Chinese venture capitalists seek funding from the Middle East in U.S. dollar currency

China’s venture capitalists are diversifying their investor base, moving away from reliance on U.S. investors and embracing Middle Eastern money. Recent China-Middle East conferences and business visits indicate a growing trend in international capital flows. According to sources at three Chinese firms, many Middle East investors have engaged in discussions with Chinese venture capital funds in the past year. While the Middle East investment is not replacing U.S. investment entirely, it is projected to account for approximately 20% of all U.S. dollar funding by Chinese venture capitalists.

Middle East investors are actively seeking opportunities in China and are investing modestly to explore potential sectors such as frontier tech, new consumer trends, and biotech.

The increasing interest from Middle East investors in Chinese venture capital funds can be attributed to various factors such as warmer diplomatic relations between China and the Middle East after the restoration of diplomatic ties between Saudi Arabia and Iran, negotiations facilitated by Beijing. Additionally, tensions between the United States and China, coupled with heightened regulatory scrutiny in both countries, have caused many U.S.-based investors to postpone investments in Chinese venture capital funds. This has created an opportunity for Middle East capital to fill the gap, particularly as countries like Saudi Arabia and Qatar aim to diversify their economies beyond fossil fuels.

It should be noted that while discussions for potential investments have taken place, many of these investments are still in the negotiation stage.

According to data from Preqin, an alternative assets research firm, Middle East investors’ allocation to North American assets remained higher than their allocation to Asia-Pacific assets as of February 2022. However, there has been a notable increase in Middle East sovereign wealth funds’ investment in alternative assets worldwide, which roughly doubled between 2021 and the first half of 2022. The eight largest Middle East sovereign wealth funds collectively possess over $3 trillion in total assets, further emphasizing their significant financial influence.

Saudi Minister of Investment Khalid Al-Falih highlighted the evolving relationship between Saudi Arabia and China, describing it as a “core investment relationship” beyond mere trade. In addition to Saudi investments in oil refining and petrochemicals in China, the kingdom’s sovereign wealth fund, the Public Investment Fund (PIF), has also made significant technology investments in China. With approximately $700 billion in assets under its management, PIF’s specific allocation towards China remains undisclosed.

Aysar Tayeb, Executive Managing Director at Prosperity7, emphasized the significance of the Chinese market, particularly in the trucking industry. China’s robust market offers more scalability for companies focused on safe, autonomous trucking compared to other regions. Tayeb stated that Prosperity7 has invested in approximately 30 startups, with an equal split between U.S.-based and China-based companies. Despite a temporary slowdown due to the Covid-19 pandemic, there has been a recent increase in activity in the Chinese market. Abu Dhabi has also hosted conferences targeting Chinese entrepreneurs, indicating a growing interest in expanding business ties.

Massimo Falcioni, Secretary General and Vice President of the Business Council of Dubai, emphasized the importance of partnering with China in implementing the UAE’s successful transformation. Middle East governments, including those of Saudi Arabia and Dubai, have announced plans to allocate significant resources towards reshaping their economies. Chinese companies, known for their expertise in infrastructure and manufacturing, offer valuable opportunities for collaboration. Gulf Ferry Management Consultancies, which assists Chinese clients in raising capital, has witnessed a rapid rise in interest from Chinese firms looking to establish a presence in the Arab region and eventually list on the Nasdaq.

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It is anticipated that the participation of Chinese investors will increase following the conferences and the growing number of investment fund and asset management companies from China entering the UAE. Chinese technology and business expertise

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