Can Sino-Arabian business ties replace Sino-American ones?

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WCHINESE HEN and the money men of the Middle East meet, it's usually behind closed doors. Last month, they mingled openly in the lobby of the Hong Kong Stock Exchange, at the “FII “Priority”, an event organized by the Public Investment Fund (FRP), a $780 billion vehicle for Saudi sovereign wealth. This was the first meeting of its kind in East Asia. It won't be the last. THE FRP announced its intention to open an office in China. Mubadala and the Investment Corporation of Dubai, two Emirati sovereign wealth funds, the Qatar Investment Authority and the Kuwait Investment Authority are all reportedly preparing to deploy more capital into the world's second-largest economy. They believe they can achieve this without angering the West, which is increasingly suspicious of China. “We're friendly people, we're friends with everyone,” Jerry Todd, an executive with the group. FRPsaid at the conference in Hong Kong.

Chinese investment firms and the companies they support need friends right now. As Sino-US geopolitics deteriorates, US investment in China has collapsed. Chinese technology companies received $1.2 billion from US venture capital firms in 2022, up from $14 billion in 2018. Mergers and acquisitions (Mr.&A) by American companies in China fell below $9 billion in 2023, compared to $20 billion five years earlier. In the meantime Mr.&A deals by Gulf entities have exploded from almost nothing in 2019 to nearly $9 billion in 2023, according to data from LSEGa financial information company (see graph).

image: The Economist

Last month NIOa Chinese Tesla wannabe, said he received $2.2 billion from CYVN Holdings, a company controlled by the Abu Dhabi government that previously invested more than $1 billion in the electric car maker. THE NEOM The investment fund, part of a pharaonic Saudi project to build a futuristic city in the desert, backed Pony.AI, a partly Chinese developer of autonomous driving technologies. Earlier this year, Saudi Aramco, the kingdom's oil giant, invested $3.6 billion in a Chinese petrochemical refinery called Rongsheng and entered into a joint venture with the FRP and Baosteel, one of China's largest steelmakers, to produce high-quality metal sheets in Saudi Arabia. Chinese Capital risk The companies remain tight-lipped in public about their backers, but privately confirm that over the past two years, interest from Middle Eastern companies has increased.

Technological talent, which the Gulf lacks but which China abounds, is flowing in the other direction. The Shenzhen Campus of the Chinese University of Hong Kong and the Shenzhen Big Data Research Institute support the King Abdullah University of Science and Technology of Saudi Arabia (KAUST) create an artificial intelligence model to power an Arabic-language chatbot called AceGoogle Tag. About one in five KAUSTThe University's students and one in three postdoctoral researchers are Chinese.

The emerging China-Arab relationship will not replace the declining China-US relationship. Dubai and Riyadh cannot match the depth of expertise in Silicon Valley and New York's financial markets. Gulf wealth funds mostly issue checks for a few hundred million dollars, while Americans also back early-stage startups that need a few million. And for the Gulf, America remains a vital partner. In December, an Emirati AI startup called g42, whose backers include Mubadala and Silver Lake, a U.S. investor, said it would cut ties with Chinese companies rather than lose access to U.S. technology. “We cannot work with both parties,” its general manager, Xiao Peng, told the Financial Times. So much for being friends with everyone.

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