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Gulf Sovereign Wealth Funds Shift Focus to China for Investments.

Currently, Arab Gulf sovereign wealth funds, worth over US$ 4 trillion are looking for more productive investments beside their traditional investments in U.S., British, and EU financial / banking, and real estate markets that are not so secure or productive. China and the BRI are proving to be the new destinations. This process takes three forms: 1) Investments in promising Chinese industries in mainland China; 2) Investments in infrastructure and industries jointly with China in the Arab countries themselves, 3) Investments in BRI projects in Africa and Asia.

 

This month, a UAE wealth funds invested US$ 3 billion in shares of Chinese electric vehicle companies. Whilst Saudi Arabia has invested upward of US$ 10 billion in Chinese petrochemical industries over the past two years. Saudi Arabia has even a more ambitious plan of relocating Chinese electric vehicle production, petrochemical industries etc. to Saudi Arabia such as in the Jizan Port Industrial City. Saudi Arbia is intending to expand its economic impact into neighbouring countries and into Africa. Several financial cooperation and local currency transaction mechanisms cooperation agreements were signed recently with Chinese counterparts. Nations in the Global South are scouting to figure out where the future of their economy should be.

 

EV’s

Abu Dhabi sovereign wealth ADQ is backing a US$3 billion investment of the Emirate’s Department of Finance into Chinese electric vehicle producer NIO, which is among the world’s top five EV producers.

 

The fund has channelled capital through CYVN Holdings, which appears to be a state-owned investor in its own right. With ADQ’s financial support, CYVN will own a 20.1% stake in the carmaker. It invested US$0.74 billion in July with a further US$2.2 billion this month.

 

ADQ’s commitment dwarfs PIF’s initial US$1 billion investment into Lucid Motors, which it has continued to pump with capital in order to advance its bid to rival Tesla. It is also an example of Gulf funds remaining invested in the Chinese economy when European and North American counterparts have largely deserted due to geopolitical risks associated with the ongoing rift between Beijing and Washington.

 

 

Like other EV producers, NIO is lossmaking but is also falling short of sales targets; in January-November its sales volume was 43% below the 250,000 target for the full-year, prompting it to restructure operations and retrench some of its workforce.

 

The investment comes amid a push by Beijing to stimulate the production of electric vehicles, as well as the development of new energy and smart-connected autos in a package reportedly valued at over US$70 billion in tax breaks over the next four years. To continue to support the electrification of China's vehicle fleet, the government is expanding the EV charging network, promoting low-carbon fuels and power trains, and expanding cooperation and trade with export markets. Local governments are also subsidising vehicle purchases and self-use charging facilities to support the industry. In November, Bloomberg reported that Chinese authorities were preparing to relax capital requirements for firms and signalled support for more acquisitions. Chinese security regulators are looking to ease risk controls by lowering the capital requirements for some assets to allow brokerages to put more of their reserves to use.

 

While ADQ is investing in Chinese EV production, PIF’s focus is on building its own EV empire with Lucid set to establish a Saudi plant and the fund launching its own indigenous EV carmaker, Ceer, in a joint venture with Taiwan-based Foxconn that will start production in 2025. PIF and the Saudi government are developing the EV value chain with investments in mining, metals and components.

 

It is unlikely that Abu Dhabi will seek NIO establishing operations in the Emirate, or utilizing it to spur domestic industrial supply chains. Abu Dhabi’s development goals, the role of SWFs and the path to achieving economic diversification are distinct from Saudi Arabia.

 

Petrochemicals

Saudi Aramco (2222.SE) raised its multi-billion dollar investment in China by finalising and upgrading a planned joint venture in northeast China and acquiring an expanded stake in a privately controlled petrochemical group.

 

The two deals, announced separately, would see Aramco supplying the two Chinese companies with a combined 690,000 barrels a day of crude oil, bolstering its rank as China's top provider of the commodity.

 

Aramco has agreed to acquire a 10% stake in privately controlled Rongsheng Petrochemical Co Ltd for about $3.6 billion. The deal includes the supply of 480,000 bpd of crude oil to Rongsheng-controlled Zhejiang Petrochemical Corp (ZPC) for 20 years, Aramco added. It follows a preliminary agreement Aramco reached with the Zhejiang provincial government in 2018 for a 9% stake in ZPC.

 

 

The deals are the biggest to be announced since Chinese President Xi Jinping visited the kingdom in December where he called for oil trade in yuan, a move that would weaken the U.S. dollar's dominance in global trade.

 

The Rongsheng deal comes on the heels of Aramco's agreement with Chinese partners on Sunday for an oil refinery and petrochemical project in the northeast Chinese province of Liaoning that is expected to start in 2026 to meet the country's growing demand for fuel and chemicals.

 

The Liaoning project, in the city of Panjin, will be Aramco's second major refining-petrochemical investment in China and follows the world's top oil exporter reporting a record profit of $161 billion in 2022.

 

Joint venture Huajin Aramco Petrochemical Company (HAPCO) will build and operate the Panjin complex that will house a 300,000 barrels per day (bpd) oil refinery and a cracker with annual production capacity of 1.65 million tonnes of ethylene and 2 million tonnes of paraxylene, Aramco said in a statement.

 

Aramco's investments highlight Riyadh's deepening ties with Beijing which have raised security concerns in Washington, Riyadh's traditional ally whilst showing growing competition between Saudi Arabia and its ally Russia in crude supplies to China.

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