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Chinese local governments are wooing Middle Eastern and Asian sovereign wealth funds as they struggle to raise money at home to stimulate economic development after the pandemic.
Local government officials have held high-level meetings with the Qatar Investment Authority, subsidiaries of Saudi Arabia’s Public Investment Fund and the Abu Dhabi Investment Authority, according to wealth fund officials, business executives and Chinese local government officials briefed on and involved in the discussions.
Other Asian state investors, including Singapore’s GIC, have also fielded approaches about opportunities.
The meetings underscore the deepening economic and diplomatic ties between China and the Middle East, a region that has traditionally been a US sphere of influence. They also come as global investors attempt to secure Middle Eastern cash, with Gulf nations flush with petrodollars after last year’s oil boom.
“They [sovereign wealth funds] are keen to invest more in China and we need to bring in more investors,” said a senior official in southern China. “It’s an easy fit.”
The cities of Shenzhen, Guangzhou and Chengdu as well as the province of Sichuan and other local governments have set up funds this year to raise money for investment in areas prioritised by Beijing, including semiconductors, biotechnology, new energy, high-tech manufacturing and infrastructure.
Many are seeking international investment for the first time and have ambitious targets. The Guangzhou government wants to raise Rmb200bn ($29bn). Shenzhen in January set up the first Middle East-China co-operation fund with Saudi Arabia’s PIF, with a value of $1bn.
The senior official said several representatives from local governments, including Shenzhen and Guangzhou, have in recent months approached Middle Eastern funds to bolster investment in biotech, new energy and the infrastructure and construction industries.
China’s more than 2,000 government-guided funds control Rmb4.3tn in the mainland, as of last October, according to Zero2IPO. Many of the newer funds have struggled to raise private capital in the wake of the pandemic.
The funds’ traditional private equity backers have been unable or unwilling to back local industries and development, officials said. Many investors see them as too risky, they added. The central government meanwhile has indicated it will no longer bail out local governments, which were hit by zero-Covid policies and are under pressure from a liquidity crunch in the property sector.
“The financial situation of local governments has become so bad due to the Covid controls and the economic downturn that we cannot even pay the civil servants’ salaries,” said another official in China.
“How can we find the cash to invest in local industries? But if the government doesn’t invest, this economy will keep going down, so the willingness of sovereign funds to invest is something we have never taken more seriously.”
A western provincial official said he had travelled with companies to Saudi Arabia, Qatar and Singapore to talk to representatives of sovereign wealth funds interested in Chinese technology companies.
The QIA set up a Singapore office in 2021 as part of an effort to increase exposure to Asian markets. The fund appointed a China head based in Singapore last year.
“They used to invest mainly in large private equity institutions as limited partners, and now they are trying to invest in China projects directly,” said the Sichuan official, adding that many of the projects were still under discussion. “Right now on the tech side, they are still focused on mature technology, and we hope to help local tech start-ups secure new funding.”
The QIA, ADIA, PIF and GIC declined to comment. Local administrations in Chengdu, Shenzhen and Guangzhou did not respond to requests for comment.
Additional reporting by Thomas Hale in Shanghai, Xinning Liu in Beijing and Andrew England in London
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