Why GCC Investors Are Under-invested in China?

In the Middle East, most students learn at an early age about the Silk Road through the stories of Ibn Battuta, one of history’s most prolific travelers. Ibn Battuta was a Moroccan explorer who arrived in China more than 800 years ago – before the collapse of the Mongols and way before even Marco Polo shaped the West’s views of the East. He famously said, “China is the safest and most agreeable country in the world for the traveler. You can travel all alone across the land for nine months without fear, even if you are carrying much wealth.” In most Muslim homes, parents will advise their children to pursue knowledge by quoting one of the Hadiths from the seventh century: “Seek knowledge as far as China.” In the time of the Prophet Muhammad (PBUH), China was at its zenith of knowledge and glory. These sayings both convey that China was considered the embodiment of “trust” and “knowledge”. 

Ibn Battuta’s statue at the Islamic Cultural Centre in Quanzhou

However, today the situation is very different. Given China is the biggest trading partner to the GCC countries, it’s shocking how little investment the Gulf countries have made. Investments are significantly under-allocated. In fact, they are marginal compared to investments in the US, which had twenty times more investment. Most family offices don’t have any allocation and we have seen institutions with more than $30bn AUM that still don’t have any allocations. 

In contrast to the historical perception of China, the most common explanation for this lack of investment is a lack of “trust” and limited “knowledge” of the investment landscape. In today’s increasingly bifurcated U.S.-China world, in which China has emerged and regained its technological prowess, key financial institutions in GCC (e.g., Investcorp), Sovereign Wealth Funds (e.g., OIA, ADIA, QIA, KIA, and PIF), and many sophisticated family offices have opened an office or announced increased allocation and a commitment to invest more. These institutions not only look at China just as a diversification play but represent an immense opportunity to support the long-term vision of the GCC countries in localizing innovation and growing the tech ecosystem. 

A good example that demonstrates this shift is Prospeprity7, the $1bn corporate venture arm of Aramco with offices in China and the US. Their investment portfolio is almost equally split between US and China. There are strong merits to this strategy as there are clear SINO MENA synergies across many growing industries GCC countries have identified as the sectors of the future: smart cities, artificial intelligence, renewables, and other technology-oriented industries. These sectors tend to be driven by technologies in which China has an increased competitive edge and where Chinese tech champions are seeking growth through internationalization. With the US market and Europe becoming increasingly difficult for Chinese companies to expand into coupled with the obstacles to penetrating Southeast Asia (e.g., India) which is mostly dominated by its local tech champions, the GCC market, and MENA more generally, has become an attractive alternative.

The current reality is that the bridge of trust and knowledge between the Gulf countries and China is still very narrow. Despite India having a much smaller VC ecosystem than China, which is second only to the US, GCC investors still favor India over China as an investment destination. Certainly, one of the key factors influencing that choice is the strong connectivity to India through a large sophisticated Indian investment community diaspora living in the Middle East. In my experience, it is still quite rare to see Chinese investment professionals in leading roles with GCC-based investment institutions or family offices. While attending the Future Investment Initiative (FII) conference held in Saudi last year with more than 3000 international investment delegates, I was astonished by the lack of representation from China on the various investment panels and in the audience.

Therefore, for good bilateral geopolitical relationships to translate to strong economic connectivity that goes beyond energy trading and infrastructure building, new modern “Ibn Battuta stories” need to be forged from GCC investors’ good investment experiences with China and technology know-how adapted from China can make a significant impact locally.

Ben Jelloun is the Founding and Managing Partner of GCCVest. He has over 18 years of global M&A experience and previously led the China PE Deal Strategy team for KPMG Global Strategy Group. Ben worked as an investment banker in Dubai and was a fund manager with a global investment house in Kuwait.

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