars, etc. Kuwait Investment Authority has invested in Zhongtian Technology, Chenguang Shares, Sankeshu, Sanhua Intelligent Control, Angel Yeast, Feike Electric, etc.

In 2018, the Qatar Investment Authority led a new round of financing from Lufax, with an amount exceeding $600 million; In 2020, the Qatar Investment Authority subscribed to $100 million in preferred shares before Xiaopeng Automobile went public; In the same year, Qatar also participated in the $105 million cross financing round of Chuangsheng Group.

The current financing environment is somewhat similar to the shift of Middle Eastern funds towards Asia from 2005 to 2006, and after nearly 20 years of entering China, Middle Eastern capital has become more diversified in its "looking east" approach. Although the proportion of Middle Eastern capital's investment in China is lower than that in Europe and America, the popularity of Middle Eastern capital in China has been continuously increasing in the past 20 years.

In the past 15 years, the investment of Kuwait Investment Authority in China has increased by nearly 50 times, and the investment in Greater China ranks second in its global investment scale. In 2022, at the the Belt and Road China Arab Investment and Trade Association, the Qatar Investment Authority said that it had invested 10 billion dollars in China since 2016.

In 2019, Khaldoon Al Mubarak, CEO of Mubarak, stated at the Innovation Economy Forum that China is a country worthy of foreign investment

At the Davos Forum in Switzerland in January this year, Mubarak once again mentioned China: "We have a strong investment team locally and we understand the Chinese market. I expect China to rebound strongly in 2023." Speaking of the $10 billion China investment plan, Mubarak said, "We have invested a lot in China and we will continue to invest. The goal of $10 billion is easy to achieve

The People's Daily reported that China has remained the largest trading partner of Arab countries for many years. Data shows that in 2021, the bilateral trade volume between China and Arab countries will exceed 300 billion dollars. At the same time, China's "the Belt and Road" initiative coincides with the long-term development strategy of the Middle East countries, and there is a huge momentum to go in the opposite direction.

China and the Middle East have entered the The Honeymooners period. The heat brought by all this will turn into opportunities and money, flowing between the two places.

(Article reprinted: Zhixiang Sails to the Sea)