Cover Stories
● China-Arab Investments: Emerging Trends and Future Development Prospects / 【Syria / Russia】Karim Alwadi
The relationship between Arab countries and China is undergoing a transformative evolution, marked by rapid developments and significant milestones. A foundation of mutual respect and trust among leaders from both regions has invigorated this partnership, particularly in the realms of economic collaboration and investment.
This robust partnership has fostered a political commitment to enhance economic and investment cooperation through a variety of practical measures and strategic decisions. A cornerstone of this collaboration is the China-Arab Cooperation Forum, established in 2004. Over the past two decades, this forum has played a vital role in promoting cooperation between China and Arab nations. By 2024, trade between China and Arab countries is projected to surpass $400 billion, positioning China as the largest trading partner for these nations, which have also emerged as a reliable source of energy for the Chinese economy. The Arab region has forged extensive strategic partnerships with China, transforming the Middle East into a prime destination for Chinese enterprises seeking international expansion. Additionally, China has granted zero-tariff treatment on imports from Arab countries classified as least developed and has trained tens of thousands of young Arabs from various nations.
In recent years, wealthy Arab funds have become a crucial source of foreign direct investment (FDI) for China. With Chinese corporations shifting their global expansion strategies from west to east, the Arab world—particularly the Gulf region—has emerged as a top priority for entering this burgeoning market.
When examining the Arab world as a collective entity, several key data points stand out:
● The total economic output of Arab nations is projected to exceed $ 3.5 trillion based on GDP, and around $10 Trillion based on PPP ranking fifth globally, behind only China, the United States, European Union, and India.
● The combined land area of Arab countries is the second largest in the world, covering 13.3 million square kilometers, trailing only Russia.
● Strategically, Arab countries occupy a critical position in global geopolitics, controlling significant international trade routes.
● They hold 35% of the world’s oil reserves and boast capital reserves exceeding $15 trillion.
● A mighty defense force with military personnel in Arab nations totaling over 4 million.
Arabs share a common language, although dialects differ, facilitating communication. Most adhere to the same religion and pass down similar customs and values, reflecting a collective empathy towards shared challenges.
On June 5, 2014, President Xi Jinping delivered a pivotal speech at the sixth ministerial meeting of the China-Arab Cooperation Forum, inviting the Arab world to engage in the "Belt and Road Initiative." He outlined a cooperation framework known as "1+2+3," which focuses on collaboration priorities. This framework emphasizes energy cooperation as a pillar of economic partnership, alongside infrastructure development and trade, with high-tech fields such as nuclear energy, aerospace, and new energy as focal points for innovation.
All 22 Arab countries signed cooperation agreements related to the Belt and Road Initiative, engaging 500 million residents of the Arab world in this global project and enhancing international momentum for China’s initiative.
The long-standing friendship between Arabs and China has opened new avenues for collaboration. This relationship reached a new pinnacle at the Riyadh China-Arab Leaders Summit in 2022, where China’s proactive diplomacy in the Middle East garnered widespread acclaim, significantly boosting China's popularity in the Arab region and advancing economic and investment cooperation.
Regarding Arab investments in China, several key considerations emerge:
The foundation of this relationship is built on friendship, characterized by pragmatism and mutual benefit. Arab nations have consistently supported China’s core interests, and their influence extends to Africa, where many Arab states are located, positively shaping African nations' perspectives toward Beijing. Furthermore, China’s relations with the Muslim world rely on Arab support, underscoring the significance of fostering friendly ties with the Arab world as a core interest of Chinese diplomacy.
Economically, this focus has been paramount since China’s reform and opening-up policies. Initially, the economic relationship primarily centered on the energy sector, where Arab countries proved to be reliable partners, significantly contributing to China’s economic growth. As we entered the 21st century, Chinese state-owned enterprises began to invest in infrastructure within Arab nations, further solidifying cooperation in this area. The Belt and Road Initiative has facilitated financing for infrastructure projects, increasing the market presence of Chinese companies.
China’s positive reputation has positioned it as a trustworthy partner in the eyes of Arab nations. A significant shift occurred following the trade war initiated by the Trump administration, with Arab leaders carefully observing U.S. sanctions and pressures on China. As China navigated these challenges successfully, Arab leaders began to pay increased attention to their relationship with China.
Many Arab nations are eager to leverage China’s experience to advance their development strategies, such as Saudi Arabia’s Vision 2030, Kuwait’s Vision 2035, and Egypt’s 2030 plan, with numerous agreements signed to align national development plans with the Belt and Road Initiative. Arab leaders are particularly interested in China’s successes and the challenges it has faced throughout its development history.
However, it is crucial to recognize that Arab capital has missed out on significant investment returns during China’s economic boom over the past 20 years. Consequently, Arab investors feel an urgency to seize future investment opportunities in China, prompting an increase in their investments there.
Currently, the share of Arab investments in China is estimated to be less than 2% of their total global investment allocations, with most of this small percentage funneled through Western investment firms, limiting Arab influence in Beijing. Given that the Chinese economy accounts for nearly 20% of the global economy, this gap is driving a rapid increase in Arab investments in China, potentially tenfold, to better reflect China’s significance in the global market. Experts predict that this figure could exceed $2 trillion. This represents a significant opportunity for China to transform goodwill and momentum from Arab countries into substantial investments, providing its economy with much-needed foreign capital.
Before converting this interest into concrete actions, it is essential to systematically understand the status of Arab capital.
Four Primary Segments of Arab Capital
Through my extensive engagement with Arab capital over the years, I have categorized it into four primary segments:
1. Sovereign Wealth Funds: The majority of Arab sovereign wealth funds originate from Gulf countries, accounting for approximately 80% of the total. With low production costs, these nations balance their national budgets at around $50 per barrel, allocating part of their oil revenues to these funds to invest across various sectors, aimed at creating wealth and security for future generations while enhancing global influence. These funds often function as funds of funds, with relatively small teams managing large investments, leading them to prefer passive investment strategies. Members of local ruling families typically serve on boards to maintain oversight.
Traditional sovereign funds, like those from Kuwait and Abu Dhabi, tend to be discreet, whereas newer funds from Saudi Arabia, Qatar, and the UAE exhibit a more proactive stance, willing to invest in emerging industries with greater risk appetites.
2. Royal Family Investment Funds: Managed by trusted members of ruling families, these funds are typically run by professionals and focus on foreign markets. Arab rulers often prefer not to invest their funds in the local economy to avoid competing with local businesses. These royal families are among the wealthiest in the world, and their political influence often safeguards their investments. Royal Group of UAE and Tharawat Group in Saudi Arabia are examples of this category.
3. Large Business Family Investments: Wealth among Arab business families originates from a variety of sources. In Gulf countries, major conglomerates primarily engage in trade and services, representing global brands. In Saudi Arabia, Egypt, and Morocco, numerous industrial family businesses exist. These families often manage their family investment offices professionally, involving investment experts and trusted family members. The younger generation typically possesses educational backgrounds from Europe and the U.S., which shapes their investment focus on Western markets. However, there is a growing interest among these families in investing in Chinese private companies, seeking to become shareholders rather than merely representing brands locally.
4. Financial Institutions: Established by governments to support specific industries and national development strategies, these institutions encompass various funds and banks that primarily provide financial services. For instance, Kuwait's Public Institution for Social Security manages pensions and welfare, while the Kuwait Finance House offers Islamic financial services. Saudi Arabia's National Development Fund supports national projects, and the Iraq Development Fund encourages foreign investments in targeted sectors.
Large state-owned enterprises often have subsidiary funds, such as the P7 Fund under Saudi Aramco. The UAE's XRG, launched in December 2024, aims at green energy and artificial intelligence with an initial capital of $80 billion.
Additionally, regional financial institutions like the Arab Fund for Economic and Social Development promote economic cooperation among member states. These funds have diverse investment strategies and objectives, playing different roles in enhancing economic development and industrial upgrades within their regions.
There are 24 sovereign wealth-related funds in Arab countries, with 21 belonging to members of the Gulf Cooperation Council (GCC), while Morocco, Libya, and Egypt maintain their own.
It is important to note that data on sovereign funds is often classified; therefore, I rely on recent industry surveys such as those from the Sovereign Wealth Fund Institute and Global SWF, along with my personal experiences, to present the following information:
As of 2024, the Abu Dhabi Investment Authority (ADIA) in the UAE stands as the largest fund in the Middle East, managing over $1 trillion in assets. The Kuwait Investment Authority also approaches nearly $1 trillion, while the Saudi Public Investment Fund is expected to exceed $1 trillion soon. The Qatar Investment Authority manages total assets of $530 billion.
Despite some similarities, differences exist among these sovereign wealth funds regarding scale, management structure, and investment strategies.
Established funds, such as the Kuwait Investment Authority (founded in 1953) and the Emirates ADIA (founded in 1976), are known for their cautious investment approaches, often focusing on fixed-income securities like U.S. Treasury bonds and other low-risk ventures. This conservative strategy aims to ensure long-term sustainability beyond oil revenues. For example, Kuwait's fund manages the "Public Reserve Fund," primarily funded by oil revenues, as well as the "Future Generation Fund," which receives at least 10% of national annual income. The goal of these funds is to preserve high-quality standards for future generations.
Older sovereign funds maintain their traditional investment identities, allowing them to operate sustainably for decades. However, they face challenges in adapting to new realities and are often directly overseen by high-level government officials, which adds bureaucracy and slows things down. In contrast, newer-generation Gulf sovereign wealth funds have emerged due to rising energy prices since the early 21st century. These newer funds are characterized by a willingness to adapt quickly to global economic changes and emerging technologies with a bold investment appetite.
The development of these funds depends on management changes and national circumstances. For example, during financial crises, the Kuwaiti government might withdraw some funds from KIA to cover financial deficits, while various UAE funds may experience intense internal competition that necessitates intervention from national leaders.
Based on my experience over the past decade with the Arab Capital, I've observed a serious uptick in investments in China over the last three years. Official estimates suggest that total Arab financial fund investments in China ranged from $3 billion to $4 billion in 2020. In 2022-2023, these investments increased, capitalizing on the rebound in China's stock market. Analysts anticipate that 2024 will be a breakthrough year for Arab investments in China, with major Chinese companies such as Wanda Commercial Real Estate, NIO, Zhipu AI, and much more attracting Arab capital.
Paradoxically, while Arab capital is seeking opportunities in China, many Western financial institutions are pulling back. It is estimated that Arab investment in China will reach about $25 billion in 2024, accounting for 15% of Arab capital’s global investments that year. Arab countries are expected to continue seizing opportunities within the Chinese economy, with direct Arab investments in China reaching $100 billion, primarily from Gulf nations.
Investment strategies among Arab financial funds vary. For instance, Saudi Arabia aims to invest in large Chinese companies to facilitate technology reinvestment in line with "Saudi Vision 2030." The Saudi sovereign fund, PIF, through its new investment arm ALAT, recently invested in Lenovo, which is establishing a factory in Saudi Arabia. Similarly, Oman’s Investment Authority is focusing on logistics and energy sectors in partnership with China Merchants Bank. In contrast, Qatar and Kuwait’s sovereign wealth funds prioritize financial returns without requiring reinvestment in their home economies.
Most within China's financial sector recognize these investment opportunities. In recent years, Chinese capital managers have sought to engage with Arab countries, particularly in the Gulf region, to attract Arab investments in China. Many China-based funds have visited the Arab region in recent years, seeking to replace their Western limited partners. While some successes have been achieved, many efforts have not yielded significant results due to a persistent trust gap between both parties.
China should closely monitor the investment interests of Arab countries and provide support to facilitate Arab capital investments in China. Given that Arab capital is relatively unfamiliar with the Chinese investment landscape, special measures should be adopted to encourage these investments.
Different Arab countries vary in their capacity to attract Chinese investments. According to research published in the Georgetown Journal of International Affairs (June 2, 2023), China's total investment in Arab countries surpassed $200 billion by 2022, with estimates reaching $300 billion by 2025. This increase is driven by ambitious development plans from countries like Saudi Arabia, the UAE, and Egypt. For instance, during President Xi Jinping's visit to Saudi Arabia in 2022, investment agreements worth $50 billion were signed. Algeria also signed development cooperation agreements exceeding $50 billion, with Kuwait making similar commitments. Today, Iraq is viewed as a key market for China in the energy and infrastructure sectors, while the UAE serves as China’s primary commercial hub in the Arab world, thanks to its favorable business climate. Additionally, Morocco signed agreements worth over $20 billion at the 2024 China-Africa Summit.
Numerous large Chinese private enterprises are investing in Arab countries, capitalizing on favorable investment environments and participating in significant infrastructure development across the region. Chinese Foreign Minister Wang Yi highlighted several successful projects in an article for the 《Middle East Report》(November 2, 2024), noting landmarks such as Egypt's new administrative capital, the longest highway in Algeria, the main stadium for the Qatar World Cup, and Morocco's Mohammed VI Bridge, the largest suspension bridge in Africa.
Many markets in the Arab world are experiencing robust development, emerging as global hotspots. Over the past decade, Arab countries have hosted significant global events, including Dubai’s Expo 2020, Qatar’s 2022 World Cup, the UAE’s COP28 climate summit, and Morocco’s joint hosting of the 2030 World Cup. Furthermore, Saudi Arabia is set to host the Riyadh 2030 World Expo and the 2034 World Cup, marking a pivotal moment for the region.
Gulf countries are undergoing an economic boom, attracting international talent. The UAE and Saudi Arabia have emerged as key destinations for talent in recent years. Despite ongoing regional conflicts, trade and investment activities in the Gulf and North Africa remain vibrant. This shift indicates that the region is beginning to adapt to isolated conflicts while focusing on economic development, reflecting a new trend in the Arab world.
Despite significant achievements, several challenges hinder the growth of Chinese investment in Arab countries:
1. Instability in the Middle East. The region continues to face considerable tension and instability. Over the past decade, countries like Syria, Libya, Yemen, and Sudan have experienced turmoil and civil wars. Lebanon and Palestine have also suffered ongoing conflicts with Israel. These issues have led to widespread destruction of infrastructure, weakened production capacity, and the displacement of millions, leaving nearly a quarter of Arab countries unable to attract Chinese investment.
2. Pressure from Western Countries. Western governments are increasingly concerned about the deepening relations between China and Arab nations. This concern manifests through clear messages and incentives aimed at Gulf countries, Egypt, and Iraq to discourage closer cooperation with China. Western media often portray China’s economic presence in the Arab region negatively, frequently referencing the so-called "Chinese debt trap" and emphasizing potential risks to security and stability stemming from cooperation with China.
3. Impact on Local Business Interests. Influential Arab business leaders in various industries, particularly in real estate, industrial manufacturing, and infrastructure, find their businesses impacted by competition from Chinese goods and services. This dynamic has created resentment towards Chinese investment projects, with some local organizations blaming Chinese companies for rising unemployment and decreased production. Consequently, decision-makers—especially in Saudi Arabia, Algeria, and Morocco—have begun imposing new restrictions on Chinese investments.
4. Lack of Knowledge of the Arab World. Chinese investors face challenges due to a limited understanding of local conditions in Arab countries. Chinese business operations are relatively new to the region, and there is a learning curve for Chinese entrepreneurs regarding how to navigate these markets—an oversight that could lead to failures and harm their reputations.
Despite these obstacles, numerous Chinese private enterprises have successfully entered the Arab market, including companies like Huawei, Alibaba, Shein, TikTok, Meituan, Hongqi, Chery, Geely, LONGi Solar, and BGI. Chinese service providers, such as consulting and law firms, as well as HR and security service providers, are actively establishing offices in the Arab world to support the influx of Chinese business.
China operates within a unique framework distinct from Western markets, which Arab businesses are accustomed to. Arab business leaders often rely on international news, particularly concerning the challenges of doing business in China, yet they are eager to engage strategically. Given the current geopolitical landscape especially with the new Trump administration that will require wealthy Arab states to increase their investments in the U.S, here are a few suggestions to enhance Arab investments in China:
1. Promote Local Currency Exchange Systems. Finalize the establishment of a currency exchange system to increase the proportion of trade conducted in local currencies, simplifying obstacles for foreign investors and encouraging Arab capital to flow to China.
2. Facilitate Efficient Investment Channels. Create pathways for “friendly” countries to support direct investments in Chinese companies using offshore RMB. Hong Kong could serve as a key international financial hub to deepen capital flow and economic cooperation between the two regions.
3. Implement Easy Access Policies. Develop convenient policies for Arab businesspeople to enter China, similar to those recently extended by China to many developed nations. Business experience suggests that when Arab investors can travel freely to China, it significantly promotes investment. Most Arab countries offer visa-free or landing visa policies to China, making reciprocal policies vital for advancing bilateral relations.
4. Establish an Arab Chamber of Commerce. Create an Arab chamber of commerce in China, akin to existing AMChina and EU chambers. This initiative would promote trade and investment, providing Arab businesses with representation and bolstering investor confidence.
5. Offer Banking Incentives for Chinese Enterprises in Arab Countries. Focus on sectors such as automotive, batteries, medical equipment, and artificial intelligence. Notably, some Arab countries have signed free trade agreements with Western nations, allowing Chinese companies to establish production in Arab countries to meet local demand while exporting to other markets.
6. Enhance Communication. Young Arabs increasingly disengage from traditional media outlets, making it crucial to involve them in storytelling beyond the confines of government narratives. Regular invitations for young Arab influencers to share the vibrant energy and culture of China can bridge this gap, fostering a more relatable and authentic dialogue.
7. Promote Pragmatic Cooperation and Avoid Ineffective Meetings. Engaging in activities that fail to produce tangible outcomes can lead to frustration among representatives from both the official and business sectors, ultimately undermining trust in the framework of China-Arab cooperation.
The China-Arab relationship is at a unique and unprecedented juncture. It is essential to capitalize on this moment of opportunity, fostering bilateral relations that resonate deeply with the people on both sides. By making a close Sino- Arab relationship a necessity and natural, we can ensure that the partnership withstands future shifts, solidifying a collaborative future for generations to come.
【N.B.: This version of English writing is a restatement by the author. T he two versions of Chinese and English may not necessarily coincide with each other on a full scale.】
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