China’s venture capitalists are looking to the Middle East for a lifeline in terms of US dollars.

BEIJING (Xinhua) — Previously reliant on US investors, Chinese venture capitalists are increasingly courting Middle Eastern cash.

A recent rush of China-Middle East conferences and business trips indicates what is likely to be an increasing trend in international financial flows.

According to sources at three Chinese businesses with US dollar-denominated assets, many Middle Eastern investors have considered transactions with Chinese venture capital funds in the recent year. They requested anonymity since they are not authorized to discuss the fundraising conversations publicly.

Although the money will not totally replace US investment, one source estimates that it will account for around 20% of all US dollar investments by Chinese VCs.

Middle Eastern investors are actively hunting for China prospects, then investing on a modest scale to test the waters, according to a source who spoke to CNBC this week, citing frontier technology, new consumer trends, and biotech as major fields of interest.

A convergence of diplomatic, financial, and economic trends is bolstering the investment trend.

China’s relations with the Middle East have improved since Saudi Arabia and Iran reestablished diplomatic relations earlier this year, thanks to talks facilitated by Beijing.

Meanwhile, tensions between the United States and China have simmered.

Because of these tensions and greater regulatory scrutiny in both countries, many US-based investors have refrained from investing in Chinese venture capital firms. Those funds were often denominated in US dollars, and the businesses that were invested in went on to list on US stock markets.

Middle Eastern finance is eager to invest, particularly as governments such as Saudi Arabia and Qatar seek to diversify away from reliance on fossil fuels.

Many possible investments in Chinese funds, however, are still being discussed, according to venture capital funds.

Trillions of dollars in assets
According to Preqin, an alternative assets research agency, as of February 2022, Middle East investors’ allocation to North American assets was still clearly greater than those to Asia-Pacific assets. Venture capital, but not publicly traded stocks and bonds, are examples of alternative assets.

That exposure is increasing.

According to Preqin statistics, the percentage of Middle East sovereign wealth funds’ global investment in alternative assets approximately quadrupled between 2021 and the first half of 2022.

According to the most recent Preqin estimates, the eight largest Middle East sovereign wealth funds had more than $3 trillion in total assets as of last year.

Saudi Arabia’s relationships with China are evolving from a “trade relationship” to a “core investment relationship,” Saudi Minister of Investment Khalid Al-Falih told CNBC’s Dan Murphy this week.

Al-Falih mentioned investments in technology by the kingdom’s sovereign wealth fund, the Public Investment Fund, and private sector enterprises, in addition to Saudi investment in oil refining and petrochemicals in China.

According to its website, PIF manages over $700 billion in assets. The fund did not respond to an inquiry on the proportion of its China interests.

Investing in automobile technologies
Al-Falih spoke at the Arab-China Business Conference in Riyadh, Saudi Arabia.

Saudi Arabia announced a $5.6 billion contract with the Chinese parent company of high-end electric car maker HiPhi at the conference.

Prosperity7 Ventures, which is funded by Aramco, stated in late May that it had invested “tens of millions” of yuan in Hyperview, a Shanghai-based assisted driving technology business.

China is a significant source of technology and business. Collaboration with China is one of the primary drivers of the UAE’s successful transition.

“It was clear that trucking is bigger in China than anywhere else.” If a business succeeds in developing safe, self-driving trucks, the odds of it expanding in China are better than in other areas,” said Aysar Tayeb, executive managing director of Prosperity7.

Tayeb said in a phone interview earlier this month that Prosperity7′s investments in around 30 businesses are nearly evenly split between firms operating in the United States and those based in China.

“We’re definitely seeing more activity in China,” he added, saying that transaction flow in China had been “a little bit slower” in the previous two years owing to the Covid-19 outbreak.

Abu Dhabi organized conferences aimed exclusively at Chinese businesspeople in May.

Local officials claimed in May that they welcomed China’s “top 50 unicorns” — businesses worth more than $1 billion — and inaugurated the “Arab China Unicorn Investment Conclave,” according to a UAE state-media announcement.

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“After the conference, it will increase the participation of investors from China,” said Massimo Falcioni, secretary general and vice president of the Business Council of Dubai. He stated that more investment funds and asset management firms were coming to the UAE from China.

“China is a major source of technology, as well as a major source of business,” he remarked. “Partnership with China is one of the key drivers of the UAE’s successful transformation.”

Middle Eastern governments, whether in Saudi Arabia or Dubai, have stated intentions in recent years to invest extensively in reforming their economies in preparation for future development.

According to Niol Ma, a Chinese native who has lived in Dubai for almost 20 years, Chinese enterprises have essential infrastructure and industrial know-how.

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Regional interest in doing business with China has developed so quickly, according to Ma, that his company, Gulf Ferry Management Consultancies, has gone from having no clients in 2021 to meeting with more than 100 prospective customers in the last year. Ma claims that his company has already assisted those Chinese clients in raising more than $350 million.

He stated that the objective for a lot of Chinese clients is to repackage themselves as local firms in the Arab area capable of eventually listing on the Nasdaq.


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