With cash to burn, China and Mideast eye each other's riches
Monday, 10 September 2007
Simeon Kerr from Dubai
THE head of a Middle Eastern sovereign wealth fund recently admitted to the ambivalence that oil-rich Gulf Arabs feel when considering China: "I know we have to invest, but is anyone really making money there?"
The Middle East is a vital region for energy-parched China, providing nearly 60 per cent of the Asian industrial power's oil needs, mainly from the Gulf.
The excess petrodollars sloshing around the six-country Gulf Co-operation Council (GCC), meanwhile, are seeking new markets and Arab investors realise that more value can be found in the booming markets of Asia than in the US or Europe -- the traditional destinations for petrodollar wealth.
However, "rosy prospects don't necessarily translate into unabated exponential growth", David Eldon, the chairman of the Dubai International Financial Centre (DIFC) and a former HSBC banker, told the China-Middle East Investment Summit in Dubai this week.
While China and the Gulf states are rapidly moving to cement their trade and investment relationships bankers say bilateral investment is not as strong as it could be. Moreover, serious protectionist barriers remain on both sides.
It is clear that the Gulf and China both have surplus cash but economists are not sure how much is flowing between the two regions beyond the $45bn (?33bn, £22bn) in bilateral trade.
As a result of the petrodollar boom, the GCC's net foreign assets have risen by 30 per cent a year over the past four years to reach more than $1,000bn this year, according to Deutsche Bank. China is also moving to invest more aggressively its roughly $1,300bn of foreign exchange reserves.
The DIFC says the Gulf could invest as much as $250bn in Asia -- mainly in China -- over the next five years.
However, bankers doubt such a large amount - the equivalent of a third of the GCC's expected capital outflows - will flow to Asia. Such a radical repositioning of Gulf money would need to surmount several challenges, beginning with the linguistic barrier. While Chinese companies want to invest in energy-related projects, the Gulf's upstream hydrocarbons sector remains largely off-limits to foreign interests.
Mideast wealth managers are seeking to invest in significant Chinese initial public offerings but the market remains protected and is highly prized by other global investors.
"There is increasing Arab interest in the Chinese market -- especially in IPOs -- but they will face stiff competition," said Amanda Lu, Deutsche Bank's managing director for China banking.
In order to turn promise into reality both sides are planning ahead. One character trait that China shares with Dubai is foresight in preparing for the future, says Alex Woodthorpe, a managing director with Merrill Lynch in Hong Kong.
Industrial and Commercial Bank of China, the world's largest bank by market capitalisation, is to open an office in Dubai's financial district as a bridgehead into the region.
Istithmar, a Dubai government investment fund, is to open an office in Shanghai before the year's end. The Qatar Investment Authority (QIA) also seeks to boost the gas-rich Gulf state's investment presence. Kenneth Shen, the QIA's strategyand private equity head, says Gulf portfolio investment in Asia is likely to double over the next five years.
Arab corporate champions, such as the Saudi petrochemicals group Sabic and the Dubai ports operator DP World, are already seeking large-scale investments in China, while some Arab investors are dipping their toes into the Chinese market via property. But foreign direct investment is growing in the opposite direction, too, as China eyes the region's oil.
Nahed Taher, the chief executive of Gulf One Investment Bank, says there is strong Chinese interest in regional infrastructure projects, from oil refineries and petrochemicals joint ventures to power and telecoms projects.
Omar Bitar, a managing partner with Ernst & Young in Saudi Arabia, said: "I sense there is going to be more investment from China into here than from here into China."
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Under syndication arrangement with FE
THE head of a Middle Eastern sovereign wealth fund recently admitted to the ambivalence that oil-rich Gulf Arabs feel when considering China: "I know we have to invest, but is anyone really making money there?"
The Middle East is a vital region for energy-parched China, providing nearly 60 per cent of the Asian industrial power's oil needs, mainly from the Gulf.
The excess petrodollars sloshing around the six-country Gulf Co-operation Council (GCC), meanwhile, are seeking new markets and Arab investors realise that more value can be found in the booming markets of Asia than in the US or Europe -- the traditional destinations for petrodollar wealth.
However, "rosy prospects don't necessarily translate into unabated exponential growth", David Eldon, the chairman of the Dubai International Financial Centre (DIFC) and a former HSBC banker, told the China-Middle East Investment Summit in Dubai this week.
While China and the Gulf states are rapidly moving to cement their trade and investment relationships bankers say bilateral investment is not as strong as it could be. Moreover, serious protectionist barriers remain on both sides.
It is clear that the Gulf and China both have surplus cash but economists are not sure how much is flowing between the two regions beyond the $45bn (?33bn, £22bn) in bilateral trade.
As a result of the petrodollar boom, the GCC's net foreign assets have risen by 30 per cent a year over the past four years to reach more than $1,000bn this year, according to Deutsche Bank. China is also moving to invest more aggressively its roughly $1,300bn of foreign exchange reserves.
The DIFC says the Gulf could invest as much as $250bn in Asia -- mainly in China -- over the next five years.
However, bankers doubt such a large amount - the equivalent of a third of the GCC's expected capital outflows - will flow to Asia. Such a radical repositioning of Gulf money would need to surmount several challenges, beginning with the linguistic barrier. While Chinese companies want to invest in energy-related projects, the Gulf's upstream hydrocarbons sector remains largely off-limits to foreign interests.
Mideast wealth managers are seeking to invest in significant Chinese initial public offerings but the market remains protected and is highly prized by other global investors.
"There is increasing Arab interest in the Chinese market -- especially in IPOs -- but they will face stiff competition," said Amanda Lu, Deutsche Bank's managing director for China banking.
In order to turn promise into reality both sides are planning ahead. One character trait that China shares with Dubai is foresight in preparing for the future, says Alex Woodthorpe, a managing director with Merrill Lynch in Hong Kong.
Industrial and Commercial Bank of China, the world's largest bank by market capitalisation, is to open an office in Dubai's financial district as a bridgehead into the region.
Istithmar, a Dubai government investment fund, is to open an office in Shanghai before the year's end. The Qatar Investment Authority (QIA) also seeks to boost the gas-rich Gulf state's investment presence. Kenneth Shen, the QIA's strategyand private equity head, says Gulf portfolio investment in Asia is likely to double over the next five years.
Arab corporate champions, such as the Saudi petrochemicals group Sabic and the Dubai ports operator DP World, are already seeking large-scale investments in China, while some Arab investors are dipping their toes into the Chinese market via property. But foreign direct investment is growing in the opposite direction, too, as China eyes the region's oil.
Nahed Taher, the chief executive of Gulf One Investment Bank, says there is strong Chinese interest in regional infrastructure projects, from oil refineries and petrochemicals joint ventures to power and telecoms projects.
Omar Bitar, a managing partner with Ernst & Young in Saudi Arabia, said: "I sense there is going to be more investment from China into here than from here into China."
...............................................................
Under syndication arrangement with FE