China look to Middle East for investment

Chinese local governments are reaching out to sovereign wealth funds in Asia and the Middle East as they struggle to raise funds to stimulate economic development in the aftermath of the pandemic. Officials from local governments have held high-level meetings with wealth fund executives from the Qatar Investment Authority, Saudi Arabia’s Public Investment Fund, Abu Dhabi Investment Authority and Singapore’s GIC. The meetings are indicative of the increasingly strong economic and diplomatic ties between China and the Middle East, a region that has traditionally been under US influence.

The local governments of Shenzhen, Guangzhou, Chengdu, Sichuan province and others have set up funds to raise money for investment in areas that Beijing has prioritised, including biotechnology, semiconductors, new energy, infrastructure and high-tech manufacturing. These local governments are seeking international investment for the first time and are aiming to attract more investment from sovereign wealth funds. For instance, the Guangzhou government is targeting to raise RMB 200bn ($29bn), while Shenzhen has set up a Middle East-China co-operation fund worth $1bn with Saudi Arabia’s PIF.

More than 2,000 government-guided funds control RMB 4.3tn in the Chinese mainland, but many of the newer funds have found it challenging to raise private capital following the pandemic. Traditional private equity investors have been unable or unwilling to back local industries and development. The central government has also made it clear that it will not be bailing out local governments that have been hit hard by the pandemic and liquidity crunch in the property sector.

The situation has led local governments to explore international investment options, with sovereign wealth funds representing a viable option. While many of the projects are still under discussion, the local officials hope that they will be able to help local tech start-ups secure new funding.

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